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


Drought in Texas How Rain Scarcity Affects Texans and the Economy

By Jess Donald and Spencer Grubbs Published December 2022

Texans expect hot summers, and many cope with high temperatures by counting down the days until autumn brings some degree of relief. But excessively long periods of little to no rain are another story. Drought is an unpredictable and unforgiving weather phenomenon that can extend well beyond the summer months. The most severe droughts are destructive to an abundance of Texas industries and residents’ quality of life.

Image of lake experiencing drought by Chase A. Fountain/TPWD

© Chase A. Fountain/TPWD

Drought presents enormous challenges for Texas’ economy, particularly for its agricultural sectors. The current drought of record is estimated to have cost the Texas economy nearly $7.62 billion in direct agricultural losses and nearly $17 billion in total losses in 2011 alone, according to a recent report (PDF) by the Texas Water Development Board (TWDB). With very little rainfall during the planting season, this year’s drought could have a similar impact on West Texas farmers and ranchers, many of whom are sounding alarm bells about 2023.

Agriculture tends to be the hardest hit, but severe drought reverberates across an array of economic sectors in Texas, including municipal government. State water policy and planning, as well as local drought management programs, continue to evolve to mitigate, if not prevent, the most harmful effects of severe drought in Texas.

What is Drought?

Drought is a long period of little to no precipitation that leads to a water shortage. But there are many cases when drought isn’t that cut and dried. Defining drought raises a slew of questions. How much precipitation is too little? How many days, weeks or months of sparse precipitation is abnormal? Who or what is impacted the most by lower levels of precipitation? How are the natural effects of limited precipitation made worse by people’s demand on existing water supplies?

The amount of annual rainfall considered drought-conducive in Memphis, Tennessee, may be considered an exceptionally wet period in Santa Fe, New Mexico. A drought in Montana may manifest as a period of abnormally low levels of winter snowfall or snow accumulation in the mountains. Long story short: Drought can mean different things to different people and places.

Drought History in Texas

Texas is no stranger to drought. For many Texans, especially those who live west of the Interstate 35 corridor, drought is expected — it’s just a matter of when it will happen.

But just because Texans have come to expect drought doesn’t mean they are complacent about the destruction it can bring. One of the most devastating droughts in Texas’ modern history occurred from 1950 to 1957. According to a February 2022 study by TWDB, the state’s agriculture industry alone suffered an estimated $36 billion in direct losses from this drought. Total costs to the entire state economy are unknown.

The drought from 2010 to 2014 was shorter but more severe by some measures than the 1950s drought — 100 percent of the state (PDF) was affected by drought for many weeks, and nearly 88 percent was under exceptional drought conditions at the most intense period in early October 2011. The U.S. Department of Agriculture (USDA) estimated the agriculture industry suffered losses between $11.1 billion and $15.5 billion (in 2021 dollars) during this drought. Total costs to Texas and other impacted states approached a staggering $73 billion, and an estimated 271 Texans lost their lives, according to the National Oceanic and Atmospheric Administration (NOAA).

Additionally, NOAA estimates that there have been 18 drought events with an economic impact of $1 billion or more in Texas since 1980. Included in its forecast is the current drought Texas has been experiencing since 2021 (although the total cost is not yet known).

Year to date, 2022 is the 11th driest year in the past 128 years and is the worst drought since 2011. Between Aug. 9 and Aug. 15 of this year, about 68 percent of Texas was in extreme drought conditions and nearly 30 percent was in exceptional drought conditions, according to the U.S. Drought Monitor. Since then, due to increased rainfall and cooler temperatures in much of the state, drought conditions in Texas have eased. At time of writing, about 15 percent of the state is experiencing extreme or exceptional drought conditions, and nearly 90 percent still is abnormally dry.

Crop Insurance

Crop insurance is designed to help cushion agricultural producers, notably farmers and ranchers, against the costs incurred from the destruction of crops due to natural events or against revenue losses incurred by drops in prices for agricultural commodities sold. The most common type of crop insurance is multiple peril crop insurance (MPCI), which is federally subsidized and regulated by the USDA and sold by private insurance companies. MPCI provides coverage for damages caused by a variety of natural events including drought.

With crop insurance, losses by agricultural producers are capped at about 35 percent. “A 35 percent loss (or deductible) is not chump change — it’s a significant loss in revenue,” says Darren Hudson, director of the International Center for Agricultural Competitiveness at Texas Tech University. “But [crop insurance] does buffer farmers a good bit.

“Crop insurance as a federal program has worked reasonably well at protecting assets on the farm and farm income, but it doesn’t really protect the infrastructure that supports agriculture, particularly the ‘past-the-farm’ infrastructure,” Hudson says. “If you look back at [what comes] before the farm — the input, such as seed and chemical suppliers — crop insurance benefits them only to the extent of when the crop fails.”

He illustrates his point with a simplified example: A cotton farmer whose crops fail immediately after being planted will receive an insurance check for about 65 percent of expected revenue, which protects the farmer but not the suppliers on the front end who haven’t yet been paid. “All that money is not flowing into the rest of the economy,” Hudson says. Conversely, if the farmer’s crops fail much later in the season, those suppliers have been paid already and are less affected.

“On the other side [of the agricultural supply chain] are the cotton gins, the warehouses, the shippers and all those [industries],” he says. If the cotton crop fails, “there’s no cotton moving through the cotton gin or going into a warehouse or being trucked.” Crop insurance, therefore, doesn’t help these industries in the year the loss occurs but helps farmers producing in future years.

Sources: Insurance Information Institute; Center for Insurance Policy and Research

Agricultural Impacts

Agriculture is big business in Texas, and cotton is king. Texas A&M AgriLife estimates (PDF) that cotton production contributes $2.4 billion to the state’s gross domestic product, supports 40,000 jobs statewide and generates $1.55 billion in annual labor income. Cotton farming is of particular importance in the High Plains region of Texas.

“Within 100 miles of Lubbock is the largest concentration of cotton production in the world,” explains Darren Hudson, director of the International Center for Agricultural Competitiveness at Texas Tech University. His organization estimates that cotton producers provide a total of 26,353 jobs to the High Plains region, contributing a net average in excess of $4 billion to the region’s economy during a typical production year. This year, the center further projected a 65 percent loss of dryland cotton in the region due to widespread drought, costing cotton producers an estimated $2.1 billion and eliminating 17,130 jobs (excluding losses covered by crop insurance). While the losses still would be significant with crop insurance, it would save regional producers almost $1 billion in economic activity and maintain 7,906 jobs.

The regional impact of drought on cotton producers showcases the importance of water to Texas’ economic health. The repercussions of the reduction in Texas’ cotton production can be felt around the world, contributing to the third year in a row of a global deficit in cotton fiber affecting industries across all sectors, including retail and clothing manufacturing.


The expansive open land of rural Texas is well suited for the state’s largest agricultural commodity, livestock. Cattle and calves generated more than $10 billion in cash receipts in 2021, making up nearly 14 percent of the U.S. total. Dairy products saw $2.8 billion in cash receipts the same year, totaling almost 7 percent of the U.S. total.

Drought is hitting the livestock and dairy industries hard this year; at one point, 39 percent of the state’s rangeland was in poor condition. By the first part of October (PDF), range and pasture conditions were 57 percent fair to poor. Texas A&M AgriLife reported this summer that both U.S. and Texas cattle herds were shrinking. Cattle producers have had to cull their herds with grazing land, grain feed and water in low supply. While there is not an estimate of projected losses from the current drought, AgriLife reports that the drought of 2011 is estimated to have cost Texas livestock producers $3.23 billion, to give a frame of reference.

Market factors (PDF) greatly impact water demand for agricultural irrigation and livestock purposes. The prices of agricultural goods as well as the costs of fuel, fertilizer and feed play a role in Texas’ water demand and need, illustrating the interconnectedness of water and the economy. Irrigation water demand is the largest category of water demand in the state and is estimated to continue to be until 2050, when it is projected to begin declining and to drop by almost 15 percent by 2070. In contrast, livestock water demand is projected to increase nearly 15 percent by 2070. Although livestock water demand only accounts for around 2 percent of the state’s total water demand, livestock water needs are steadily outpacing supply. Additionally, potential water shortages will increase by more than 57 percent (Exhibit 1).


Year Demands in Acre-feet Per Year Existing Supplies in Acre-feet Per Year Needs (Potential Shortages) in Acre-feet Per Year
2020 332,108 328,950 40,465
2030 343,453 331,933 43,781
2040 352,537 333,553 48,270
2050 362,740 335,822 53,649
2060 374,322 337,349 60,432
2070 382,200 339,119 63,400

Source: TWDB
Note: Projected water needs calculations include the anticipated effects of water management strategies and conservation efforts.

Municipal Impacts

In addition to industry, the impact of drought and unmet water needs can be felt at home, particularly in Texas’ growing urban population. According to the Texas Demographic Center, the state’s population grew at 10 times the national average from 2020 to 2021, 1.3 percent compared with 0.13 percent, respectively. Much of that growth is concentrated in Texas’ urban cores centered in the suburban areas near Houston, Dallas, Fort Worth, Austin and San Antonio, increasing municipal water demand for residential, business and industrial users.

Municipal water needs, or potential shortages, will increase over the coming decades according to the State Water Plan (SWP) — from 7 percent of the state’s overall water needs in 2020 to a 46 percent share by 2070. Continued population growth and phenomena such as drought strain the balance between municipal water supply and demand, creating an increasing municipal water need in Texas unless water strategies and conservation methods are implemented (Exhibit 2).


Year Demands in Acre-feet Per Year in Millions Existing Supplies in Acre-feet Per Year in Millions Needs (Potential Shortages) in Acre-feet Per Year in Millions
2020 5.2 5.9 .2
2030 5.8 5.8 .8
2040 6.4 5.7 1.4
2050 7.1 5.7 1.9
2060 7.8 5.8 2.5
2070 8.5 5.8 3.1

Source: TWDB
Note: Projected water needs calculations include the anticipated effects of water management strategies and conservation efforts.

Failing to meet water needs harms individual Texans as well as the economy. According to the 2022 SWP, industrial water use (including manufacturing, mining and steam-electric power sectors) accounts for roughly 15 percent of total water demand statewide across the planning period, at 8 percent, 2 percent and 5 percent, respectively. Collectively, industrial conservation only makes up 1.4 percent of current water management strategies and will account for just 0.6 percent by 2070. Water shortages hurt business, industry, public safety and public health. The TWDB estimates that the socioeconomic impact of not meeting the population’s water needs would result in $153 billion in income loss and nearly 1.4 million lost jobs by 2070 (Exhibit 3). The economic impact of municipal water needs differs from that of agricultural irrigation. Robert Puente, president and chief executive officer of San Antonio Water System, explains, “If you don’t have a good water supply able to sustain the effects of drought, industry and businesses will start to notice and be more reluctant to relocate here.”


Year Income Loss in Billions of Dollars
2020 $110
2030 $128
2040 $128
2050 $132
2060 $140
2070 $153
Year Job Loss in Thousands Population Loss in Thousands
2020 615 113
2030 785 144
2040 883 162
2050 1,019 187
2060 1,179 217
2070 1,371 252

Source: TWDB
Notes: Year 2018 dollars, rounded. Economic measurements include contributions made by individual producers, industries, sectors or group of sectors within a year, in addition to part-time and full-time jobs lost due to the shortage. Values have been adjusted to include the direct, indirect and induced employment impacts on the region.

Conservation is a key component to reducing the state’s municipal water demand and need. Municipal water conservation strategies make up nearly 13 percent of the state’s current recommended water management strategies that include:

  • Metering of all new connections and the retrofitting of existing connections.
  • Water system audits and water loss controls.
  • Incentives such as rebates to install water-efficient plumbing fixtures.
  • Water pricing structures that discourage waste.
  • Year-round landscaping watering restrictions.
  • Public outreach and education.

While nearly half of Texas water utilities recommended municipal water conservation as a strategy, not all municipal water users have effective conservation programs, especially when it comes to residential water use (Exhibit 4). The utilities that serve the cities of Dallas, Houston and San Antonio each focus on community engagement and reduction of residential water use, with municipal conservation strategies making up 100 percent, 100 percent and 65 percent of their current water management strategies, respectively.


CITY OF GARLAND 113 70 62%
CITY OF FRISCO 160 97 61%
EL PASO WATER 121 72 60%
CITY OF IRVING 140 84 60%
CITY OF LUBBOCK 127 73 58%
CITY OF AUSTIN 116 66 56%
CITY OF MCALLEN 154 87 56%
CITY OF LAREDO 143 77 54%
CITY OF PLANO 193 86 45%
AMARILLO MWS 182 83 45%
CITY OF WACO 167 76 45%
CITY OF HOUSTON 136 60 44%
CITY OF DALLAS 144 49 34%

Sources: TWDB; Texas Comptroller of Public Accounts
Notes: Residential GPCDs are calculated based upon data provided by utilities. Some utilities do not report categorical water use volume or residential GPCD data. GPCD numbers are estimated and not official numbers and may be subject to change.

Access to water is a common need bringing communities together throughout the state. Conservation, including residential and industrial, is a vital tool.

Drought Planning and Management

The causes of drought stem from unpredictable acts of nature, but the severity of drought, or how its impacts are felt by people and businesses, is partly dependent on how cities, regions and states plan for drought.

At the local level in Texas, certain municipal water utilities plan and prepare for drought by developing and updating a drought contingency plan every five years. At the regional level, 16 water planning groups develop water plans based on the “drought of record” — for some groups it’s the 1950-57 drought, and for others it’s the 2010-14 drought — which helps them respond to future droughts by making preparations using the worst drought in the past as a reference point. The planning groups recommend region-specific water management strategies, such as water conservation measures, to employ when water demand is at its highest and water supply is at its lowest.

Finally, at the state level, the TWDB compiles information from the regional water plans into a comprehensive SWP, also published every five years.

The Texas Legislature established other organizations responsible for monitoring and managing drought across the state, including the Drought Preparedness Council and the Emergency Drinking Water Task Force, as well as financial assistance programs such as the Texas Department of Agriculture’s drought-related disaster relief grants or the TWDB’s Drinking Water State Revolving Fund.


Water is the lifeblood necessary for the smooth operation of Texas and its economy, affecting people and industry alike. The impact of drought can be devastating, creating the need for Texans to preserve the state’s greatest asset: its water supply. “Planning is absolutely the key. You’ve got to plan, but just as important or more important is implementation. And that’s not always easy. It requires money, investment and a lot of commitment,” says Puente. Texans are innovative and resourceful and are looking toward the future to minimize the impact of drought through a variety of water management strategies and planning. FN

Read more on the innovations cities are implementing to secure the state’s water supply in our July issue of Fiscal Notes.