As TERP fund grows, deposits set to expire in 2019

During the 86th regular session of the Texas Legislature, lawmakers may consider changes to how the state handles funds that are collected for certain programs but that go unused for those purposes. Appropriations of funds collected for one of these programs, the Texas Emissions Reduction Plan (TERP), decreased for fiscal 2018-19, resulting in growth in the balance of the program’s dedicated revenue account. This has raised questions about how dedicated state revenue for the program should be used in the future.

The fiscal 2018-19 budget appropriated a total of $744.1 million to the Texas Commission on Environmental Quality (TCEQ), a decrease of $165.2 million, or about 18.2 percent, from fiscal 2016-17 spending levels. Most of the change was due to a $50.5 million decrease in appropriations for the TERP program and to the defunding of the Low-Income Vehicle Repair, Retrofit, and Accelerated Vehicle Retirement Program (LIRAP).

TERP, which provides financial incentives to reduce emissions from mobile sources, such as grant programs to replace diesel-powered vehicles, was appropriated $154.7 million in dedicated funds for the current biennium, a decrease of 24.6 percent from fiscal 2016-17. TCEQ has requested the same program funding for fiscal 2020-21.

At the beginning of fiscal 2018, the TERP account had a balance of more than $1.4 billion. The fund receives some motor vehicle taxes, certificate of title fees, and vehicle registration and inspection fees.  

Fees and surcharges collected for the TERP account regularly exceed $230 million a year, about three times the amount currently allocated to TERP programs. The surplus has been used to certify the state budget in recent biennia. The comptroller used $1.7 billion in TERP funds to certify the fiscal 2018-19 budget, and for fiscal 2016-17$1.2 billion from the account was used for certification. The House Appropriations Committee was charged this interim with reviewing TERP appropriations and the TERP fund balance and revenue sources.

Established by the 77th Legislature in 2001, TERP was created to incentivize the reduction of nitrogen oxides (NOx) from mobile sources, including vehicles and machinery, in areas of the state that do not meet national standards for air quality and ground-level ozone. Areas that are found to be out of compliance can be penalized in a number of ways, such as by losing federal highway funds or experiencing higher industry permitting costs, according to TCEQ. A 2015 report funded by a TCEQ grant estimated the potential cost for the Austin area if it failed to meet air quality standards to be as high as $41 billion.

TERP was set to expire on August 31, 2019, but SB 1731 by Birdwell, enacted by the 85th Legislature in 2017, extended it to the end of the biennium in which Texas attains the national ambient air quality standards for ground-level ozone. The bill established new grant programs and revised eligibility requirements for existing ones. SB 1731 also expanded the list of items that must be funded under TERP, changed how money from the TERP fund appropriated to TCEQ must initially be allocated, and revised the way funds may be moved between grant programs in response to demand.

Although the TERP program was extended, the funding mechanisms that direct revenue toward the account are set to expire at the end of fiscal 2019. Some revenue sources will continue but be directed to other agencies. For example, the Texas Department of Transportation will continue to collect Motor Vehicle Certificate of Title fees, but equivalent transfers of those funds to the TERP account will end.

The House Appropriations Committee met in May 2018 to discuss the TERP program and fund. The 86th Legislature may discuss several uses of and changes to the program’s funding in 2019, including allocating more of the funds collected for the program to TCEQ, extending the funding mechanisms that direct revenue to the TERP account beyond the end of fiscal 2019, or redirecting TERP funds to other  budget items.

By Kaulie Lewis

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