City of Meadowlakes
Three weeks ago, the Texas House approved a $337 billion biennial budget. That followed on the heels of a Senate approved biennial budget two weeks earlier of $336 billion (average of $168 billion per year for the next two years).
I was in a long conversation with the Texas Comptroller’s office yesterday to learn the sources of tax revenues required to support that level of spending. I received a return email with five attachments, the one of which had 286 pages of data.
State Budget
Two takeaways from the reports is that the state will raise roughly $83.4 billion in taxes for each of the next two years.
In addition, $178.9 billion will be available from fees, lottery income, investment income, and federal government income (used mainly for Medicaid).
The federal Medicaid payment to Texas covers only two-thirds of the Medicaid cost.
Notably, the state’s emergency reserve fund is projected to increase from $24.3 billion in 2025 to $27.4 billion in 2026, and further to $27.5 billion in 2027.
It will hit the cap in 2026, meaning that no more can be transferred to the fund.
Not surprisingly, Sales and Use Taxes are the number one source of the state’s revenues, contributing $48.8 billion yearly or 57.6% of the state’s tax income.
Others in the top five include Franchise Tax (8.4%), Motor Vehicle Sales and Rental Taxes (8.3%), Oil plus Natural Gas Production Tax (10.3%), and Insurance Tax (5.1%).
School Choice
We spoke about school choice on these pages earlier this spring. That bill has passed. Today’s newsletter will dispense with the details that have been previously described. From the information available, it appears that $1.0 billion will be allocated to fund school choice, which would make it a fairly limited program. The latest amendments also include a provision that excludes private schools that have been in existence less than two years. Texas joins 32 other states that have either universal school choice (15 states) or limited school choice (17 states). The remaining 18 states have no school choice programs.
Property Tax Relief
Property tax relief is also moving forward, but a final bill will likely take longer. As in 2023, the Texas House prefers using “compression,” i.e., requiring a lower tax rate.
The Texas Senate prefers attacking the issue by simply raising the homestead exemption.
The Senate version would have to be accompanied by a constitutional amendment, while the House methodology of simply setting lower tax rates could be easily eliminated in the future.
Many say that the latter would address the issue of falling economic times in the future when the state no longer has revenue surpluses like we have experienced in the 2023 and 2025 sessions.
Compression, by definition, distributes some of the relief to businesses and landlords.
If the Senate version prevails, the homestead exemption would be increased from the present $100,000 to $140,000.
The exemption would increase from $110,000 to $150,000 for seniors aged 65 years or above.
