When the Texas Legislature convenes for its 2025 session, lawmakers will have a projected $23.8 billion surplus to manage, according to the latest biennial revenue estimate (BRE) released by Texas Comptroller Glenn Hegar. Despite being $8 billion smaller than the previous session’s surplus of $32.7 billion, the available funds present both opportunities and challenges as legislators address key infrastructure and education demands.
Revenue Highlights and Budget Outlook
Hegar’s report estimates $194.6 billion in total revenue for general purpose spending for the 2026-27 biennium, with over half derived from the state’s sales tax. The Legislature will be tasked with balancing the state’s financial needs within four major funding categories: general revenue, general revenue-dedicated, federal funds, and other funds.
Though substantial, the surplus is poised to deplete rapidly amid pressing spending priorities such as property tax relief, school financing increases, teacher pay raises, and the potential establishment of a school choice program. Additional funds are earmarked for natural gas and nuclear power development, as well as water infrastructure projects.
Economic Factors and Fiscal Discipline
Hegar highlighted the state's strategic financial management as a factor for its relative stability. "Despite positive economic numbers, many of our residents continue to feel the higher cost of groceries, housing, and other necessities," he noted. “Thoughtful consideration of spending decisions will be crucial to ensure investments improve the lives of Texans.”
The Legislature's conservative approach last session, including limited ongoing expenditures and significant investments in critical areas, contributed to the current financial position. The state’s Economic Stabilization Fund (ESF), known as the "Rainy Day Fund," is projected to hit its constitutional cap with an ending balance of $28.5 billion by 2027.
Key Spending Priorities
Energy Investments: Governor Greg Abbott and Lt. Governor Dan Patrick advocate allocating $5 billion to the Texas Energy Fund to support natural gas plant development, along with establishing a similar program for the nuclear power sector.
Property Tax Relief: A priority for Abbott, property tax reform is expected to receive significant attention as an emergency agenda item.
Water Infrastructure: Senator Charles Perry (R-Lubbock) is pushing for $3-5 billion for water infrastructure improvements, citing it as a top concern for the state.
Border Funding: While funding for border security remains a legislative consideration, less may be required given anticipated federal shifts under President-elect Donald Trump’s administration.
Economic Uncertainties
Despite a positive outlook, Hegar cautioned that potential risks remain. Variables such as geopolitical tensions, federal monetary policies, and fluctuating oil and gas prices could disrupt economic growth. "The only certainty with regard to oil and gas prices is that they are volatile," he warned.
Nevertheless, the forecast projects moderate economic growth, lower inflation rates, and declining interest rates, signaling a stable fiscal environment moving forward.
Senate Leads Budget Process
As the 2025 budget process kicks off in the Senate, lawmakers face the dual challenge of judiciously allocating funds while preparing Texas for future uncertainties. The decisions made in the upcoming session will set the financial and policy tone for years to come, impacting education, infrastructure, and the economy at large.
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