You may recall that earlier this year, we noted in a Baker Issue Brief that the robust growth in Texas state revenues had begun to plateau. We now have the final numbers for FY2024-2025, confirming our early findings.
Total revenues last year came in at $183 billion, up from $181 billion the previous year. That was a 1.1% increase, which was slightly less than inflation for the year. Sales taxes, the State’s largest source of tax revenue, were up by 4%. Since that was over three times the State’s inflation rate, it is a good indication that the economy was still growing.
The largest decline in tax revenues was the oil production tax, dropping by almost a billion dollars due to lower oil prices and production rates leveling off. However, some of that was offset by a $345 million increase in natural gas production tax. The natural gas production tax is a little less than half of the oil production tax ($5.3 billion versus $2.5 billion). I suspect that we will continue to see the natural gas production tax increase relative to the oil production tax in the future as natural gas becomes increasingly important in providing on-demand electric generation.
Critically, income from the federal government, the State’s largest single revenue source, held steady at $59 billion. There has been some concern that the State might see a decline in federal funding under the new administration, but so far, that has not materialized.
The investment and interest income earned by the State last year was down by almost a billion dollars, representing a 17% decline. This appears to be a combination of lower interest rates and a smaller corpus to invest as the State spent down some of its reserves.
This is a link to a spreadsheet with the data on all revenue categories.Texas lawmakers have enjoyed substantial budget surpluses in recent years. However, the Comptroller’s revenue estimates for the next two years project only a modest increase. As costs inevitably rise, balancing the budget could become quite challenging in the coming years.
Texas lawmakers have enjoyed substantial budget surpluses in recent years. However, the Comptroller’s revenue estimates for the next two years project only a modest increase. As costs inevitably rise, balancing the budget could become quite challenging in the coming years.
Bill King is the former mayor of Kemah, Texas. He served on Texas gubernatorial commissions studying the aftermath of both Hurricanes Rita and Ike. In 2006, he served on a task force appointed by the County Judges of Harris, Galveston and Brazoria Counties to revise the region’s evacuation plans in the wake of the disastrous Rita evacuation. In 2006, the National Hurricane Conference awarded him their Outstanding Achievement Award for his work in this area. In 2009, he was one of the founding directors of the Gulf Coast Community Protection and Recovery District, which initiated the process of attempting to build the Ike Dike.