Texas adopts $114.1 billion spending limit: Here’s what you need to know

Texas House and Senate budget writers will have up to $114.1 billion to spend in non-dedicated state tax revenue in the next budget cycle, following the Legislative Budget Board’s adoption yesterday of the constitutional tax spending limit. This limit, which must be adopted before lawmakers meet in January, reflects the LBB’s adoption of a forecasted 12.33% economic growth rate in Texas in the upcoming fiscal biennium.

Now that this rate has been adopted, budget writers have a clearer picture of the parameters for the upcoming budget cycle. Under the adopted cap, lawmakers can authorize $12.5 billion in new appropriations above the current fiscal biennium.

Updated numbers from LBB and the Comptroller indicate there is approximately $5.1 billion in general revenue spending authority left for the current biennium. Utilizing the remaining $5.1 billion in general revenue spending authority in a supplemental appropriations bill would expand the new spending authorized by the tax spending cap for next biennium from $12.5 billion to $13.1 billion. This means there may theoretically be up to a combined $18.2 billion in available headroom between the current and fiscal year 2024-2025 biennia.

While supplemental appropriations bills usually address shortfalls, reduce allocations and address other unexpected budgetary circumstances, they are often also utilized to jump-start various new budgetary priorities. Practically speaking though, depending on the price tag for traditional big-ticket supplemental appropriations items like the truing up of Medicaid spending, not all of that theoretical spending room will end up being available for new spending, at least without a majority of House and Senate members voting to exceed this particular limit.

Legislators have a heavy responsibility going into this session in figuring out where to land in addressing new and ongoing needs in this record-breaking — and at least partially inflation-driven — revenue environment while also ensuring current and future prosperity for Texas. Texas 2036 has consistently supported and advocated that investments with this additional revenue be data-driven and financially sustainable with a long-term focus, while keeping Texas positioned to weather future economic uncertainty.

It must be noted, the LBB members also adopted a 12.33% population times inflation growth rate for the new statutory consolidated general revenue, or CGR, limit. This means the new inaugural cap for the CGR limit will begin at $135.9 billion, accommodating $14.9 billion in new spending financed by the general revenue subject to the new limit. Currently, the tax spending limit is the more restrictive limit of these two limits, but in the event legislators vote to exceed the tax spending limit, the CGR limit will effectively serve as a second limit that requires a supermajority of three-fifths of each chamber to exceed it.

Our previous posts previewing and diving into Texas’ various spending limits explained how these two particular limits will strongly govern how Texas’ record fund balance may be allocated. We expect both of these initial caps to rise after certification of the supplemental appropriations bill, given expansion of the current FY22-23 spending base that underlies both FY24-25 caps.