FILE - Downtown Houston Texas flag

The U.S. flag and Texas state flag fly in downtown Houston.

Texas is among state governments whose rainy day funds are at their highest levels since before the Great Recession, according to analyses by the National Association of State Budget Officers (NASBO) and The Pew Charitable Trusts.

Texas modified its investment rules to get a greater earnings return from its Rainy Day Fund balance, Pew notes, which sets its financial position slightly better than other states that are still recovering from the Great Recession.

“States are being more deliberate about their savings, often harnessing the ebbs and flows of the business cycle to guide their strategy,” according to a recent report on recession readiness.

“Overall rainy day fund balances have never been higher,” according to NASBO. The association evaluated data from the spring survey of state fiscal conditions, which notes that states’ fiscal conditions may be better than the survey conclusion because the survey was finalized before some states budgeted additional deposits.

Higher-than-expected revenue growth left several states with budget surpluses at the end of fiscal 2018 stemming from the 2017 Tax Cuts and Jobs Act.

“Anticipating some of those gains may be temporary or one-time in nature, some invested a portion of the extra cash in their rainy day funds; a few added to their savings accounts for the first time in years,” the Pew Charitable Trusts states.

“Texas finds itself in relatively strong position in terms of recession preparedness," Steve Bailey, manager on the state fiscal health project at The Pew Charitable Trusts, told The Center Square. "Its rainy day fund is one of the largest in the nation relative to state spending, driven in large part by a volatility-based saving rule, which sets aside a portion of oil and gas production tax revenue that exceed 1987 levels to the Economic Stabilization Fund.”

“Saving enough for a recession is especially important for a state such as Texas, which experiences a higher degree of revenue fluctuations than most states, meaning tax collections could drop more severely than other states during a downturn,” Bailey adds.

According to Pew’s Lost Decade analysis, Texas’ overall state spending percentage change after adjusting for inflation was five times higher than the national 50-state level over the same decade. From fiscal 2008 to fiscal 2018, Texas’ spending percentage change increased by 21 percent compared to the 50-state level of 4 percent.

Texas’ rainy day fund amount as a share of state spending was 19.7 percent at the end of fiscal 2018, compared to the 50-state median of 6.4 percent.

Not all of Texas’ financial spending was greater than the national 50-state level, Pew notes.

Spending on higher education for each full-time-equivalent student after adjusting for inflation decreased by 23 percent over 10 years (fiscal 2008 to 2018). Texas’ education spending was nearly double the national, 50-state level decrease of 13 percent.

Texas state funding also decreased by 8 percent for its K-12 education state revenue per pupil after adjusting for inflation for the academic years 2008-2016. The 50-state level saw a 2 percent decrease.

Texas’ budget is also hamstrung by dedicated funds automatically directed to Medicaid payments. Spending percentage change as a share of own-source revenue from 2000 to 2016 increased 10.5 percent, representing the third-highest increase over that period, according to Pew. The U.S. average change was an increase of 4.9 percent.

Second only to K-12 education in terms of state spending, if no reforms are implemented and spending continues as is, Medicaid will take up a greater share of resources over time, according to the Pew analysis.