Analysis: Government budgets looked terrible when COVID-19 started. A federal windfall has flipped the outlook.

By Ross Ramsey

Last summer, finance experts for the state of Texas and its cities and counties were anxiously looking at a sagging economy, higher demand for some government services during the pandemic, and potential shortfalls in their own budgets.

That’s behind them now: With the passage of the latest federal COVID-19 legislation, those governments are now looking at windfalls they couldn’t imagine a few months ago. And most of their current budget problems are over.

The bad news started just under a year ago. After a few weeks of the “novel coronavirus” in Texas, Comptroller Glenn Hegar said the state was going into a recession. He told lawmakers to get ready for a stream of terrible economic news. He wouldn’t put a number to it, right at first, other than to say the state government would come up “several billion dollars” short of what had been forecast in the vibrant Texas economy of pre-pandemic days.

By midsummer of last year, Hegar had seen enough to say that the current budget, which runs through the end of August 2021, appeared to be $4.6 billion out of balance. Lawmakers returning for the 2021 regular session, he said, should be ready to either cut that much spending out of the current budget or ready to find some new source of money big enough to cover the shortfall.

Worse, he expected those economic clouds to persist into the next two-year budget cycle — the period for which the current Legislature is writing a spending plan.

It was bleak news topped by bleaker news.

And now, it’s as if it never happened.

The economy began improving earlier than Hegar and others had expected. By the time the Legislature was ready to start work in January, Hegar offered a much less gloomy forecast: He expected the shortfall in the current budget to be under $1 billion — real money, but not a big hit in a quarter-trillion-dollar state budget.

One of the big-ticket items that had been expected to cause problems — Medicaid — benefited from an increase in federal matching funds. The economy was improving. Vaccines had been developed, and though demand still far outstrips supply, that news generated a wave of optimism.

And now, the federal government, which has already poured billions of dollars into pandemic-triggered health and economic relief, is adding $1.9 trillion more. The package includes roughly $17 billion for local and state governments in Texas.

And just like that, we’re out of the financial woods. The state that was expecting a $4.6 billion shortfall in the current budget, and an even larger problem with the two-year budget that follows, now appears to have more money available than it was planning to spend.

Before this fable reaches the happily-ever-after mood, it’s worth talking about history and about caveats. In fact, as soon as Texas lawmakers get a good look at the numbers, they’ll be busy managing expectations, telling people with new ways to spend state money to go soak their heads. It’s one-time money, for one thing — not a promise that the feds will be back with another sack of cash when this one is empty.

And the older legislators will recall the global financial crisis that preceded the state’s 2009 legislative session. The Troubled Asset Relief Program, or TARP, was the federal relief package of the day, and the money pumped into the state balanced the two-year budget lawmakers were writing that year. Without it, they’d have been involved in deep spending cuts.

It seemed the worst was past. But the federal money ran out before the recovery got to Texas, and dire economic projections led the next Legislature, in 2011, to make huge cuts in state spending, including cuts to public education spending that loomed over the next four election cycles in Texas. The economic trends are different now, but you’ll probably hear the cautionary history again — especially when someone gets too excited about spending that federal money.

The Texas Legislature’s budget worries have lightened considerably since the grim forecasts of last spring and summer.

But state lawmakers still have a list of things to fret over, starting with COVID-19, an energy grid that came to pieces when the state needed it most, and high-profile debates over elections, voting, police brutality, and funding. But the budget that many expected to lead the list will now be a lot less painful to write.

It won’t last forever, the way it does in the fairy tales, but that’s pretty happy news.

This story originally published by the Texas Tribune.