Ahead of the 2023 session, Hegar estimated lawmakers would have $188.2 billion in general revenue funds, but reported Jan. 13 that more than originally estimated was available. Lawmakers ultimately had about $197 billion available for the 2024-25 budget.
This year's estimate includes a $23.8 billion surplus, which Hegar said will be left over from the 2024-25 budget cycle ending Aug. 31.
“Texas is in good financial shape,” Hegar said as he presented his biennial revenue estimate to state officials. “Thoughtful consideration of spending decisions, as always, will be crucial to ensure new and existing investments can be funded in the future, and that these investments focus on improving the lives of Texans.”
The big picture
Hegar’s announcement came one day before lawmakers return to Austin for the 89th legislative session. The only thing legislators are constitutionally required to do during the 140-day session is pass a balanced budget, which consists of state and federal funds, according to the Texas House Research Organization.
In 2023, lawmakers adopted a $321 billion budget for the current biennium. They entered that session with a historic $32.7 billion surplus, which ultimately grew to nearly $40 billion, according to the comptroller’s office.
This year’s cash balance is 1.1% lower than it was last session, due to the smaller beginning balance, or surplus. The estimated balance “comes from different sources than the huge balance of two years ago, and it reflects the fact that lawmakers didn't spend all of the available funds in 2023,” Hegar said.
“This was a wise move, as was their decision to limit future costs when making a number of large investments in the current budget,” he said.
Zooming in
The $23.8 billion surplus includes $4.5 billion that was set aside last session for public education, contingent upon lawmakers’ approval of a private school voucher plan. Both proposals died in late 2023 after four special legislative sessions, and the money has not been spent.
State lawmakers are on track this year to approve a voucher package, which would give families public money to send their children to private schools, Gov. Greg Abbott said in November.
“I do believe public education is going to be a significant discussion, and I think [vouchers] is going to be a significant discussion,” Hegar said Jan. 13. “I don't know exactly where the Legislature is going to land on both of those, but I do think they will probably pass something, ... and I think we can afford whatever the Legislature decides.”
The $4.5 billion sits in an account called “dedicated funds,” meaning it can only be spent on public schools.
“With this surplus, my first focus is to continue to cut property taxes and increase teacher salaries, along with making smart, one-time investments to ensure our budget is sustainable moving forward and that our state is prepared for the future,” Lt. Gov. Dan Patrick, who oversees the Texas Senate, said in a news release. “For example, Gov. Abbott and I agree we must add new dispatchable power to our grid.”
In a Jan. 13 statement, Rep. Gene Wu, D-Houston, called on his colleagues to “invest in Texans and strengthen our communities” this session.
“Texas has the cash needed to fully fund neighborhood schools, provide Texans with the health care they deserve, help public college students graduate without crippling debt and strengthen essential infrastructure—including fixing our unreliable power grid and securing our water resources,” said Wu, who leads the Texas House Democratic Caucus.
Put in perspective
Hegar noted that if Texas were its own nation, it would be the world’s eighth-largest economy. He added that legislators’ budget decisions have “kept Texas in a strong position relative to other states that exhibited less fiscal discipline” and urged them to continue spending the state’s money wisely.
“Despite positive economic numbers, many of our residents are feeling the higher cost of groceries, housing and other basic necessities, and many are struggling to ensure a bright future for their children,” Hegar said.
Insurance and housing affordability are top of mind right now, Hegar said. His office reported in August that Texas’ population growth has outpaced homebuilding since 2020, resulting in a widespread housing shortage. Up For Growth, a national housing policy organization, estimated in 2023 that Texas needs about 306,000 more homes to meet demand.
“This is an issue that is extremely important to the health of this economy, and if we don't want to see a repeat in Texas of some other states where housing [becomes unaffordable], then we need to look at all the array of options,” Hegar said Jan. 13. “With record-high inflation over the course of the last several years, people are paying significantly higher amounts in their premiums—both auto as well as housing.”
Looking ahead
State tax collections are expected to rise during the next biennium, and for the first time, the state Economic Stabilization Fund—commonly known as the Rainy Day Fund—will likely hit its constitutional limit, according to a news release. The ESF is capped at 10% of certain revenue from the previous biennium, according to comptroller documents.
Lawmakers are required to deposit $5.6 billion from oil and natural gas taxes into the state highway fund, and they would typically do the same with the ESF. However, due to the constitutional cap, that money will remain in general revenue, agency documents show.
In total, $362.2 billion will be available for the 2026-27 budget, Hegar estimated. This includes about $115 billion in federal funds, which must be spent on Medicaid and other federal programs.
The budget estimate may fluctuate over time, due to “events outside of our control,” Hegar said. Natural disasters, changing federal economic policies and the wars in Ukraine and the Middle East could disrupt the Texas economy, he said.
“Absent an economic crisis, however, I project our economy will continue to normalize after the profound disruptions of the pandemic, the dramatic recovery when COVID restrictions were lifted, and high inflation that accompanied booming economic growth,” Hegar said.
