State weighs expenditures with large budget surplus

GUEST COMMENTARY

RAHUL SREENIVASAN

TEXAS 2036

Texas Comptroller Glenn Hegar last week announced that he expects $194.6 billion of state revenue to be available for general-purpose spending in the fiscal 202627 biennium.

This biennial revenue estimate is an important step in the continuous two-year state budget process and gives initial funding parameters to House and Senate budget writers for the legislative session now underway.

Here are some initial takeaways on what the numbers could mean for Texas:

Expected fund balance and steady revenue collections drive projections The $ 194.6 billion in available revenue is, for the second straight budget cycle, substantially boosted by a fund balance, or “budget surplus,” of $23.8 billion carried over from the previous biennium.

A fund balance of this magnitude is possible due in part to a combination of supplemental COVID-related federal aid as well as legislators’ discipline in allocating resources for maintaining state government operations that leaves a sizable portion of the increased revenue from the current and previous budget cycles.

Also, Texas’ consistently robust economy has driven growth in recent years in the largest source of state tax revenue, sales tax collections.

Opportunity to address big issues

This large “surplus” and strong anticipated revenue outlook gives budget writers more flexibility. Similar to last session, this outlook presents an opportunity to strategically and more comprehensively address difficult, long-term challenges like looming water infrastructure and supply issues.

Lawmakers can also address workforce readiness by continuing the work begun in previous sessions on school finance, coordination of education and workforce agencies and community college funding reform to ensure Texas’ educational and workforce systems can meet rapidly evolving labor force needs.

Legislative leaders have signaled interest in pursuing more funding for the Texas Energy Fund, additional property tax relief, as well as for public education. The revenue outlook likely makes these priorities more viable.

Economic Stabilization Fund is expected to reach its cap Hegar also announced that Texas is expected to reach the $26.5 billion cap on the Economic Stabilization Fund (ESF) more commonly referred to as the Rainy Day Fund, at the beginning of fiscal year 2026. This would mark the first time the Rainy Day Fund has hit its fund balance limit in its nearly 40-year history.

In response to hitting the cap, oil and gas severance tax revenues that would have been transferred to the ESF would go to the general revenue fund instead.

What’s next

The release of the revenue estimate kicks off the part of the two-year state budget cycle where lawmakers weigh in on finalized budget requests from state agencies.

Initial drafts of the state budget should be filed in the House and Senate in upcoming weeks, and legislators will begin hearings shortly after on their 1,000-plus page state budget.

At Texas 2036, we will continue to analyze and keep you up to speed on the state budget as it progresses and the implications for Texas in the days and months ahead. Follow us at www.texas2036. org for the latest updates.

Rahul Sreenivasan is director of government performance and fiscal policy for Texas 2036, a nonprofit public policy organization building data-driven strategies to improve opportunities for all Texans.