Smaller, but still hefty, Texas budget surplus projected

Michael Dorman

Texas is expected to have an estimated $194.6 billion available for general fund spending in its next biennial budget, 1.1% less than in fiscal 2024-25 due to a smaller, but still sizable, projected beginning balance, state Comptroller Glenn Hegar announced on Monday. 

The triple-A-rated state is projected to start the fiscal 2026-27 biennium on Sept. 1 with a nearly $23.8 billion cash balance, down 39.7% from a record $39.4 billion at the beginning of fiscal 2024-25 that was fueled by COVID-19 pandemic-related federal funding and sales tax collections boosted by inflation. 

"Texas is in good financial shape," Hegar said in a livestreamed presentation. "I expect revenues to grow in the next biennium, although at a more moderated pace than historical levels, and certainly by much less than the surge we experienced after the lifting of pandemic restrictions."

He added that the balance includes $4.5 billion appropriated in 2023 for public schools and a school voucher program that went unspent after enabling legislation passed by the Senate was blocked in the House by a coalition of Republicans and Democrats opposed to vouchers. School funding and education savings accounts are expected to be major issues during the legislative session that began Tuesday.

No revenue transfers into the economic stabilization or rainy day fund are projected as its balance is expected to exceed for the first time a constitutional cap when fiscal 2026 commences, according to the comptroller's revenue estimate. Absent any appropriations from the fund, its balance is projected to reach a record $28.5 billion at the end of the upcoming biennium.

Sales taxes, the largest revenue source for the Texas general fund budget, are projected to increase 9% to $94.2 billion, while oil production tax collections are expected to dip 0.1% to $11.8 billion and natural gas tax revenue is estimated up 25.5% at $5.4 billion.

The biennial estimate pegs Texas' fiscal 2026-27 all-funds revenue, which includes about $115 billion in federal dollars, at $362.2 billion.

State lawmakers appeared ready to continue a fiscal 2024-25 spending spree that included a state-funded $18 billion property tax cut.

"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, as we did with last session's surplus," Lt. Gov. Dan Patrick, who heads the state Senate, said in a statement.

House Democratic Caucus Chair Gene Wu warned against "voucher scammers" while neighborhood public schools struggle.

"A stable revenue outlook, with forecasted available funds of $194.6 billion, shows that Texas has the cash needed to fully fund neighborhood schools, provide Texans with the healthcare 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," he said in a statement. 

Some Texas districts started the current school year with shaky budgets and depleted reserves amid a state per-pupil allotment that has remained stagnant since 2019.

Republican Gov. Greg Abbott, who campaigned for pro-school voucher House candidates, declared after the Nov. 5 election that there were more than enough votes in the chamber to pass education savings accounts.