An Overview of the Texas Budget

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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

• Appropriations vs. Expenditures: 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. 

• Largest Budget Increase: 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. State funds were $219.4 billion, a 32% increase.

Tax Revenue, Economic Situation, and Spending Cap

• Tax Revenue Collection: The report 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​.
• Economic Indicators: Texas' economy showed strong growth indicators, with rising employment rates and increased personal income levels, although inflationary pressures and supply chain disruptions posed challenges​.

• Spending Growth Cap: 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

• Public Education:
  • 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 $40,00 to $100,000. There was also a nearly $7 billion increase in new funding for public education despite poor student outcomes.
• Health and Human Services:
  • Medicaid: 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.
• Infrastructure and Transportation:
  • Transportation Projects: Significant expenditures on transportation infrastructure to help address the state’s growing need for improved roadways and systems.

Corporate Welfare and New Constitutional Funds

• Texas Energy Fund: Allocated $5 billion for low-interest loans in this voter-approved fund, primarily for natural gas projects, marking a significant increase in corporate welfare​.
• Property Tax Abatement Program: After the old program rightfully expired, a new program was unfortunately created, continuing incentives for local government property tax abatements​.
• Texas Water Fund: Established with $1 billion to address water infrastructure needs through a voter-approved fund, reflecting the state's attempt to improve water shortages.

Specific Budget Insights

• State Employee Retirement and Health Benefits: Funding for state employee retirement and health benefits was increased to ensure the sustainability of these programs​.
• 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, and $600 million to raise the franchise tax exemption level for businesses with income below $2.47 million.
• Economic Stabilization Fund: Expected to reach nearly $24 billion by the end of FY 2025​.

Fiscal Challenges and Recommendations

• Frozen Budget Approach: Texans for Fiscal Responsibility proposed a "Frozen Texas Budget" to curb unsustainable spending by maintaining the current budget levels and returning surplus funds to taxpayers, which would eliminate property taxes over time and promote fiscal responsibility.

• 2025 Legislative Session: 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​.

Conclusion
The Fiscal Size-Up for the 2024-25 biennium provides a detailed snapshot of Texas' budgetary landscape, highlighting significant increases in appropriations and strategic investments in key areas. 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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