Glenn Hegar
Texas Comptroller of Public Accounts
Glenn Hegar
Texas Comptroller of Public Accounts
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Glenn Hegar
Texas Comptroller of Public Accounts
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A Review of the Texas Economy


Budget Drivers The Forces Driving State Spending

Published November 2018

Every regular session of the Texas Legislature considers thousands of pieces of legislation. But regardless of what happens to this mountain of bills, there’s one that always gets attention — the General Appropriations Act (GAA), which outlines the state budget. The GAA, as thick as a Victorian novel, addresses every aspect of state government funding, from roads and prisons to immunizations and scientific research.

Most of the budget is driven by mandates in state law and the Texas Constitution and matching requirements for federal aid. Less than a fifth is available for “discretionary” spending, and lawmakers prioritize this spending as Texas’ needs change. Deciding how to spend that crucial fifth requires hundreds of hours of debate and negotiation in every session.

But a majority of state spending goes to just three purposes: education, health care and transportation. In this report, we examine what’s driving the steady increase in their costs.

Classifying State Revenue

Texas state government derives its revenue from taxes, licenses, fees, interest and investment income, net lottery proceeds, federal aid and other, minor sources.

These revenues can be classified into four categories:

  • General Revenue funds are revenues that are not restricted by state law and include the nondedicated portion of the General Revenue Fund, the state’s primary operating fund.
  • General Revenue dedicated funds (GR-D) include revenue in more than 200 accounts within the General Revenue Fund that state law dedicates for specific purposes.

Together, General Revenue and General Revenue-dedicated fund balances are called General Revenue-related funds (GRR). GRR represents a little more than half of all state spending.

  • Federal funds include grants, allocations and payments or reimbursements received from the federal government by state agencies and institutions.
  • Other funds consist of any funds not included in general revenue, whether dedicated or not, such as the state revenue included in the State Highway Fund, the Texas Mobility Fund, the Property Tax Relief Fund and the Economic Stabilization Fund (or “Rainy Day Fund”).

The sum of all these revenue sources is called All Funds.

Spending by Article

The GAA is organized into 10 major “articles” based on type of government function (Exhibit 1). Article VI, for example, includes agencies that deal with natural resources such as the Texas Parks and Wildlife Department, the Department of Agriculture and the Railroad Commission.

Limits on State Spending

State laws and the Texas Constitution place certain limits on legislative appropriations to maintain the state’s fiscal health.

Article VIII, Section 22 of the Texas Constitution states that:

…in no biennium shall the rate of growth of appropriations from state tax revenues not dedicated by this constitution exceed the estimated rate of growth of the state’s economy.

Government Code Chapter 316 defines the “rate of growth of the state economy” as the rate of growth of Texas personal income. Since the 1996-97 biennium, Texas personal income has risen by an average 5.4 percent annually, compared to 4.3 percent for GRR appropriations and 4.6 percent for All-Funds appropriations (Exhibit 2).

Exhibit 2: Average Annual Growth of General Revenue-Related and All-Funds Appropriations,
by Article, 1996-97 vs. 2018-19 Biennia

Average Annual Growth of General Revenue-Related Appropriations 1996-97 vs. 2018-19 Biennia
Article 1996 to 1997 2018 to 2019 CAGR* (percent)
I - General Government $1,257,093,724 $3,986,809,906 5.4
II - Health and Human Services $10,552,926,223 $33,460,364,927 5.4
III - Education $26,950,696,892 $62,923,121,924 3.9
IV - Judiciary $215,058,329 $634,903,436 5.0
V - Public Safety $5,667,864,911 $11,444,307,951 3.2
VI - Natural Resources $455,609,792 $2,156,922,446 7.3
VII – Business/Economic Development $138,482,300 $1,042,574,380 9.6
VIII - Regulatory $408,667,810 $599,708,684 1.8
X - Legislature $228,564,809 $387,314,153 2.4
Total $45,874,964,790 $116,636,027,807 4.3

Personal Income Growth, 1996-97 through 2018-19: 5.4%

Average Annual Growth of All Funds Appropriations 1996-97 vs. 2018-19 Biennia
Article 1996 to 1997 2018 to 2019 CAGR* (percent)
I - General Government $2,631,135,959 $6,032,089,914 3.8
II - Health and Human Services $25,130,158,776 $78,871,657,229 5.3
III - Education $33,803,854,183 $81,051,118,003 4.1
IV - Judiciary $257,097,796 $830,594,100 5.5
V - Public Safety $6,927,229,646 $12,305,654,059 2.6
VI - Natural Resources $1,934,171,459 $4,454,841,820 3.9
VII – Business/Economic Development $9,654,007,387 $31,841,630,980 5.6
VIII - Regulatory $438,970,218 $675,252,755 2.0
X - Legislature $230,564,809 $387,517,003 2.4
Total $81,007,190,234 $216,450,355,863 4.6

Note: Article IX consists of general provisions such as state employee salary schedules and does not involve costs.
* Compound annual growth rates (CAGRs) based on annual averages within the 1996-97 and 2018-19 biennia.

Sources: U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics, IHS Markit, Legislative Budget Board, Texas Comptroller of Public Accounts and Texas Education Agency

State spending in Texas also cannot exceed available revenue. Article III, Section 49a of the Texas Constitution restricts state spending to the amount of revenue the Texas Comptroller estimates will be available in a given biennium. In other words, the Texas Legislature cannot pass a budget in deficit, except in “the case of emergency and imperative public necessity” and with a four-fifths vote from each house of the Texas Legislature — a very high hurdle.

Notes on the data in this report

Appropriation amounts cited in this report may not match those reported in previous GAAs. Amounts have been adjusted by reallocating certain unusual or one-time appropriations such as Foundation School Program payments deferred between biennia. Appropriations for fiscal 2010 and 2011 related to the American Recovery and Reinvestment Act have been attributed to the applicable article. Furthermore, funding for programs and functions that moved among agencies in the periods under review, including supplemental appropriations, has been reallocated to the agency currently carrying the responsibility. Appropriations from the Property Tax Relief Fund (PTRF) are combined with GRR to portray education funding. PTRF is a special fund in the state Treasury categorized as “Other Funds” but its revenue is directed toward public education.

Throughout the report, average annual growth is defined in terms of compound annual growth rate (CAGR), calculated as:

(End Period Value ÷ Beginning Period Value)(1/# of years) 1

Historical data for this analysis begin with fiscal 1996 due to changes in state revenue accounting that prevent comparisons with earlier years.

Fiscal 2018 and 2019 measures of population, inflation, property values and personal income are estimated.