2023 Year in Review: The top state budget stories

4 months ago

Lawmakers’ deliberations and decisions this year on the Texas state budget drew more attention than usual because of the projection of record-breaking revenue announced just before they began work last January.

Here are a few of the top stories that framed the year in state budget and revenue:

Projected $32.7B Surplus for Lawmakers (Dallas Morning News, January)

State Comptroller Glenn Hegar made headlines when he announced last January that lawmakers would start the 2024-25 fiscal biennium with a $32.7 billion fund balance. The announcement did not shock budget writers and those who closely follow the budget, as the previous revisions of revenue projections already reflected and projected brisk sales tax collections driving unprecedented revenue levels.

The final budget reflected a balanced approach, with legislators making strong, one-time investments in areas like infrastructure and higher education and reducing long-term liabilities, while preserving a strong fiscal stance for future legislatures.

Voters give Final Approval of Nearly $27B in Spending in Constitutional Elections (Austin American-Statesman, November)

Texas voters approved 13 of the 14 propositions on the ballot in November’s constitutional amendment elections. For those following the state budget closely, here are the headlines:

Voters OK’d a package of seven amendments that taken together authorized over $27 billion in budget items already approved by the Legislature.
- These constitutionally dedicated funds can serve as permanent revenue sources for a given purpose, even when the revenue outlook is down.
For the five newly created constitutionally dedicated funds — the Texas Water Fund, the Texas Broadband Fund, Texas University Fund, the Centennial Parks Conservation Fund, and the Texas Energy Fund — the initial dedication of dollars capitalizing the new funds will not apply to the tax spending or consolidated spending limit, giving legislators flexibility with future budgets.
- The other two funding items approved by voters in November — the property tax relief package and the cost-of-living-adjustment for retired teachers — were structured in a manner where their connected appropriations also did not apply to the tax spending limit.

Texas’ Revenue Outlook Continues to be Brisk (Texas Tribune, October)

With each new special session, the Comptroller sends a revised revenue outlook to the Legislature for reference as it takes up the items on the governor’s special session calls. In early October, days before the 3rd Called Special Session got underway, the Comptroller revised his revenue estimate upward by over $4 billion from his late June update.

This exercise was particularly relevant this year, as large spending items that were already included, wholly or in part, in the General Appropriations Act, like property tax relief, school finance, or school choice, were not approved in the regular session.

During the summer, legislators approved property tax relief to send to voters, but the October announcement of additional revenues (as well as an upward revision to the tax spending limit figure) gave lawmakers a little more budgetary flexibility as they tackled difficult educational issues in the fall.

For more, read our blog from October, Five quick takeaways from the Comptroller’s new revenue estimate.

Texas lawmakers will have new money going into special session on education, comptroller says (Texas Tribune, September)

Climate change, costly disasters sent Texas homeowner insurance rates skyrocketing this year (Texas Tribune, November)

These two stories published this fall in the Texas Tribune pointed to an unexpected development — the upward revisions in state revenue in October driven by an unusual culprit: Insurance Taxes.

The October revenue projection continued to show strong sales tax collections, but revenues from natural gas production came in lower than expected and are expected to trend lower than was originally projected in last January’s revenue estimate. However, this drop in severance tax revenue is more than offset by higher than previously expected revenues from a variety of sources, most notably from insurance tax collections.

Ahead of the October announcement, Hegar signaled to a TribFest audience in Austin that insurance premium tax collections were a key driver of the higher revenue projection, citing the impact of extreme weather events on rapidly rising insurance premium rates in Texas.

For more, we discuss this recent acute trend in increased insurance tax collections in our blog, Insurance taxes: An unexpected driver behind increased revenues.

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