Texas lawmakers are set to reconvene in Austin with a budget surplus of nearly $24 billion, primarily attributed to growing tax revenues and unspent funds from previous initiatives, according to Texas Comptroller Glenn Hegar. For the 2026-2027 biennium, the state will have $194.6 billion available for general-purpose spending, representing a slight 1% decrease from the previous budget.

Key Drivers of the Surplus

Hegar pointed to several factors contributing to the Texas budget surplus, including prudent fiscal decisions during the last legislative session and the residual effects of the COVID-19 pandemic. “The Texas economy continues to normalize following disruptions caused by the pandemic, subsequent recovery, and inflation accompanying rapid economic growth,” Hegar stated.

Some surplus stems from $4.5 billion allocated for school funding and a voucher program never implemented. Governor Greg Abbott has emphasized creating a school voucher program as a legislative priority, delaying broader public school funding until its approval.

Legislative Priorities

Last year, legislators directed $18 billion toward property tax relief for homeowners. With the current surplus, lawmakers are expected to consider additional tax cuts. Addressing high home insurance costs, which rank among the highest in the nation, is also likely to be a focus.

Insurance tax collections have surged, increasing nearly 16% in 2022 and over 30% in 2023, compared to the typical annual growth of around 5%. Sales tax collections, the largest source of state revenue, are forecasted to grow by 9% in the upcoming biennium.

Rainy Day Fund and Infrastructure Investments

For the first time since its creation in 1988, the state’s rainy day fund is projected to reach its constitutionally mandated cap. This will redirect approximately $3 billion from severance taxes to general revenue. Some lawmakers advocate allocating portions of this surplus to water infrastructure and supply projects, similar to existing road funding mechanisms.

Political Reactions and Long-Term Considerations

Lt. Gov. Dan Patrick praised the Texas budget surplus as evidence of successful conservative policies. He identified property tax reductions and teacher pay increases as top priorities. Rahul Sreenivasan of the nonpartisan think tank Texas 2036 urged lawmakers to address long-term challenges, such as water infrastructure and workforce readiness, leveraging the available resources.

Outlook and Challenges

Lawmakers have 140 days to pass a budget before the session ends in June. “Insurance is just one small part of our economy, but it’s critical,” Hegar emphasized. “We must ensure living costs remain manageable, as some homeowners are now paying as much for insurance and property taxes as they are for their mortgages.”

The decisions made during this session will shape Texas’ financial and economic trajectory, balancing immediate relief measures with strategic investments for the future.