Budget Bonanza: Comptroller Unveils Staggering $194.6B for 2026-2027!

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Texas is anticipated to have $194.6 billion in general revenue to support state operations for the 2026-2027 biennium, marking a slight drop from the previous budget cycle, yet still placing Texas in a robust fiscal position, according to Texas Comptroller Glenn Hegar’s revenue forecast presented to state lawmakers and leaders on Monday.

This forecast arrives just one day prior to the Texas Legislature’s assembly on Tuesday for the beginning of the 2025 legislative session. The only constitutional obligation of lawmakers during the 140-day session, which concludes on June 2, is to approve a balanced budget that does not exceed the estimated available funds.

Hegar predicts that Texas’ economic performance will be below the state’s historical average but will continue to surpass national growth rates.

“The Texas economy does not indicate a recession. Our expectation is that growth will not occur at quite the same pace over the next year or two,” Hegar stated during a discussion with Texas Tribune editor-in-chief Matthew Watkins on Monday, noting that the state remains “in a favorable position” compared to others facing deficits.

This year’s forecast signifies a 1.1% decline from the funds accessible in the 2024-25 biennium, a period when lawmakers enjoyed a “once-in-a-lifetime” surplus, according to Hegar. This decrease can be attributed to a lower initial balance relative to the last budget cycle, not a decrease in state revenue. Projections indicate tax revenues will increase, and for the first time, the state’s Economic Stabilization Fund, commonly referred to as the rainy day fund, is set to surpass its constitutional limit. Therefore, lawmakers will have more funds on hand than usual for discretionary spending.

Nevertheless, Hegar emphasized that lawmakers ought to make prudent fiscal choices that prioritize the well-being of Texans.

“Even with favorable economic indicators, many Texans are still feeling the pinch from rising costs of groceries, housing, and other essentials. The sustained effects of increasing prices have led many to face difficulties in securing a promising future for their offspring,” Hegar stated in a Monday press release accompanying the budget estimate.

The forecast encompasses an expected $176.4 billion in new revenue, primarily from sales and energy tax collections, which can only be utilized in the upcoming budget period. Sales tax revenues are expected to rise by 9% compared to the previous two-year timeframe, reaching $94.2 billion over the next two years.

Included in the anticipated funds are $23.8 billion projected to remain from the 2024-25 biennium when lawmakers implemented property tax cuts and made various one-time investments, including in water and broadband infrastructure, that do not necessitate recurring funding in the upcoming budget.

Among those remaining funds are $4.5 billion designated for public education and education savings accounts that were not allocated due to lawmakers’ inability to agree on a voucher-like initiative.

This year, lawmakers are likely to focus on advancing a school voucher initiative that utilizes taxpayer funds to assist with private school expenses. Lt. Gov. Dan Patrick, who oversees the Texas Senate, has requested that Gov. Greg Abbott classify private school vouchers as an emergency issue to allow legislators to expedite the bill’s passage through the Legislature. Legislation cannot be advanced in the first 60 days of the session unless it is declared an emergency by the governor.

Monday’s forecast may change as economic analysts receive updated information. Weather-related incidents, the conflicts in Ukraine and the Middle East, China’s economic activities, and shifts in federal regulations could potentially disrupt the economy, Hegar cautioned.

State revenue from all sources and purposes is projected to attain $362.2 billion. This figure includes $115 billion expected from federal funding allocated toward specific purposes such as Medicaid and other federal initiatives, including disaster relief. The state is also anticipated to gather around $70.7 billion in other fees earmarked for designated uses.

Priority Challenges

Numerous state officials and advocates responded to Hegar’s projections by urging lawmakers to allocate the additional funds toward their key concerns — ranging from property tax reduction to investments in special education.

“With this surplus, my initial priority is to continue decreasing property taxes and enhancing teacher salaries,” Patrick expressed in a statement. The lieutenant governor added that he would also concentrate on one-time expenditures, such as increasing new dispatchable power to the grid.

Texas House Democratic Caucus Chair Gene Wu, D-Houston, contended that the state should invest in education and healthcare, as well as water and energy infrastructure.

“While these revenue forecasts mirror 2023’s ‘once-in-a-lifetime’ surplus, this time we must achieve different outcomes,” Wu asserted in a statement. “We cannot permit another session where Republicans capitulate to voucher schemers while our public schools face challenges.”

Following their electoral victories in November, proponents of private school vouchers in the legislature find themselves in a stronger position.

odds than ever of passing their priorities. If the Legislature endorses a school voucher measure, Hegar’s office would probably be in charge of implementing the program, a duty he indicated his office is well-equipped to handle.

However, in contemplating school vouchers, legislators should ensure they grant the administering agency sufficient authority to decide the most effective way to operate the program, Hegar noted, clarifying that he would prefer legislation not to dictate a specific vendor to be utilized.

“I require alternatives,” Hegar stated during the Tribune gathering.

Should the rainy day fund have a limit?

Legislators created the rainy day fund in the 1980s during an oil downturn to support the state during financial hardships. Revenues from crude oil and natural gas extraction constitute a significant portion of the fund’s resources.

Moreover, because of the expansion of Texas’ oil and gas sector, the fund has surged in recent times and is anticipated to surpass its constitutional cap, according to Hegar’s financial forecast. The Texas Constitution restricts the fund’s upper balance using a calculation that reflects the amount of general revenue deposited into the fund during the prior biennium.

Funds that exceed this upper limit are redirected to the general treasury for use by legislators. With the approval of three-fifths of them, lawmakers can also access the rainy day fund and have done so to finance initiatives like water projects, disaster assistance, public education, and other endeavors.

“By 2035, if the cap remains intact and we continue to add more funds without withdrawals… it could potentially expand to about $40 billion,” Hegar remarked. “If we lift the cap, that fund could swell to $80 billion.”

Absent any legislative allocations, the rainy day fund is projected to hit a record $28.5 billion by the conclusion of the fiscal year 2027, estimates Hegar.

Hegar indicated he mentions the expansion of the rainy day fund to prompt lawmakers to think about abolishing the cap, which would necessitate a constitutional amendment. Eliminating the cap would enable the fund to grow substantially larger through its investment returns and could provide an advantage in the future during the next economic downturn.

“No one can predict when it will occur or how severe it will be,” Hegar explained. “But when you have that reserve, you have the capability to draw from it… to maintain the services that people would anticipate, whether it’s roads, water infrastructure, or anything else.”