Texas’ spending limits hearing: What to know

Lawmakers’ ability to access the state’s $27 billion general revenue surplus rides to a large degree on action taken by the elected members of the Legislative Budget Board meeting at 2 p.m. this Wednesday, Nov. 30. At the meeting, the elected LBB members will meet to discuss and approve estimated growth rates for Texas’ tax spending and Consolidated General Revenue, or CGR, spending limits. 

These boundaries on spending are particularly important in a session where the Texas Legislature will begin the next fiscal biennium with an unprecedented fund balance of $44 billion. At Texas 2036, we don’t think the Legislature should spend all of this $44 billion balance—some needs to be held back to ensure long-term fiscal health—but we also think it’s important to know how much could theoretically be spent within the state’s spending limits.

Texas’ Record Fund Balance
$27 billion Projected FY22-23 General Revenue surplus
$13.7 billion Projected Rainy Day Fund balance at end of FY23
$3 billion Additional unallocated ARPA funds
Total: $43.6 billion Projected Available Fund Balance at the end of FY23

Last Friday, on the day after Thanksgiving, the LBB posted 32 pages of guidance in the Texas Register on their methodology and information for calculating estimated personal income growth rate and estimated population times inflation—sometimes referred to as “P&I”—growth rate. Readers of Texas 2036’s blog on Texas’ various spending limits might know that these rates will determine the tax spending limit and the new consolidated general revenue limit for the upcoming biennium.  

The LBB calculates FY22-23 biennium spending financed with state tax revenues not dedicated by the constitution at $101.6 billion. That leaves the state $5.8 billion under the tax spending limit for the current biennium, which is approximately $107.4 billion.

With this context and the LBB’s updated guidance, here’s a little bit of what to expect:

  1. We now know that the elected LBB members are using econometric projections showing personal income growth ranging from 9.5% to 14.6%. Applied to the updated $101.6 billion FY22-23 figure of spending subject to the tax spending limit, the variety of projections translate to a new FY24-25 cap in the range of $111.2 billion to $116.4 billion.
  2. For the new CGR limit, which applies to a broader set of appropriations, including those made from constitutionally dedicated accounts, LBB uses average biennial growth estimates of population growth that range between 2.07% and 2.62% and average biennial CPI growth rates between 9.38% and 10.17%. Applied against the current $121 billion FY22-23 figure of spending subject to the CGR limit, this variety of projections translates to an inaugural cap in the range of $135.1 billion to $136.8 billion.
  3. Even if the Legislature spends up to the current FY22-23 tax spending limit, expanding the corresponding spending limit bases and caps for FY24-25, it will be difficult for budget writers to allocate close to the full $27 billion balance in general revenue expected at the end of FY23 without voting to exceed the applicable spending limit

Here’s one last closing thought as the action shifts to the floors of the House and Senate:

The dollar figures that can be projected after this hearing may change, due to supplemental appropriations as well as updated revenue figures from the Comptroller that can result in changes in spending levels and methods of finance. The adopted growth rates will remain the same and remain the constant factors by which these two spending caps are determined for the FY24-25 budget cycle.