Senior Politics Writer
AUSTIN — Texas lawmakers learned Monday they will have an estimated $194.6 billion in tax money available to spend over the next two years – a slight decrease from 2023, even with a boost in sales tax collection.
Two years ago, Texas had a historic surplus going into the legislative session. The surplus will be smaller this time, but Texas still is in good financial shape as lawmakers begin work on the 2026-27 budget, Comptroller Glenn Hegar said Monday.
Even so, he urged caution, saying he hopes lawmakers will remember the money they will be spending comes directly from taxpaying Texans who are struggling with rising costs and the higher taxes that follow. Sales tax collections are forecast to rise 9% over the next two years and make up nearly two-thirds of new revenue, he said.
“Despite positive economic numbers, many of our residents continue to feel the higher cost of groceries, housing and other necessities,” Hegar said in a statement. “And the lingering impacts of persistently rising prices mean many are struggling to ensure a bright future for their children.”
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The comptroller’s biennial revenue estimate forecasts how much tax money will be raised in the next two-year budget period. The Texas Constitution requires the estimate to be released before the Texas Legislature convenes for its 140-day session. Texas lawmakers start their 89th regular session Tuesday.
Lawmakers are constitutionally required to pass a balanced budget that spends no more than what is available.
What’s available is $362.2 billion in state taxes, federal dollars and dedicated revenue streams like fees. Lawmakers have the most discretion over the state tax dollars but are limited by the constitution in how much the budget can grow between two-year cycles.
Hegar anticipates $176.4 billion in state taxes will be collected from residents and businesses, mostly from sales taxes, oil and gas severance taxes, and taxes collected on fuel and alcohol. Some 61% of the total is expected to come from $94 billion in sales taxes, a 9% increase over the current cycle.
State coffers will have a projected $23.8 billion left over from the current two-year budget cycle, which ends in August, Hegar said. That includes $4.5 billion lawmakers set aside in 2023 for teacher pay raises that did not pass, as well as $6.6 million in savings from federal COVID-19 pandemic relief payments to the state.
Two years ago, lawmakers began the session with more than $32 billion in surplus cash, a number that eventually rose to nearly $40 billion after vigorous growth in the state economy and an increase in gas and sales prices, among other factors.
“The projected ending balance … comes from different sources than the huge balance of two years ago, and it reflects the fact that lawmakers didn’t spend all the available funds in 2023,” Hegar said. “That decision, coupled with their decision to limit future ongoing costs while still making a number of large and critical investments in our state, has kept Texas in a strong position relative to other states that exhibited less fiscal discipline.”
In addition to state tax collections, Hegar expects $115 billion in federal income and about $70.7 billion from other revenue streams – all of which are dedicated for particular purposes, such as Medicaid, and cannot be spent as freely as general revenue from tax collections.
Lawmakers must reserve $5.6 billion of the oil and natural gas taxes for the state highway fund, according to state law. But they will not be required to transfer anything into the state’s rainy day fund – known as the Economic Stabilization Fund – because for the first time in state history, the fund is expected to reach a constitutional cap of $28.5 billion, Hegar said.
The biennial revenue estimate could be adjusted later in the session if Hegar updates his forecast, which can be affected by economic conditions, wars, natural disasters, political events overseas, changes in federal policy, and even who is leading the country.
It is a snapshot of what the state can expect to see over the next two years – not unlike projecting income for a household budget, which can shift over time, Hegar said.
The current budget totaled $321.3 billion in state and federal funds. The next budget is likely to exceed that, but constitutional spending limits will restrict how much the bottom line can grow.
The spending limit is expected to be released by the Legislative Budget Board later this month.
When that happens, House and Senate budget leaders will file the preliminary round of budget drafts – the first peek at what direction state spending could take – before holding public hearings on agency funding requests.
The budget is typically passed in May, near the end of the regular session, which wraps up June 2.
Karen Brooks Harper has covered Texas politics in and out of Austin for nearly 30 years. She's also covered the cartel wars along the TX-MX border, Congress in Mexico City, and 6 hurricanes, among other stories. Raised on blues and great food in the MS Delta, she lives in ATX with her family, her guitar, and her boxing gloves. In that order.
