Texas Comptroller Glenn Hegar said legislators will face a tight budget over the next two years, but not as bad as previously expected when the recession began.

The Biennial Revenue Estimate (BRE), released by Hegar this morning, lets legislators know the status of the state’s accounts at the close of the current two-year budget biennium and how much revenue the state is expected to collect over the next biennium. The comptroller submits this estimate before each new legislative session in order to assist legislators in crafting the next two-year budget.

Hegar predicted the state will end the current biennium with a deficit of roughly $950 million, far less than the $4.6 billion deficit anticipated in July of 2020, when freefalling oil & gas prices and business closures related to the COVID-19 pandemic combined to create a major economic contraction.

The comptroller explained the improved outlook is largely due to better-than-expected performance of revenue collections from online sales. The increasing availability of COVID-19 vaccines and positive economic indicators, such as growth in personal savings, led Hegar to believe there may be capacity for a substantial surge in consumer spending once pandemic concerns recede.

As legislators prepare to write a new state budget for the next two years, the state is projected to have $112.53 billion available for general purpose spending for the 2022-23 biennium, which is slightly less than the $112.96 billion available at the beginning of the previous biennium. Hegar said the state will be in much better shape than in 2011, when a $27 billion shortfall resulted in $5.4 billion in cuts to public education that session.

The report shared this morning does not include the impact of 5% budget reductions state agencies were asked to make when the effects of the recession were still uncertain. According to Hegar, these reductions could save the state about $1 billion, which could serve to offset the current projected deficit. Nor does the report factor in federal funding from the CARES Act used to replace some state spending.

The Economic Stabilization Fund (ESF), more commonly known as the state’s “rainy day fund,” is projected to end the 2022-23 biennium with a balance of $11.6 billion. The comptroller acknowledged that legislators may choose to tap the fund during the 2021 legislative session, but he did not factor potential ESF withdrawals into the report.

With regard to public education, Hegar emphasized that all the legislators with whom he has spoken have assured him of their commitment to maintaining the public education funding increases made under House Bill (HB) 3 in 2019. There is still no dedicated source of revenue to pay for the increases, and Hegar said the state’s ability to keep up with the rising costs of HB 3 will rely primarily on the state’s continued economic growth.

It is not unusual for the comptroller to release a revised estimate based on any changing economic indicators that occur while the Legislature is still in session. Hegar acknowledged there may be new information in the coming months that could necessitate a revised estimate in April or May. You can read the full biennial revenue estimate report here.