Sign up for The Brief, The Texas Tribune’s daily newsletter that keeps readers up to speed on the most essential Texas news.
Texas is likely to avoid an anticipated recession and, on the contrary, is projected to have more than $18 billion in unspent money at the end of this two-year budget cycle, thanks to an unexpected increase in state revenue in recent months, Comptroller Glenn Hegar said Thursday.
“Despite sharply higher interest rates, household budgets stressed by inflation and adverse economic conditions among major trading partners, the national economy has continued to grow,” Hegar said in his Certified Revenue Estimate, updating how much money lawmakers will have to spend. “Meanwhile, the Texas economy has outperformed the national economy, and the economic outlook included with this revenue estimate does not assume a recession in Texas.”
The news comes days before lawmakers are set to enter a special session fight that is expected to be over public school funding, teacher pay raises, school vouchers, and potentially other issues that have caught Republican Gov. Greg Abbott’s interest recently.
The updated comptroller’s report raises the amount of revenue available over the 2024-25 cycle from $188.2 billion — what lawmakers assumed they would have available to spend when they passed the budget in May — to $194.6 billion.
The forecast also estimates that the Economic Stabilization Fund, commonly referred to as the state’s rainy day fund, will possess a total of $23.8 billion.
According to the latest estimate, there is a projected 24.8% increase in available spending for this budget compared to the 2022-23 cycle that concluded in September.
Lawmakers in May passed a $321.3 billion budget for the cycle that ends in September 2025. They meet again to pass a new budget in January 2025 for the following two-year cycle. At the beginning of this year, lawmakers entered their regular legislative session with a historic $32.7 billion surplus.
A number of constitutional amendments that will be decided by voters will ultimately determine how much money is left in state coffers at the end of the two-year cycle, including a $1.5 billion effort to expand broadband, a $1 billion Texas Water Fund to pay for infrastructure and potentially a homestead exemption if lawmakers agree on a property tax-relief plan.
In November, a crucial decision awaits voters regarding the allocation of $27 billion from state taxes. This funding will be directed towards various programs such as property tax relief, water infrastructure, research institutions, and other significant projects.
In spite of the fact that all proposals received approval, the state was initially projected to possess a surplus of $10 billion as it entered the next two-year cycle in 2025. However, Hegar’s latest forecast nearly doubled this anticipated amount.
Lawmakers granted approval for $4.5 billion in additional spending for schools this year, mainly allocated towards initiatives such as increasing teacher salaries. However, this funding was contingent upon the passing of controversial legislation that proposed a voucher program, allowing select parents to utilize the funds for private school tuition.
The proposal for teacher pay raises met its demise alongside the voucher program, but there is hope for its revival as lawmakers have an opportunity next week. Governor Abbott has assured at least two special sessions, providing a chance for them to reach an agreement. Additionally, he has expressed his intention to advocate for his pro-voucher stance during next year’s primaries if a program fails to pass.
During The Texas Tribune Festival last month, Hegar suggested a positive economic forecast for Texas. He mentioned that the state could experience a surge in revenue during this period, thanks to higher insurance claim collections that are subject to state taxation.
In the midst of all this, Texas public education is facing a crucial financial junction, as lawmakers brace themselves for one of the most disputed debates in the Legislature. The discussion revolves around determining the adequate funding for public school districts, the appropriate compensation for teachers, and the extent of financial assistance for private school tuition provided to parents.
“We need to take advantage [and] invest in public education,” Hegar said in his Sept. 22 interview about the revenue increase. “We need to invest in our teachers. We need to invest in those that are front line, that are educating the future workforce.”
Hegar refrained from explicitly suggesting that lawmakers allocate the extra $6.5 billion in funds towards teachers, public schools, or vouchers on Thursday. Typically, he avoids engaging in budget disputes centered around policy decisions.
However, he made sure to emphasize the timing once more, stating that his new estimate also functions as an approximation of the revenue that will be accessible for the upcoming third called session, set to commence on October 9.
Houston Democratic Rep. Armando Walle, a House budget writer, urged that lawmakers consider adding more funding to the education system now that lawmakers are flush with extra spending power.
In a statement, Walle emphasized the chance we have to prioritize Texas children and provide the necessary resources for our public schools to flourish, considering the insufficient per-pupil spending and inadequate salaries for educators in our state. Allocating our constituents’ tax dollars elsewhere would not only disregard Texas families but also squander an incredible opportunity to invest in the future leaders of our state.
Hegar, in his estimate on Thursday, reiterated his stance, echoing his statements from last month and January, emphasizing the conservative nature of the forecast due to possible future economic disruptions. This serves as a cautionary note to lawmakers pushing for spending the surplus in its entirety.
Hegar stated that due to the considerable risks to the economic outlook, a cautious estimate has been made for revenue in the 2024-25 biennium. While there is a possibility of continued strong economic growth and subsequent revenue growth, it would not be wise to solely rely on that assumption.