How much of Texas' unprecedented budget surplus will be spent? That's up to Republicans

How much money Texas spends from the more than $50 billion in surplus revenue and other funds sitting around this legislative session might depend on whether conservative lawmakers are willing to break character and loosen up the state's purse.

Long held as frugal when it comes to finances, Republicans are under pressure from Democrats to unleash a significant chunk of money for goods and services, proposals that in a normal year would be nonstarters. But, if they do so, Republicans risk being seen as imprudent, an unwelcome label for the next time they run for election.

"The biggest potential pitfall is the reluctance of many Republicans being on the record engaging in activity that could be characterized in a future Republican primary as being fiscally irresponsible," said Mark Jones, a Rice University political science professor. "Your opponent has an easy campaign ad."

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Spending decisions are shaping up to be the biggest challenge this session, as lawmakers balance unprecedented economic success against the unknowns of future budgets. Earlier this month, state Comptroller Glenn Hegar announced the state's budget surplus stood at an estimated $32.7 billion, a breathtaking number reflective of the state's bustling economy and the increased inflationary product costs that are driving up sales tax revenue. Staggering on its own, that figure does not include an additional $14 billion available in the state's rainy day fund, an account that is expected to nearly double to $27 billion by the end of the biennium in 2025.

What's more, Texas is still holding onto $4 billion in federal pandemic relief funds.

In figuring out what to do with the money, Republican leaders to this point have prioritized homeowners. Last week, the Texas House and the Senate released preliminary budget proposals that each included $15 billion in property tax relief, implementing a call from Lt. Gov. Dan Patrick to increase the homestead exemption from $40,000 to $70,000. Gov. Greg Abbott called it "a good start" but said he will push for more.

Meanwhile, Democrats are emphasizing one-time infrastructure expenditures for roads, water, the electric grid and rural broadband internet access. They also are exploring investments in education.

In proposing a $15,000 salary increase for schoolteachers, Rep. James Talarico, D-Round Rock, challenged conservatives to put the budget surplus to use.

"Hoarding this surplus while educators and children are suffering is immoral, and it's also bad business," Talarico said. "Any business person worth their salt will tell you that you don't stick your money under your mattress. You put your money to work by making smart investments."

Talarico said the cost for the raises would come out to less than half of the total budget surplus.

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In total, the state has $188 billion available to spend over the next biennium. Yet, under a constitutional limit, it can spend only $134 billion. Including the $4 billion in federal money that was not allocated in the House and Senate budget proposals, lawmakers are prepared to leave $50 billion untouched without exercising some creative accounting or voting to exceed the spending limit.

The only time the state has exceeded its spending limit was in 2007, and it was done to lower property taxes. Doing so is seen as politically risky, and Patrick, who heads the Senate, says he is opposed to it.

Rep. Donna Howard, D-Austin, who was a rookie lawmaker when the state busted the spending cap about 16 years ago, said that, because the money was returned to homeowners through tax relief, the vote was not viewed as controversial.

"It seems that the same narrative should apply now," Howard said. "I'm not sure if that's good enough for some of my colleagues, but it did provide necessary cover for my colleagues back in 2007. I think it could possibly be used now as well."

Howard, who served last session on the House Appropriations Committee, says tax relief from the surplus should include additional Texans, like business owners and rental property owners, and not just homeowners who have a homestead exemption.

"That doesn't guarantee renters will get a break, but it brings in a larger proportion of Texans," she said.

Jones, the political science professor, suspects lawmakers might circumvent the spending cap by establishing endowments for students pursuing high-demand careers such as nursing or law enforcement.

"I would expect them to do that before they vote to bust the spending cap," he said.

Daniel Sánchez-Piñol, an economist with the Texas Public Policy Foundation, a conservative think tank, said the foundation opposes exceeding spending limits for infrastructure improvements, believing instead that money should come from the federal government, not the state. But the foundation would be fine with busting the cap for property tax relief, Sánchez-Piñol said.

"You're not spending. You're giving those resources back to the taxpayer," he said.

But Dale Craymer, president of the Texas Taxpayers and Research Association, suspects lawmakers might instead choose a workaround to unlock some of the money.

Whereas a reduction for most state taxes would not count against the spending limit, a reduction in property taxes, which are local and go to schools, would count. As such, the $15 billion property tax cut proposed by both the House and the Senate is classified as an expense, no different from money spent for parks, public safety or border security.

So, rather than include property tax relief in the budget as an expense, lawmakers could vote to make it a constitutional amendment, and, if approved by Texas voters, the money would not count against the spending cap.

A constitutional amendment requires two-thirds votes in both chambers before it goes to Texas voters. Republicans fall short of that percentage on their own and would need some Democratic support to pass the amendment. Democrats might be willing to go along in exchange for getting money for their priorities, Craymer said.

"Realistically, that does give Democrats the ability to bring forward some of the items they want considered as well," Craymer said.