LEGISLATIVE BUDGET BOARD

Austin, Texas

FISCAL NOTE, 83RD LEGISLATIVE REGULAR SESSION

April 9, 2013

TO:	Honorable Jim Pitts, Chair, House Committee on Appropriations
FROM:	Ursula Parks, Director, Legislative Budget Board
IN RE:	HB3579 by Strama (Relating to investment of the economic stabilization fund.), As Introduced

Depending on the types of investments made by the Comptroller under provisions of the bill, as well as future financial market conditions, there could be an indeterminate revenue gain or loss to the Economic Stabilization Fund.

This bill would amend Subchapter C, Chapter 404, Government Code by adding Section 404.0241 relating to the investment of the Economic Stabilization Fund (ESF).  Under provisions of this bill, the Comptroller would invest any ESF balance above $3 billion in accordance with requirements of Section 404.024(j) of the Government Code. Due to withdrawals from the fund, the Comptroller would adjust investments undertaken in accordance with Sections 404.024(j) in a prudent manner in order to redirect investments in accordance with Sections 404.024(a) through (i) and (k) through (n).

Under provisions of this bill, the Comptroller would be authorized to invest money in certain assets other than those currently utilized. Since the exact manner of prudent investment (404.024(j)) is unknown, it is possible that balances so invested would not be in cash form in the state Treasury. While part of the ESF, the invested balance, possibly in assets with terms longer than those used today, would not be shown as a cash balance of the fund in the Comptroller's Annual Cash Report, Biennial Revenue Estimate,or other reports that are presented on a cash basis. ESF resources, whether in cash or invested in other instruments, would continue to be available for appropriation through the appropriation process. As a note, placing balances from the fund into higher yielding instruments does, by necessity, incur greater risk. Additionally, the use of assets with long terms will decrease the ease by which the funds may be accessed in case of need. The provisions of the bill would result in a loss of interest earnings on the cash balance estimated in 2014-15 Biennial Revenue Estimatebut this loss, if the affected balance were to be invested in higher yielding instruments, would be offset.

This bill would take effect immediately upon enactment, assuming that it received the requisite two-thirds majority votes in both houses of the Legislature. Otherwise, it would take effect September 1, 2013.

Local Government Impact

No fiscal implication to units of local government is anticipated.

Source Agencies:

304 Comptroller of Public Accounts

LBB Staff:

UP, KK, SD