As Texas lawmakers gather in Austin for the kickoff of the 89th legislative session Tuesday, one question looms large over almost every single discussion they’ll have over new legislation: How much is it going to cost?
Whether it’s school vouchers, property tax relief or infrastructure improvements, funding needs to be allocated to make many laws a reality.
The state’s Comptroller, Glenn Hegar, on Monday released the biennial revenue estimate, which gives lawmakers a better sense of how much money they will have to work with.
The estimate shows nearly $195 billion in revenue available for general purpose spending during the 2026-27 biennium, which is a 1.1% decrease from the last biennium. But the state still has a surplus — though a smaller one than when the last session started — of about $23.76 billion.
Hegar said that overall, the Texas economy is strong.
“Our state, if it was its own nation, just to make a point, is the eighth largest economy in the world. And just 10 years ago, we were the 12th largest economy,” he said. “So every morning when you wake up, there are people moving into the state. There’s growth in the state of Texas, about 1,600 more people every day in Texas.”
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Given all this growth, Hegar said his team looks at a range of economic indicators when making their projections for each two-year biennium.
“The bottom line is, from where we were two years ago to today, the economy continues to grow, just not as fast as we have been. However, the Legislature had pretty conservative budgeting practices two years ago. Even though they spent a lot of one-time money on road infrastructure, water infrastructure, broadband infrastructure, electric grid fortification, property tax relief, there’s still money left over, which means that they have tools in the toolbox to deal with important issues.”
Hegar said part of why the state had such a huge surplus in 2023 was because of how the economy was situated after the pandemic-related economic dip.
“The economy had completely taken off after COVID. People were spending a significant amount of money, both personal income as well as businesses. Part of that was dollars that were going to individuals because of all the federal relief packages. So that was an adrenaline shot into the economy of the nation,” he said, “And then unfortunately, you and I were paying more than what we had in previous years because of that record for higher inflation. So even at 6.25% sales tax, if you were paying $100 a year ago and now you pay $110, that 6.25% on 10 extra dollars started stacking up in the State Treasury.”
Texas continues to outpace the national average when it comes to economic growth, which has also slowed since 2023.
“It’s pretty historical that they have record surpluses compared to the prior biennium; it’s not quite the same level because you don’t have all that federal money, obviously. Thankfully, inflation is not continuing to go up,” he said. “And then also the economic spending of you and I as individuals, as well as of businesses, has slowed down compared to what it was. It’s still positive, just not quite at that same trajectory up as what it was two years ago.”
Hegar also noted another change for this biennium: The state is not allocated new money into the Economic Stabilization Fund, also called the Rainy Day Fund. This fund was established in the 1980s with constitutional caps on how much money could be in it. For the first time since the fund was created, it is estimated to hit its cap, Hegar said. This is in part because his office got the authority to invest that money so it could earn interest, rather than just sitting around.
“We went and got the authority to just prudently invest in something reasonable where we can at least earn an amount of return to keep up the purchasing power. Now that fund has $24 billion in it, so our investment returns are over a billion a year,” he said. “And essentially it means now with this cap, for the first time ever, those severance taxes that would have gone to the state savings account are going to stay in the general treasury. And we think kind of looking out on the horizon, unless the Legislature uses money out of that state savings account, that’s probably going to continue.”
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The biggest source of the state’s revenue? Sales tax
“About 58% of all tax collections in the state of Texas are sales tax. And then depending on the economy, another 6% to 9% are automobile sales and rental taxes,” Hegar said. “And then you have oil and gas severance taxes. You also have the franchise tax, also known as the business tax. Then you have a whole compilation of whether it’s hotel or the so-called sin taxes, which is alcohol, tobacco, those types of taxes.”
Hegar said his economic prediction does not take into account unforeseen disasters, such as pandemics, hurricanes, fires or floods.
“We have to take the current facts and scenarios. But I always highlight those things that are going to happen. We know they’re going to happen. Unfortunately, we just don’t know when, where and what it’s going to be,” he said. “So as those things happen, we will take those into account and readjust our assumptions. And I’ve always made the pledge that as we see things change, we’re going to make sure that the public and the Legislature knows as it changes the trajectory of what the state economy is going to perform in the next few years.”
But overall, Hegar emphasized that the state’s economy is in good shape, especially compared with other states.
“Two years ago, pretty much all states had a surplus. However, a lot of them don’t today, and some of them are actually running deficits,” he said. “And so, therefore, I think if you look at just that metric alone, Texas is in a good place. … We have issues. But it’s good because we actually have economic growth opportunities for working families. Those are positives. So Texas is on a strong foundation.
“But with that said, you know, one of the things I’ve mentioned to the Legislature is unfortunately the unaffordability of housing is continuing to go up. And that’s an issue that I think we have to figure out how to address going forward because that impacts the average working Texas families. So we have issues we have to work on. But Texas is in a good place relative to most other states.”
