Proposition 4 Explained: Funding

This is the first in a three-part series exploring how Proposition 4 on November’s state constitutional amendment ballot changes Texas’ water infrastructure funding strategy. Read Part 2 here; read Part 3 here.

Proposition 4 on November’s ballot establishes a reliable, dedicated funding stream for Texas’ water infrastructure needs. These include the need to expand and diversify a water supply portfolio for a drought-prone and growing state, fix aging and deteriorating water systems, and protect lives and communities from floods.

Voters exercising their civic duty on or before election day will see Proposition 4 on the ballot as follows: “The constitutional amendment to dedicate a portion of the revenue derived from state sales and use taxes to the Texas water fund and to provide for the allocation and use of that revenue.”

While this ballot language broadly describes what Proposition 4 accomplishes, it doesn’t reflect all of the important details. Those details are within House Joint Resolution 7 that the Legislature approved earlier this year. This article unpacks the key details of how this proposed funding stream will work.

1.) A dedicated state sales tax revenue stream for water.

The State of Texas assesses a 6.25% tax on the sale of goods and services in this state. These sales tax revenues are deposited within the state treasury for subsequent appropriation by the Legislature or for other purposes dedicated by the Texas Constitution.

Proposition 4 would constitutionally direct $1 billion per year of this sales tax revenue stream to the Texas Water Fund. This requirement does not change the existing state sales tax rate or otherwise increase taxes. Rather, this proposal directs sales tax revenues that the State of Texas is likely to receive to pay for needed water infrastructure projects.

The idea of dedicating existing state revenues for a specific purpose isn’t entirely new. In 2014 and 2015, Texas voters approved dedicating portions of state oil and gas severance tax and sales tax revenues to the State Highway Fund. More recently, in 2019, voters approved the dedication of sporting goods sales tax collections for the development of state parks and historic sites. These revenue dedications have worked to provide reliable, consistent funding for state parks and transportation infrastructure.

2.) Water funding depends on Texas’ economic miracle.

While Proposition 4 dedicates $1 billion in state sales tax revenues to the Texas Water Fund, it doesn’t guarantee that this deposit will be automatic. HJR 7 creating Proposition 4 authorizes the deposit of the first $1 billion in sales tax revenues to the Texas Water Fund after the first $46.5 billion in sales tax collections for the given fiscal year. This means that before any sales tax revenues are sent to the Texas Water Fund the state must first collect $46.5 billion in sales taxes. The $1 billion collected after that initial $46.5 billion may be dedicated to the Water Fund.

Fortunately, state sales tax collections have increased at a level commensurate with state economic growth. According to data from the Office of the State Comptroller, between fiscal years 2003 and 2025, sales tax collections have increased 343%, from $14.3 billion to $49.06 billion. Should this growth trend persist, then revenues should be available to meet the $46.5 billion threshold for dedicating $1 billion to the Texas Water Fund.

Indeed, just as Texas’ economic miracle depends on reliable water infrastructure, funding for Texas’ water needs hinges on economic growth and expansion.

3.) The revenue dedication starts in two years, but only lasts for 20.

If voters approve Proposition 4 this November, then the actual dedication of sales tax revenues will not begin until state fiscal year 2028, which starts on Sept. 1, 2027. Given that these funds are subject to legislative appropriation, these monies will not be available for building water projects until 2029.

The good news is that earlier this year the Legislature approved over $2.5 billion in water infrastructure funding that will help bridge the gap between now and 2029.

Still, the sales tax revenue dedication will only last for 20 years, ending on Aug. 31, 2047. Assuming that state sales tax collections routinely exceed the $46.5 billion threshold, and that the Legislature does not suspend the dedication during a state of disaster, then $20 billion will flow into the Texas Water Fund over the next 20 years.

Political advertising paid for by Texas 2036.