The Texas Legislature convenes for the first day of its 88th Regular Session on Tuesday and now appears to have at its disposal $32.7 billion — a sum that has more than its fair share of stipulations and restrictions. Hegar’s July 2021 projection pegged the number at $27 billion.
“Even with constitutional spending limits and an inflation-influenced new normal, the enormous amount of projected revenue gives the state a remarkable, or a truly ‘once-in-a-lifetime,’ opportunity for historical actions this legislative session,” Hegar said, presenting the BRE Monday.
Tempering reactions, he added, “Don’t count on me announcing another big revenue jump two years from now.”
“The revenue increases that we’ve seen have been in many ways unprecedented and we cannot reasonably expect a repeat. We are unlikely to have an opportunity like this again.”
Overall, the comptroller estimates $188 billion available in general-purpose spending for the 2024-2025 budget, a 26 percent increase from the current biennium. The state will also receive an estimated $176 billion in federal dollars and other revenues that are non-discretionary, earmarked already with specific purposes.
Over half of the general revenue-related funds come from sales taxes and 13.2 percent from oil and gas severance taxes. Due to the high oil and gas prices over the last year, severance tax collections rose 116 percent in 2022; the average annual increase from 1996 to 2021 was just 7.5 percent.
Without new appropriations, Hegar estimates the Economic Stabilization Fund to reach a balance of $27.1 billion, slightly constrained by a constitutional limit.
The ESF’s new estimate is double Hegar’s July projection, a result of the standard transfer to the fund and the projected $11.4 billion unencumbered balance — 50 percent of which must be transferred to the ESF.
Should the Legislature spend a large portion of the unencumbered general revenue balance, the ESF could avoid hitting the cap. Whatever money is left over — not spent or transferred elsewhere — will sit in the state treasury untouched.
“Although no longer accelerating and having moderated somewhat recently, high inflation persists and remains well above the [Federal Reserve’s] policy target,” Hegar’s letter to state officials reads.
Over the last year, Hegar’s maintained the cause of the historic tax collection boon has two prongs: the return of commerce after the pandemic’s economic slowdown and government shutdowns, and inflation driving prices up which increases consumption taxes paid by consumers.
Hegar, like many others, anticipates a coming recession, the severity of which may increase if the Federal Reserve’s interest rate hikes do not corral and lessen the brunt of inflation.
But he maintained, as he has before, that Texas is better prepared than much of the U.S. for weathering a downturn due to the continuous economic growth from businesses and people moving in from elsewhere.
As with all BREs, Hegar said the projection is subject to change as new developments occur.
The comptroller posits that Texas oil and gas producers may benefit if China ceases its lockdowns, resuming standard commercial activity, while Russian production continues to suffer from international sanctions. That would leave a gap for Texas producers to fill, drawn by the potential rise in price of oil and gas.
Hegar’s message is that the state and country’s economic future is relatively uncertain, and that spending the entire unencumbered balance would be both fiscally reckless and difficult if not impossible due to a number of constraints.
To back up his message, Hegar has frequently cited the example of California, which in the last year has gone from an expected slight budget surplus to a projected $24 billion deficit.
The comptroller suggested focusing spending on certain categories: providing a “meaningful” tax cut, continuing border security measures, improving the power grid, expanding broadband connectivity, growing the state’s ports, raising teacher and state employee salaries, and finding a way to generate a skilled workforce.
The Texas Legislature has a lot of decisions on its plate for how to spend this sum of money, along with the spending cap that few have shown a willingness to bust.
In a December press conference, Lt. Governor Dan Patrick both planted his flag against busting the cap and floated an unconventional proposal for approving spending outside of the general revenue cap structure: amending the state constitution.
A similar maneuver occurred in 2013 when the Legislature created the State Water Implementation Fund for Texas, money from which is used to subsidize projects of the State Water Plan.
Property taxes have remained the headliner, drawing all kinds of proposals. One idea multiple sources have told The Texan is a property tax fund that exists for a specified timeframe outside the general revenue fund.
The Legislature already has $3 billion in federal coronavirus aid set aside this session for property tax rate compression — there’s another $1 billion in American Rescue Plan Act dollars floating around available, too.
Texas ports plan a substantial lobbying effort to get a piece of this surplus, and Speaker Dade Phelan (R-Beaumont) has maintained his intention to put a large portion of it toward infrastructure — the cost of which has also grown due to inflation.
There will be many more interests vying for a piece of the pie this go-around, and unlike in years before, the state can’t claim it’s entirely strapped for cash.
Hegar concluded, “As the 88th Legislature opens its Regular Session tomorrow … we know we have a responsibility to ensure every dime we spend is used wisely, prudently, and efficiently to benefit Texans now and in the future.”
The Legislative Budget Board placed the pre-BRE general-revenue spending cap at $12.5 billion more than the last biennial budget.
Editor’s Note: This article has been updated to include the LBB’s spending cap.
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Brad Johnson is a senior reporter for The Texan and an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.