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The 2024-25 Certification Revenue Estimate Transmittal Letter

October 5, 2023

The Honorable Greg Abbott, Governor
The Honorable Dan Patrick, Lieutenant Governor
The Honorable Dade Phelan, Speaker of the House
Members of the 88th Legislature

Ladies and Gentlemen:

In accordance with Texas Government Code Section 403.0131, I hereby present the detailed tables for the revenue estimate I used to certify the General Appropriations Act for the 2024-25 biennium and other appropriations bills approved by the 88th Legislature. This revenue estimate also serves as the supplemental statement of revenue available for the 88th Legislature, Third Called Session, in accordance with Article III, Section 49a(a), Texas Constitution. The estimates in this document include actual revenue collections and disbursements through Aug. 31, 2023, and the estimated fiscal impact of all legislation passed by the 88th Legislature, Regular Session, as well as the Second Called Session. After accounting for statutory transfers, balances on hand at the close of the 2022-23 biennium and expected revenue collections and adjustments, the state will have a total of $194.57 billion in General Revenue-related funds available. This revenue will support general-purpose spending of $176.28 billion for the 2024-25 biennium, resulting in an expected ending General Revenue-related certification balance of $18.29 billion.

In fiscal 2024, the Economic Stabilization Fund (ESF) and State Highway Fund (SHF) each will receive $3.06 billion in transfers from the General Revenue Fund from severance taxes collected in fiscal 2023 and a transfer of an estimated $2.76 billion in fiscal 2025 from severance taxes collected in fiscal 2024. Additionally, in fiscal 2024 the ESF will receive a transfer of $2.52 billion, half of the unencumbered and unobligated fiscal 2023 General Revenue Fund ending balance. After accounting for interest and investment earnings by the ESF, along with expenditures authorized by appropriations made in recent legislative sessions, we project a fiscal 2025 ending ESF balance of $23.77 billion.

For well over a year now, consensus macroeconomic forecasts have indicated a recession this year or next. Despite sharply higher interest rates, household budgets stressed by inflation and adverse economic conditions among major trading partners, the national economy has continued to grow. Meanwhile, the Texas economy has outperformed the national economy, and the economic outlook included with this revenue estimate does not assume a recession in Texas. The dangers to the economic outlook and the possibility of recession, however, are very real. Adverse factors that could still combine to spark recession include: as yet unknown longer term depressive effects of the restrictive monetary policy imposed by the Federal Reserve over the last year and a half; collapsing commercial real estate values and defaults threatening credit availability among regional banks; declining savings rates and rising credit card debt balances among lower and middle income households that may weaken consumer spending; slowing or nonexistent growth among major US trading partners, including a faltering Chinese economy with unemployment among younger people so high the government will no longer report it; and further threats to world food and energy supplies stemming from Russia’s continuing war against Ukraine.

In view of the significant risks to the economic outlook, revenue is estimated conservatively for the 2024-25 biennium. It may well turn out that robust economic growth, and consequently revenue growth, will continue unabated. But it would not be prudent to simply assume that will be the case.

I will continue to monitor the Texas economy and state revenues closely and will keep you informed of any significant events as they arise.

Sincerely,

Glenn Hegar

Enclosure

cc: Jerry McGinty, Legislative Budget Board