State Fiscal Briefs

April 2021

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Texas’s budget basics

According to the National Association of State Budget Officers (NASBO), Texas’s total expenditures in fiscal year (FY) 2020 were $129.5 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2020 were $2.3 trillion, ranging from $4.7 billion in Wyoming to $337.7 billion in California.

Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.

Per the US Census Bureau, Texas’s combined state and local direct general expenditures were $232.8 billion in FY 2018 (the most recent year census data were available), or $8,132 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,801.

Texas’s largest spending areas per capita were elementary and secondary education ($2,031) and public welfare ($1,374). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices.

Texas’s combined state and local general revenues were $237.4 billion in FY 2018, or $8,293 per capita. National per capita general revenues were $10,071. Texas does not levy an individual income tax or corporate income tax but does have a gross receipts tax. (Census counts this revenue as either general sales tax revenue or selective sales tax revenue.) Texas’s largest sources of per capita revenue were property taxes ($1,973) and federal transfers ($1,682).

Texas’s politics

Governor Greg Abbott, a Republican, was elected in 2018 with 56 percent of the vote. The next gubernatorial election is in 2022.

Republicans control both the House of Representatives (83 Republicans to 67 Democrats) and Senate (18 Republicans to 13 Democrats). Control of the governor’s mansion and each house of the legislature gives Republicans a trifecta in Texas. All Texas House seats are on the ballot in 2022 because representatives serve two-year terms. Senators serve a combination of two- and four-year terms during each decade’s legislative district apportionment cycle. This 2-4-4 term system ensures all Senate seats are up for election after new legislative district boundaries are drawn. All senators are therefore up for election in 2022.

Texas’s budget institutions, rules, and constraints

Texas uses a biennial budget. The legislature must pass a balanced budget, and is prohibited from carrying a deficit over into the following year. The Texas Constitution further limits spending growth with a budget rule based on personal income growth. However, the limit may be overridden with a simple legislative majority. Texas also limits total authorized debt and debt service incurred by the state.

(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)

Texas’s recent fiscal debates

  • Texas has debated major property tax reform for decades. Both of Governor Abbott’s predecessors, George W. Bush and Rick Perry, pushed various reform bills with limited success. A major obstacle to the reforms was cutting taxes while still adequately funding K–12 education—a problem that, even without property tax cuts, has repeatedly ended up in Texas courts. To maintain education funding, these major property tax reform bills often proposed replacing the lost revenue with an increase in the state’s general sales tax rate. However, Republicans objected to the tax increase, and Democrats objected to increasing a regressive tax. In 2019, Governor Abbott signed the Property Tax Reform and Relief Act, which aims not to cut property taxes but to slow the growth in property tax revenues. The legislation requires that local governments (excluding school districts) get voter approval before instituting annual increases of property tax revenues of more than 3.5 percent. (The allowable growth is higher for some special districts with very low millage rates.)
  • Governor Abbott also signed major education legislation in 2019. HB 3 included roughly $6.5 billion in new K–12 education spending, including new funds to raise the state’s student-funding formula 20 percent, higher salaries for teachers, more money for districts that want to experiment with merit-based teacher pay, and additional funds for lower-income districts and programs for English-language learners. As part of this education bill, the state also increased its share of public education funding and mandated that school districts lower property tax rates. The governor estimated these local tax cuts will provide $5 billion in property tax relief.

Texas’s current budget

Texas enacted its FY 2020-2021 biennial budget in May 2019. Over the two-year period, the budget included $125.0 billion in general-fund spending (an 8.6 percent increase over the previous biennial budget) and $250.7 billion in total spending (a 6.3 percent increase over the previous biennial budget).

Governor Abbott did not propose a supplemental budget, and the state did not make any significant budget changes during calendar year 2020. However, in May, the governor asked state agencies (with some exemptions) to prepare budgets with 5 percent spending reductions.

Governor Abbott released his FY 2022-2023 biennial budget proposal and gave his State of the State address in February 2021. The Texas comptroller’s biennial budget estimate, which kicks off the Texas budget process, reported the state had roughly $113 billion available for general fund purposes over the upcoming two-year period. This is not the same as general fund spending, but the revenue total is down from the current biennial budget. In his speech, the governor made only one comment about the state’s fiscal situation: “To say the least, we must balance the state budget without increasing taxes.”

For more on Texas’s budget, see