Every two years, the Texas Legislative Budget Board (LBB) releases a concise and accessible summary of the state’s General Appropriations Act (GAA), the official two-year budget. The latest iteration, the 2024-25 Fiscal Size-Up, was published on Wednesday, offering a comprehensive overview of how tax dollars were allocated by the Eighty-eighth Legislature during the Regular and Called sessions of 2023. This report provides valuable insights into the state’s budget, highlighting key points of interest.
1. Significant Growth in Spending
Texas’ 2024-25 budget is notably large, totaling $321.7 billion—a 21.5% increase over the previous biennium’s $264.8 billion. General Revenue-related funds saw a 20.5% increase, with $151.3 billion allocated for the current biennium. This marks a significant uptick in state spending. Despite this growth, the budget adheres to the five constitutional and statutory expenditure limits that govern state finances. The All Funds total also includes contingent spending for various projects, such as $500 million for school choice, $5 billion for energy infrastructure, $37 billion for transportation, $17.6 billion for tax relief, and $5.1 billion for border security.
2. A Major Role for Federal Funds
Federal financial assistance plays a significant role in the size of Texas’ budget. With pandemic-related aid still impacting state finances, federal funds make up 31.8% of the 2024-25 budget. Although this represents a slight decrease from the previous biennium’s 37.2%, nearly one-third of the state’s budget still relies on federal support. This dependence raises concerns about future stability, given the federal government’s fiscal challenges.
3. Stagnant Student Population Growth
K-12 education is one of the largest expenditure items in the state budget, but student population growth has remained stagnant. The average daily attendance in Texas schools held steady at 5.1 million students from 2020 to 2024. Despite the lack of growth in student numbers, expenditures in this area did not follow the same flat trajectory.
4. Staying Within Budgetary Limits
Despite the substantial budget size, Texas remained within all constitutional and statutory spending limits. These include the balanced budget limit, the tax spending limit, the limit on tax-supported debt, the welfare spending limit, and the limit on the growth of consolidated General Revenue Funds appropriations (CGR). The adherence to these limits indicates a disciplined approach to managing the state’s finances.
5. Sales Tax Dominance
The state sales tax remains Texas’ primary source of tax revenue. For the 2024-25 biennium, sales tax revenue is projected to generate $97.2 billion, accounting for 73.5% of total tax collections. The next largest revenue stream, motor vehicle sales and rental taxes, is expected to bring in $14.1 billion.
6. Low State Tax Burden
Texas continues to maintain a low state tax burden compared to other states. For fiscal year 2022, Texans paid $43.77 in state taxes per $1,000 of personal income, or 65.4% of the $66.97 national average. This ranks Texas as the fourth lowest state in the country, though it’s important to note that this metric does not account for local taxes, such as property taxes.
7. Rapid Population Growth
Texas’ population grew by 15.1% from 2012 to 2022, second only to Florida among large states. This population boom suggests that Texas’ low tax, limited government model is attractive to newcomers, despite criticism from some quarters.
8. Substantial Savings
The state’s Economic Stabilization Fund (ESF), or ‘rainy day’ fund, is expected to maintain a healthy balance of $23.8 billion by the end of the 2024-25 biennium. This substantial reserve provides a strong financial cushion and positions lawmakers to potentially deliver significant property tax relief in the future.
9. Long-Term Property Tax Increases
Property taxes in Texas, which are exclusively administered at the local level, have risen significantly over the past two decades. From 2001 to 2021, the total property tax levy increased by $25.3 billion to $73.5 billion—a 190% rise. School districts, which account for the largest share, have been a major driver of this increase. Recent legislative actions have sought to mitigate this burden through measures such as a 3.5% voter-approval limit and historic tax relief efforts.
10. Texas’ Economic Resilience
Thanks to its low tax, limited government approach, Texas continues to see strong economic growth. The state’s Real Gross State Product (GSP) grew by 4.8% in fiscal year 2023, the fastest pace in 12 years. Employment also grew by 4.1%, keeping the unemployment rate steady at 4.0%.
Overall, the 2024-25 Fiscal Size-Up underscores that while Texas faces challenges like any state, its fiscal and economic policies continue to yield positive results. The state’s model of governance is working, and with some adjustments, it has the potential to ensure long-term success for future generations.
