Five quick takeaways from the Comptroller’s new revenue estimate

7 months ago

The Texas House and Senate gaveled back in Monday afternoon pursuant to Gov. Greg Abbott’s call for a Third Special Session. Last week, Texas Comptroller Glenn Hegar announced his Certification Revenue Estimate (CRE), an update of the state’s revenue outlook for the current 2024-25 fiscal biennium. The CRE revises projected available revenue upward from $188.23 billion to $194.57 billion.

Here are five things to know about the new CRE:

1) Fund balance (or “Surplus”) to be larger than previously expected

The new CRE with revised revenue projections expects the State of Texas to carry over an $18.29 billion fund balance to the next biennial budget cycle, a more than $4 billion increase over the Comptroller’s previous projection. For additional context, this $18.29 billion balance already accounts for the costs associated with the potential passage of the seven of 14 constitutional amendments on the November ballot that were allocated over $27 billion.

2) Lawmakers have more available revenue to address special session priorities

Lawmakers approved $6.3 billion in new public education spending during the regular session, with another $4.5 billion approved contingent on the passage of school finance and school choice legislation. While the $4.5 billion serves as an agreed-to starting point for legislators on addressing education finance issues, the improved revenue outlook allows for greater flexibility and opportunity for legislators to find solutions and compromise.

3) Tax spending limit will restrain spending of fund balance

Senate Finance Chairman Joan Huffman announced during Monday’s committee hearing that the tax spending limit was adjusted to about $6 billion in remaining spending authority, up from the initial $1.6 billion calculation during regular session. Though a large increase, the updated tax spending limit still stands well under the amount of available revenue, meaning a majority vote in each chamber would be required to spend any dollars over this limit. For more on Texas’ spending limits and how they work, check out our explainer from last fall.

4) Increased revenue driven by usual — as well as some unexpected — sources

Tax revenues from natural gas production came in lower and they are expected to trend lower than originally projected in the January 2023 BRE. 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. We briefly covered here why we think lawmakers should be cautious about this acute increase in insurance tax collections.

5) Economic Stabilization Fund is projected to reach $23.8B at the end of FY25 and reach its cap in FY26

As the spending decisions of the Legislature and the historic volatility of severance tax revenues can introduce quite a bit of variance in this particular projection, the revised CRE still predicts the ESF — or “Rainy Day Fund” — to reach its constitutional cap in fiscal year 2026, which is projected to be $25.33 billion. When the cap is reached, transfers to and interest earned on the ESF balance in excess of the cap are halted and retained in general revenue, only resuming in the first biennium in which the ESF balance is back below the associated biennial cap.

The education focus of this special session does not necessarily mean Texas legislators will be less busy or under less pressure because there are not as many issues on the call as a regular session. However, the increased flexibility offered by an improved revenue outlook should give legislators and their constituents a measure of optimism as we begin this special session.

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