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The Texas House and Senate have released their initial budget proposals for the 2026-27 biennium, with the Senate’s draft (Senate Bill 1) totaling $332.9 billion and the House’s version (House Bill 1) coming in at $335.7 billion. These proposals include significant funding allocations for things like property tax relief, public education, teacher pay raises, and a $1 billion Education Savings Account (ESA) program to advance school choice initiatives.
Budget Overview
Every legislative session, the House and Senate alternate leadership roles in the budget process. This session, the Senate is taking the lead on the base budget, while the House will begin with the supplemental appropriations bill, which has yet to be filed at the time of this article.
Senate Finance Committee Chair Joan Huffman (R-Houston) introduced the Senate’s draft, which reflects an $11.6 billion increase over the previous biennium. Both budget proposals remain within the spending limits established by the Texas Legislative Budget Board (LBB).
In the 88th Legislative Session (2023), lawmakers passed the largest spending increase in Texas history appropriating $321 billion for the 2024-25 fiscal biennium, a sharp increase from $264.8 billion in the previous cycle.
Property Tax “Relief”: A Continuing Debate
Property tax relief continues to be a top priority, building on measures first introduced in 2019 and expanded in 2023. The Senate’s budget proposes $32.2 billion in tax reductions, including a planned $40,000 increase to the homestead exemption for general homeowners and $50,000 for seniors. Lt. Gov. Dan Patrick recently suggested increasing these exemptions to $140,000 and $150,000, respectively.
In contrast, the House budget focuses more on tax compression, allocating $6.5 billion in new relief without explicitly mentioning the homestead exemption increase. Instead, the House budget outlines $3.5 billion for additional tax relief, leaving the mechanisms to be determined.
The last legislative session saw significant disagreements over property tax relief strategies, leading to two special sessions. The final compromise included a $100,000 homestead exemption and only about $7 billion in school district tax rate compression.
Despite these efforts, property taxes remain a significant burden for Texans and continue to increase, prompting calls for reforms such as:
- Freezing school maintenance and operations (M&O) tax levies
- Eliminating local taxing entity loopholes
- Strengthening the No-New-Revenue tax rate
- Using state surplus funds to buy down M&O taxes
Education Funding and Teacher Pay Raises
With public education in the spotlight following the failure of the 2023 omnibus package, both budget drafts allocate $4.9 billion to $5.3 billion for public schools, including $1 billion dedicated to the highly anticipated ESA school choice program.
The Senate’s budget includes a statewide $4,000 teacher pay raise, with an additional $6,000 for rural teachers. The House budget, on the other hand, focuses on targeted incentives rather than across-the-board raises. Additional allocations include:
- $400 million for school safety initiatives
- $1 billion to address the Teacher Retirement System (TRS), which currently faces a $57.9 billion unfunded liability
Infrastructure Investments
Both budget proposals include substantial investments in state infrastructure, reflecting ongoing priorities from previous sessions:
- $5 billion for the Texas Energy Fund, supporting natural gas power plant development
- $2.5 billion for water infrastructure
- $40.4 billion for the Texas Department of Transportation (TxDOT) to address growing transportation needs
Other Key Appropriations
Additional notable allocations in the Senate’s budget include:
- $3 billion for a Dementia Prevention and Research Institute, a proposal championed by Lt. Gov. Patrick
- $500 million for Texas film incentives, aimed at boosting in-state film production
- $6.5 billion for border security, maintaining funding for Operation Lone Star and adding $403 million for hiring 560 new Department of Public Safety officers
Legislative Perspectives
In filing Senate Bill 1, or the Senate version of the General Appropriations Act, Texas Lieutenant Governor Dan Patrick (R) and Senate Finance Committee Chairman, State Sen. Joan Huffman (R-Houston), released the following statements expressing confidence in the budget’s conservative approach, emphasizing the importance of adhering to principles that ensure economic prosperity while managing state growth within reasonable limits. He stressed that surplus funds should be allocated to one-time expenditures to sustain Texas’ economic competitiveness,
“SB 1 maintains our promise to Texans by keeping our state on a conservative path to greater prosperity. Conservative budgeting principles used in SB 1 ensure that state government does not grow faster than population times inflation. Like the budget for the current biennium, Texas must prioritize one-time spending of our surplus. This will keep our state’s economy the envy of the nation and the world.”
Source: Statement by Texas Lt. Gov. Dan Patrick (R), 1.22.2025
“It is no secret that the Texas economy is thriving. By remaining fiscally conservative and making strategic investments, we can address the needs of our growing state while keeping an eye on the future. In the coming weeks, the Senate Finance Committee will hold daily public hearings on the budget to hear from state agencies, stakeholders, and the public…”
Source: Statement by Texas State Sen. Joan Huffman (R-Houston), 1.22.2025
SB 1 was referred to the Senate Finance Committee on Wednesday. The committee has scheduled several committee hearings on various sections of the proposed budget between January 27th and February 14th, 2025.
In filing the House’s version of the proposed budget, House Bill 1, newly elected House Speaker Dustin Burrows (R-Lubbock) underscored the budget’s role in defining the financial framework for upcoming legislative priorities, including school choice and infrastructure development. He called on his colleagues to explore further avenues for tax relief and increased classroom funding:
“Debating and passing the budget will be one of the most important undertakings of the session, as it will determine the financial boundaries under which we operate when considering all other major legislation, including school choice, water infrastructure, and more. Accordingly, 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. I have full confidence the House will invest in these opportunities while simultaneously managing taxpayer dollars wisely, eliminating unnecessary spending and maximizing efficiency to ensure every dollar benefits Texans.”
Source: Statement by Texas House Speaker Dustin Burrows (R-Lubbock), 1.22.2025
However, fiscal watchdogs such as Dr. Vance Ginn, a Texas Policy Research board member and President of Ginn Economic Consulting, have criticized the budget’s growth, noting that both the House and Senate versions build upon the previous session’s record-high spending increases. Ginn points out that the budgets include corporate welfare allocations such as the $5 billion Texas Energy Fund, $2.5 billion for water infrastructure, and $3 billion for dementia research—questioning whether these expenditures align with conservative fiscal principles.
Ginn also highlights that the ESA funding, while increased, still falls short of providing true universal school choice, as billions more are being funneled into public education, including across-the-board teacher pay raises that do not account for performance.
Similarly, another fiscal watchdog, Bill Peacock took to X to highlight that both chambers seem to prioritize spending the $24 billion surplus on new projects rather than returning it to taxpayers. According to Peacock, major new spending items like film incentives, teacher pay raises, and energy and water funding, result in a projected deficit of $396 million, with the total new spending being that of over $17.6 billion.
Texans for Fiscal Responsibility (TFR), a fiscal watchdog organization, also voiced concerns over the budget’s approach to property tax relief. They argue that the current proposals fall short of taxpayer expectations, given the state’s $24 billion revenue surplus. TFR contends that only 27% of the surplus is being returned to taxpayers and calls for stricter spending controls, more significant tax rate reductions, and greater efficiency in government spending.
The Texas Public Policy Foundation (TPPF) echoed some of these sentiments, advocating for spending restraint and prioritization of property tax relief, but also took a more optimistic tone with regard to the proposed budget overall. TPPF argues that budget growth should align with population and inflation increases, warning against excessive spending that burdens taxpayers. They also call for comprehensive tax reform to ensure surplus funds directly benefit taxpayers rather than expanding government programs.
Looking Ahead
While the House and Senate drafts exhibit only a few billion dollar difference, reconciling these differences will be crucial in the coming months. As the budget deliberations progress, Texans can expect continued discussions on balancing fiscal responsibility with prioritization in education, infrastructure, tax relief, and economic development.
Public hearings will be held between January 27 and February 14, 2025, providing opportunities for stakeholders to weigh in on the state’s financial priorities.
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