With the 89th legislative session kicking off this week, Texas Comptroller Glenn Hegar delivered a cautious—yet optimistic—revenue estimate for the next two years on Monday. The revenue forecast projects a slight decrease from the previous biennium, when lawmakers had record levels of taxpayer money at their disposal. Hegar estimated the Legislature will have about $195 billion for general purpose spending, a 1 percent decrease from the previous biennium.
Still, Hegar said lawmakers will have yet another large surplus, to start from this session: an estimated $23.8 billion that includes $4.5 billion that was set aside last session for public education funding tied to Governor Greg Abbott’s priority school vouchers bill. The allocated funds for both were never doled out because the governor held the school funding hostage while his voucher plan was killed in the Texas House.
Meanwhile, Texas’ Economic Stabilization Fund—known as the rainy day fund—is also expected to hit its constitutionally imposed cap for the first time in state history.
The strong revenue projection is buoyed by an expected 9 percent increase in sales tax revenue, which is the largest funding source for the state and is expected to comprise 61 percent of revenue, while franchise taxes, oil production taxes, and others will generate the balance of funds for Texas.
The estimate, released the day before each legislative session begins, gives the Legislature an idea of how much money they will have to construct the budget for the 2026-27 fiscal years. Under the Texas Constitution, the Legislature is only mandated to pass a budget by the end of the session on June 2 this year.
In an interview with the Texas Tribune, Hegar said he expects the projected funds to be used for issues like public education, infrastructure, and housing affordability. Hegar cautioned legislators to make intentional policy decisions in anticipation of years with lower revenue.
“It is so important that we continue to be very focused on the policy decisions that are made to make sure that the economy continues to move in a positive direction,” Hegar said. “Once [the economy] plateaus and decreases, that’s when you get into the very significant discussions, because the economy’s not continuing to grow, and those revenues don’t continue to come in.”
Lieutenant Governor Dan Patrick said he wanted to prioritize cutting property taxes, increasing teacher salaries, and bolstering the power grid. “This session, I will continue to chart a conservative course forward so Texas is ready to deal with any challenges from a position of strength,” Patrick wrote in a statement.
Houston Representative Gene Wu, who was recently elected to chair the Texas House Democratic Caucus, said the revenue projection demonstrates the state’s financial ability to fund public schools and strengthen infrastructure—something he said Republicans did not deliver on last session.
“While these revenue projections echo 2023’s ‘once-in-a-lifetime’ cash balance, this time we must deliver different results,” Wu said in a statement. “Texas is swelling with opportunity, and Democrats are ready to put our state’s considerable resources to work for all Texans. … Now we need the political will to invest in our future, protect our freedoms, and put power back in the hands of regular Texans.”
For the first time in state history, lawmakers will not be required to put any state revenue into the Economic Stabilization Fund (ESF) because it is constitutionally capped at 10 percent of total revenue from the previous biennium. The balance is expected to total a record $28.5 billion, which hits this limit. Without the cap, the ESF could reach over $31 billion.
Given its cap, funds that would otherwise be transferred to the ESF will go back into the general treasury. If the Legislature opts not to spend any reserves from the rainy day fund—such as on one-time infrastructure investments or property tax buydowns—that will continue in the future.
“Now almost every year in perpetuity, the funds that would have gone there don’t get to because the cup is full based on the cap,” Hegar said.
Hegar suggested the Legislature should consider whether to remove the ESF cap, which he said could make more funding available in times of economic crises and also increase investment returns. The ESF currently generates about $1 billion annually in investments, Hegar said.
“The Phoenix was the rebirth of the oil and gas industry, and at some point in time, the production is not going to be at the level that it’s at,” Hegar said.
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