Texas budget plans call for bigger property tax cuts

The Republican-controlled Texas House and Senate on Wednesday unveiled base budget plans for the upcoming biennium with both chambers proposing to continue funding and expand a massive property tax cut enacted in 2023.

Armed with a record $39.4 billion cash balance, lawmakers passed $18 billion in state-funded school operating property tax cuts for the current biennium. The triple-A-rated state is expected to begin fiscal 2026-27 on Sept. 1 with a smaller, but still hefty balance of $23.8 billion, according to state Comptroller Glenn Hegar’s revenue forecast.

The House proposed $26.3 billion for the ongoing cost of the tax cuts, along with $6.5 billion to provide additional relief, while the Senate’s budget calls for $32.2 billion to cover existing and increased reductions, according to budget highlights released by the chambers.

Fitch Ratings continues to raise concerns that ongoing state funding of big property tax cuts could pressure future Texas budgets.

“Although state officials expect to be able to absorb the increase, estimated by the state comptroller’s office at just over $6 billion per year, within normal revenue growth, there is some risk to the state in funding a significant new ongoing expense partly with accumulated fund balances that, by definition, are one-time in nature,” Fitch said in a September rating report.

The Senate’s nearly $333 billion all-funds budget, which includes $234.4 billion in general revenue spending, is smaller than the $335.7 billion in total spending, including a $154.1 billion general revenue budget, announced by the House.

“The budget will be considered on the House floor as soon as practical, and during this process, I would urge my colleagues in the House to identify additional resources within the budget to deliver even greater property tax relief and additional funding for classrooms and teachers,” newly elected House Speaker Dustin Burrows said in a statement. 

Both budgets include a public school funding boost – $4.53 billion in the House plan and $5.3 billion in the Senate’s. Additional funding for the current biennium was tied to the passage of a school voucher program that floundered in 2023 after passing the Senate and being blocked in the House by a coalition of Republicans and Democrats. 

Some Texas districts started the current school year with shaky budgets and depleted reserves amid a state per-pupil allotment that has remained stagnant since 2019.

Last year, Republican Gov. Greg Abbott campaigned for pro-voucher House candidates and declared more than enough were elected Nov. 5 to ensure a program is passed this year. 

For the upcoming budget, each chamber earmarked $1 billion for “school choice.”

The Senate plan would allocate $1 billion to reduce the state’s unfunded pension liability, while the House would appropriate $450 million for the Teacher Retirement System to minimize premium increases.

A Dementia Prevention and Research Institute of Texas proposed by Lt. Gov. Dan Patrick, who heads the Senate, would be funded with $3 billion. Patrick has said the institute would be structured like the state’s cancer research initiative, which has up to $6 billion of voter-approved bonding authority.