Texas has a budget surplus, not a deficit. The state closed its 2022–23 cycle with a record $32.7 billion ending balance, and the current 2026–27 biennial budget projects a smaller but still positive $4.66 billion ending balance after lawmakers directed tens of billions toward property tax cuts, schools, and infrastructure. The state constitution makes a true operating deficit structurally unavailable: the Comptroller cannot certify a budget that spends more general revenue than Texas expects to collect.
Why Texas Can’t Run an Operating Deficit
Under Article III, Section 49a of the Texas Constitution, the Comptroller must certify that appropriations fall within estimated available revenue before the budget takes effect. If a spending bill exceeds the Comptroller’s estimate, it goes back to the legislature for revision.1Legislative Budget Board. Constitutional Limitations on Spending Voters approved this pay-as-you-go rule in 1942, and it has kept Texas from accumulating the operating deficits some other states carry.
A separate constitutional provision, Article VIII, Section 22(a), caps how fast appropriations from non-dedicated state tax revenue can grow. The ceiling is tied to the estimated growth rate of state personal income. For the 2026–27 biennium, forecasters projected Texas personal income growth between roughly 11 and 12 percent, which set the limit on spending increases.2Legislative Budget Board. Implementation of the Limit on Growth of Certain State Appropriations
Together, these rules mean the question for Texas is never whether the operating budget balances. It’s how large the surplus is and what the legislature chooses to do with it.
Where the Surplus Went
The projected $4.66 billion ending balance for 2026–27 is far smaller than the $32.7 billion the state banked at the end of 2022–23. That shrinkage is deliberate. The 89th Legislature finalized a $338.5 billion biennial budget, up from $321.3 billion in the previous cycle, and spent down reserves rather than letting them accumulate.3Legislative Budget Board. Fiscal Size-up 2026-27 Biennium The Comptroller’s 2026–27 Certification Revenue Estimate projects $203.63 billion in general revenue-related funds for the biennium, supporting $198.97 billion in general-purpose spending.4Texas Comptroller of Public Accounts. The 2026-27 Certification Revenue Estimate
The single largest use of the surplus has been property tax relief. The 2026–27 budget directs $51 billion toward property tax relief, an $11 billion increase over the previous biennium.5Texas House of Representatives. 2025 Rotunda Report Much of that money compresses local school district tax rates, shifting part of the funding source from local property taxes to state general revenue. The 2025 session also raised the homestead exemption to $140,000 for most homeowners and $150,000 for seniors and disabled homeowners, with the average Texas homeowner estimated to save $497 per year.6Office of the Lieutenant Governor. Increasing the Homestead Exemption to $140,000, and $150,000 for Seniors
Beyond tax relief, lawmakers committed $6.4 billion in new public education funding, launched a $1 billion education savings account program, directed $6.5 billion to border security for the biennium, and set aside $4 billion for the Texas Energy Fund and $2.4 billion as a supplemental appropriation for water infrastructure. Education agencies account for 39.3 percent of the all-funds budget and health and human services for 31.8 percent, together making up roughly 71 percent of total appropriations.3Legislative Budget Board. Fiscal Size-up 2026-27 Biennium
The Rainy Day Cushion Behind the Surplus
Texas also keeps a separate reserve called the Economic Stabilization Fund, which receives a portion of oil and natural gas production tax revenues each year. The fund has a constitutional cap set at 10 percent of general revenue deposits from the preceding biennium, excluding investment income and borrowed amounts.7Justia Law. Texas Constitution Art 3 – Sec 49-g
For fiscal year 2026, that cap sits at approximately $26.51 billion, and the fund is projected to reach it for the first time. Once the cap is hit, severance tax transfers shrink to keep the fund at its limit, and interest income on the ESF’s cash balance flows instead to the General Revenue Fund.8Texas Comptroller of Public Accounts. Rainy Day Fund Reaches Its Cap The fund’s projected ending balance for fiscal 2026 is $27.43 billion, slightly above the cap because investment returns continue to accrue after severance transfers stop.9Texas Comptroller of Public Accounts. Economic Stabilization Fund Ending Balance A reserve of that size gives the state meaningful insulation against an oil-price collapse or a recession that cuts into sales tax collections.
What Could Turn the Surplus Around
Several factors will shape whether Texas keeps running surpluses in the coming years.
- Population growth. Texas adds hundreds of thousands of residents each year, driving demand for schools, roads, water systems, and healthcare, especially Medicaid.
- Energy prices. Oil and natural gas production taxes brought in $7.86 billion in fiscal 2025. A sustained drop in prices would reduce that revenue and shrink transfers to the Economic Stabilization Fund.10Texas Comptroller of Public Accounts. Acting Texas Comptroller Kelly Hancock Announces State Revenue for Fiscal 2025, August State Sales Tax Collections
- Federal funding shifts. Federal dollars fund a large share of health programs and transportation projects. Changes in federal policy could force the state to backfill costs from its own revenue.
- Property tax relief commitments. The $51 billion in tax relief is now built into the state budget. If revenue growth slows, the legislature will face a choice between cutting services and scaling back that relief.
Sales tax carries most of the load on the revenue side. The state rate is 6.25 percent, local jurisdictions can add up to 2 percent, and sales tax accounts for 58 percent of all state tax collections.10Texas Comptroller of Public Accounts. Acting Texas Comptroller Kelly Hancock Announces State Revenue for Fiscal 2025, August State Sales Tax Collections Because Texas has no personal income tax, a prolonged consumer slowdown would show up quickly in state receipts.
The Liabilities a Surplus Doesn’t Erase
An operating surplus doesn’t mean the state has no long-term financial obligations. Texas carries significant unfunded pension and retiree benefit liabilities that sit outside the operating budget.
The Teacher Retirement System of Texas alone reported an unfunded actuarial accrued liability of $64.9 billion as of August 31, 2025, up from $60.6 billion the prior year.11Teacher Retirement System of Texas. Actuarial Valuation Report As of August 31, 2025 Other state pension systems carry additional unfunded obligations. One analysis estimates that when all unfunded pension and retiree healthcare liabilities are combined, each Texas taxpayer effectively bears about $1,100 in deferred costs. That figure isn’t a bill due today. It’s the gap between what the state has promised in retirement benefits and what it has set aside to pay for them.
The balanced budget requirement applies to the operating budget, not to pension funding. A surplus in one doesn’t automatically close a shortfall in the other.
Where to Verify the Numbers
The Texas Comptroller of Public Accounts is the state’s chief financial officer. The Comptroller’s Biennial Revenue Estimate, issued at the start of each legislative session, sets the spending ceiling for the budget, and the office publishes ongoing revenue reports, tax collection data, and the Certification Revenue Estimate used in this article.12Texas Comptroller of Public Accounts. About the Office of the Texas Comptroller
The Legislative Budget Board, a joint committee co-chaired by the Lieutenant Governor and the Speaker of the House, produces the Fiscal Size-Up, which breaks down the adopted budget in detail.13Legislative Budget Board. About Legislative Budget Board Both sources update throughout the biennium, so the current surplus figure can be checked against the most recent certification rather than relying on headline numbers from the session.