Kate Alexander | The Austin American-Statesman

The Texas economy seems to have turned a corner, but the improvement will not be enough for the state to avoid a significant shortfall in the next budget, state officials said Monday.

Sales tax collections are slowly picking up as more jobs are added in Texas, said John Heleman , the Texas comptroller’s chief revenue estimator.

In February, the state’s sales tax collections were down 8.8 percent compared with the same month a year earlier. Though still in the red, the February figure looked better than the previous months’ double-digit decreases that have put the state 13 percent behind last year’s collections six months into the budget year.

“One month certainly doesn’t make a trend, but it is encouraging to see that we are beginning to move in the right direction,” said Heleman, who added that he expects to see sales tax growth starting this summer.

The state’s sales tax revenue collection is a key indicator of Texas’ fiscal health because that money fills more than half of the state’s general revenue fund, which pays for expenses such as education, health care and prisons.

Even so, the state’s budget shortfall is expected to be about $11 billion at a minimum and could reach as high as $15 billion, John O’Brien, the executive director of the Legislative Budget Board, told the House Appropriations Committee.

The low-end figure reflects past legislative decisions to put off paying for certain costs until later, such as the 2006 school property tax cuts, and the use of $6.4 billion in federal stimulus money to pay for ongoing expenses typically paid for by state money.

That stimulus money is not expected to be available for the 2012-13 budget, which lawmakers will write next year, so they will need to find additional money, cut expenses or tap into the $8.2 billion rainy day fund.

“I don’t think that we have any choice” but to use the rainy day fund, said state Rep. Carl Isett, R-Lubbock.

Isett said Texas is in a better position to deal with the upcoming shortfall than it was in 2003, when faced with a sudden $10 billion budget gap. The shortfall is a smaller part of today’s $182 billion budget, and the rainy day fund is much plumper.

O’Brien’s upper estimate includes additional needs in the current two-year budget, such as higher-than-expected employee health care costs and Medicaid caseloads that are far exceeding projections.

Health and Human Services Commissioner Tom Suehs told lawmakers that his agencies will need $1.6 billion to cover the rising number of low-income people qualifying for health care coverage and cash assistance as well as increasing numbers of children in foster care.

At the same time, agencies submitted budget reduction plans that total $1.7 billion in possible savings in response to a mandate from Gov. Rick Perry and legislative leaders. Some major programs were exempted from the mandate, and some agencies such as the Department of Criminal Justice have asked for similar exemptions. A decision will be made within six weeks as to what reductions will be necessary, O’Brien said.

kalexander@statesman.com; 445-3618