Introduction

The Texas Legislative Budget Board (LBB) publishes the “Fiscal Size-Up” report after every session to comprehensively review the state’s budget and fiscal actions for the biennium. The latest report, covering the 2024-25 budget period, offers crucial insights into how tax dollars are allocated following the 88th Texas Legislature’s regular and special sessions in 2023. The following are key highlights.

Budget Inconsistencies and Excesses

The report inconsistently compares the budget with estimated, budgeted amounts in 2022-23 and appropriated amounts in 2024-25. This means that the 2022-23 budget includes initial appropriations, supplemental appropriations, and other expenditures, while 2024-25 includes only initial appropriations. The report’s comparisons are informative but incomplete. The discrepancy makes it challenging to accurately assess the state’s fiscal health, so only initial appropriations should be used for a consistent comparison. 

The 2024-25 biennium saw the largest budget increase in Texas history, driven by a significant rise in appropriations across various areas. The initial appropriations for 2024-25 were $321.7 billion in all funds, a 21.5% increase in state and federal funds from the previous biennium. When excluding federal funds and looking at State funds only, appropriations were $219.4 billion, a 32% increase. 

Tax Revenue, Economic Situation, and Spending Cap

The report also details how much tax revenue was collected, showing a robust revenue performance driven by strong economic growth and higher tax receipts in various categories, including sales tax, oil and gas production taxes, and motor vehicle sales taxes​.

Texas’ economy showed strong growth indicators, with rising employment rates and increased personal income levels, although inflationary pressures and supply chain disruptions posed significant challenges​.

The LBB set the spending growth cap at 12.33%, based on the average rate of population growth and inflation. This cap aims to control excessive government spending and ensure fiscal sustainability​.

Funding by Major Categories

The Foundation School Program received substantial increases, including $5.3 billion to maintain past property tax relief efforts and $12.3 billion in new property tax relief to reduce school district M&O property tax rates by 10.7 cents per $100 valuation and raise the homestead exemption from $40,000 to $100,000. There was also a nearly $7 billion increase in new funding for public education despite continued poor student outcomes.

In Health and Human Services, Medicaid was the main driver of healthcare costs at the state level. There were changes in how much the federal government provided, and the state expanded the program by allowing mothers to receive benefits for up to 12 months after giving birth.

Overall, the two categories of Public Education and Health and Human Services accounted for an astounding 70% of all State appropriations. 

On the infrastructure and transportation side, significant expenditures on transportation infrastructure were made to help address the state’s growing need for improved roadways and systems.

Corporate Welfare and New Constitutional Funds

Much of the budget also included funding for corporate welfare, including: 

• The Texas Energy Fund, which allocated $5 billion for low-interest loans in this voter-approved fund, primarily for natural gas projects, marking a significant increase in corporate welfare​.
• A new property tax abatement program: After the old program rightfully expired, a new program was unfortunately created, continuing incentives for local government property tax abatements​.
• The Texas Water Fund was established with $1 billion to address water infrastructure needs through a voter-approved fund for likely questionable projects that should be done privately. 

Additional Budget Insights

• State Employee Retirement and Health Benefits: Funding for state employee retirement and health benefits was increased. 
• Debt Service: Increased to cover the state’s obligations and maintain its credit rating​.
• Tax Relief: The budget included measures for the second-largest property tax relief in Texas history, $12.3 billion, using part of the $33 billion in surplus money (over-collected taxpayer money), and $600 million to raise the franchise tax exemption level for businesses with income below $2.47 million. Unfortunately, data has proven that the tax relief still resulted in an overall property tax increase across the State, intensifying the need for reforms. 
• Economic Stabilization Fund: Also known as the “Rainy Day Fund,”  is Expected to reach nearly $24 billion by the end of FY 2025​.
• Surplus: There could be at least $16 billion in surplus available for next session under the pay-as-you-go limit.

Fiscal Challenges and Recommendations

Despite Texas’ economic success and renown, the State faces some challenging headwinds, mostly self-created. A major hindwind is the unsustainable increases in government spending and property tax burdens. Texans for Fiscal Responsibility proposed a “Frozen Texas Budget” to curb irresponsible spending by maintaining the current budget levels and returning surplus funds to taxpayers, which would eliminate property taxes over time and promote fiscal responsibility.

Going forward, the 89th Texas Legislature is encouraged to adopt stricter budgetary controls to sustain property tax relief efforts and reduce the overall spending burden. Recommendations include freezing the budget, cutting unnecessary expenditures, and continuing property tax reductions​ through rate compression. 

Conclusion

The Fiscal Size-Up for the 2024-25 biennium provides a detailed snapshot of Texas’ budgetary landscape, which, when examined properly, highlights significant increases in government appropriations, at the expense of taxpayers. While the budget reflects robust growth and substantial investments, it also underscores the need for continued fiscal discipline to ensure sustainable economic prosperity for all Texans. As the state navigates these fiscal challenges, adopting prudent budgetary practices and prioritizing taxpayer relief will be crucial for maintaining Texas’ economic vitality.

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