Yes — Texas has a budget surplus. The state closed its 2022–23 budget cycle with a record $32.7 billion ending balance, and the Comptroller projects a $4.66 billion ending balance for the current 2026–27 biennium.1Texas Comptroller of Public Accounts. The 2026-27 Certification Revenue Estimate The smaller cushion isn’t a sign of weakness. Lawmakers spent much of the earlier surplus on property tax cuts, schools, and infrastructure rather than letting it sit.
The Numbers Behind the Surplus
Texas budgets in two-year cycles running September 1 through August 31 of the following odd-numbered year. The 89th Legislature adopted a $338.5 billion all-funds budget for 2026–27, up from $321.3 billion in the previous cycle.2Legislative Budget Board. Fiscal Size-up 2026-27 Biennium
On the general revenue side — the part of the budget funded by state taxes rather than federal dollars or dedicated accounts — the Comptroller’s 2026–27 Certification Revenue Estimate projects $203.63 billion available against $198.97 billion in general-purpose spending. That leaves the $4.66 billion projected ending balance.1Texas Comptroller of Public Accounts. The 2026-27 Certification Revenue Estimate
Fiscal 2025 all-funds revenue came in at $183.05 billion, roughly 1 percent above the prior year.3Texas Comptroller of Public Accounts. Acting Texas Comptroller Kelly Hancock Announces State Revenue for Fiscal 2025, August State Sales Tax Collections Collections are still growing. The ending balance is smaller because spending is up, not because tax revenue fell.
Why the Surplus Shrank
Lawmakers made a deliberate choice to draw the cushion down. The 2026–27 budget directs $51 billion toward property tax relief — an $11 billion increase from the previous biennium — with much of that money compressing local school district tax rates and shifting the funding source from local property taxes to state general revenue.4Texas House of Representatives. 2025 Rotunda Report
The 2025 session also raised the homestead exemption to $140,000 for most homeowners and $150,000 for seniors and disabled homeowners. Combined with rate compression, the average Texas homeowner is estimated to save $497 per year.5Office of the Lieutenant Governor. Increasing the Homestead Exemption to $140,000, and $150,000 for Seniors
Other large commitments came alongside the tax cuts:
- $6.4 billion in new public education funding, plus a $1 billion education savings account program
- $6.5 billion for border security, bringing the total spent on border operations since 2021 to nearly $18 billion
- $4 billion for the Texas Energy Fund
- $2.4 billion in supplemental funding for water infrastructure
Add those up and the difference between a $32.7 billion ending balance and a $4.66 billion one is largely accounted for.
Texas Can’t Legally Run a Deficit
The Texas Constitution forbids the legislature from spending more general revenue than it expects to collect. Under Article III, Section 49a, the Comptroller must certify that appropriations fall within estimated available revenue before the budget takes effect. If a spending bill exceeds the estimate, it goes back to the legislature for revision.6Legislative Budget Board. Constitutional Limitations on Spending Voters approved that pay-as-you-go rule in 1942, and it’s the main reason Texas doesn’t carry operating deficits the way some other states do.
A second constitutional provision, Article VIII, Section 22(a), caps how fast non-dedicated tax spending can grow. The growth rate can’t exceed the estimated growth rate of Texas personal income. For 2026–27, forecasters projected personal income growth between roughly 11 and 12 percent, which set the ceiling on how much appropriations could rise.7Legislative Budget Board. Implementation of the Limit on Growth of Certain State Appropriations
Together, the two rules mean the state cannot budget for a shortfall, and it cannot spend its way out of a surplus quickly even when one exists.
The Rainy Day Fund Is at Its Cap
The operating balance isn’t the only cash Texas has on hand. The Economic Stabilization Fund, the state’s rainy day reserve, is funded largely by oil and natural gas production tax transfers. Its constitutional cap sits at 10 percent of general revenue deposits from the preceding biennium, excluding investment income and borrowed amounts.8Justia Law. Texas Constitution Art 3 – Sec 49-g
For fiscal 2026, that cap is approximately $26.51 billion, and the fund is projected to reach the cap for the first time. Once it does, severance tax transfers shrink to hold the fund at its limit, and interest earnings flow instead to general revenue.9Texas Comptroller of Public Accounts. Rainy Day Fund Reaches Its Cap The projected ending balance for fiscal 2026 is $27.43 billion, slightly above the cap because investment returns keep accruing after severance transfers stop.10Texas Comptroller of Public Accounts. Economic Stabilization Fund Ending Balance
A reserve that size gives the state real insulation against an oil-price collapse or a recession that cuts into sales tax receipts, which is the dominant state tax at 58 percent of collections.3Texas Comptroller of Public Accounts. Acting Texas Comptroller Kelly Hancock Announces State Revenue for Fiscal 2025, August State Sales Tax Collections
What Could Change the Picture
The current surplus rests on assumptions that could shift. Several forces are worth watching:
- Energy prices. Oil and natural gas production taxes brought in $7.86 billion in fiscal 2025. A sustained drop would cut revenue and reduce transfers to the rainy day fund.
- Federal funding. A large share of Texas health and transportation spending runs on federal dollars. If those flows shrink, the state has to backfill or cut.
- Property tax relief commitments. The $51 billion in tax relief is now built into the base budget. If revenue growth slows, lawmakers will have to choose between scaling that back and reducing services elsewhere.
- Population growth. Texas adds hundreds of thousands of residents a year, and every one of them raises demand for schools, roads, water, and Medicaid.
The Surplus Doesn’t Erase Long-Term Liabilities
A balanced operating budget is not the same as being debt-free. Texas carries significant unfunded pension and retiree benefit obligations that sit outside the two-year budget.
The Teacher Retirement System of Texas reported an unfunded actuarial accrued liability of $64.9 billion as of August 31, 2025, up from $60.6 billion the year before.11Teacher Retirement System of Texas. Actuarial Valuation Report As of August 31, 2025 Other state pension systems add to that total. One analysis estimates that combined pension and retiree healthcare shortfalls work out to about $1,100 per Texas taxpayer. That figure isn’t a bill due today; it’s the gap between what the state has promised in future benefits and what it has set aside.
The balanced budget requirement applies to the operating budget, not to pension funding. So a surplus in one place doesn’t automatically close a shortfall in the other, and these liabilities grow if investment returns disappoint or contributions are deferred. For now, though, the answer to whether Texas has a budget surplus is a clear yes — a smaller one than two years ago, by design, and backed by a rainy day fund at its constitutional ceiling.