 Balancing the budget is widely considered to be the foundation of state fiscal practices. Keeping a budget balanced in times of fiscal stress, however, can be an overwhelming challenge for policymakers. This report reviews the meaning of a state balanced budget and identifies the statutory and constitutional provisions that various authorities—state legislative fiscal officers, executive budget officers and academics—identify as the requirements that apply. Besides being a major concern in state policy and politics, state balanced budgets are also a subject for academic analysis. Some of the findings of academic study are discussed here, since they demonstrate how difficult it is to find consensus on what a state’s balanced budget requirements are. Show For state policymakers, the requirement of a balanced budget largely refers to the operating budget. In most states that is the general fund budget, which is the subject of annual or biennial appropriations. The general fund is where most state tax collections are deposited and from where most appropriations are made. A few states also have an education fund that receives tax revenues, is appropriated and is subject to balance requirements, like the general fund. Less attention (if any) is given to the question of whether a state’s entire budget is in balance. Grants and reimbursements from the federal government make up most of a state’s non-general fund. The question of balancing these revenues with expenditures does not arise since states can spend only as much as they receive. State non-general fund expenditures from state sources tend to be from revenues legally designated (or “earmarked”) for specific purposes and controlled by their availability. Bond finance for capital projects, the purpose of which is borrowing against future revenues, is generally not considered by policymakers to fall within any constraints of a balanced budget requirement. So, what does it mean if a state must balance only the operating budget? What is meant by a balanced budget is not as clear as it may seem intuitively. Even the number of states whose laws require a balanced budget can be disputed, depending on the way the requirements are defined. The National Conference of State Legislatures (NCSL) has traditionally reported that 49 states must balance their budgets, with Vermont being the exception. Other authorities add Wyoming and North Dakota as exceptions, and some authorities in Alaska contend that it does not have an explicit requirement for a balanced budget. Two points can be made with certainty, however: Most states have formal balanced budget requirements with some degree of stringency, and state political cultures reinforce the requirements. State Fiscal BriefsTexas’s budget basicsAccording to the National Association of State Budget Officers (NASBO), Texas’s total expenditures in fiscal year (FY) 2021 were $143.2 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2021 were $2.7 trillion, ranging from $4.7 billion in Wyoming to $512.8 billion in California. Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states. Per the US Census Bureau, Texas’s combined state and local direct general expenditures were $263.3 billion in FY 2020 (the most recent year census data were available), or $9,011 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $10,540. Texas’s largest spending areas per capita were elementary and secondary education ($2,179) and public welfare ($1,512). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices. Texas’s combined state and local general revenues were $275.5 billion in FY 2020, or $9,430 per capita. National per capita general revenues were $10,933. Texas does not levy an individual income tax or corporate income tax but does have a gross receipts tax. (Census counts this revenue as either general sales tax revenue or selective sales tax revenue.) After federal transfers, Texas’s largest sources of per capita revenue were property taxes ($2,216) and general sales taxes ($1,624). Texas’s politicsGovernor Greg Abbott, a Republican, was elected in 2018 with 56 percent of the vote. The next gubernatorial election is in 2022. Republicans control both the House of Representatives (85 Republicans to 65 Democrats) and Senate (18 Republicans to 13 Democrats). Control of the governor’s mansion and each house of the legislature gives Republicans a trifecta in Texas. All Texas House seats are on the ballot in 2022 because representatives serve two-year terms. Senators serve a combination of two- and four-year terms during each decade’s legislative district apportionment cycle. This 2-4-4 term system ensures all Senate seats are up for election after new legislative district boundaries are drawn. All senators are therefore up for election in 2022. Texas’s current budgetGovernor Abbott has not released a supplemental budget proposal (the state uses a biennial budget) and has not given his state of the state address in 2022. Texas enacted its FY 2022-2023 biennial budget in June 2021. The enacted budget included $248.6 billion in total spending and $116.4 billion in general fund spending over the two-year period. Under the American Rescue Plan, Texas will receive $15.8 billion in direct state fiscal aid and $9.1 billion in local government aid from the federal government. As of January 2022, Texas had spent part of its ARP funds on refilling its unemployment insurance trust fund, public health programs, education spending, and public safety. According to NASBO, Texas’s recent expenditure totals (general fund spending/total spending, including federal transfers) were:
For more on Texas’s budget, see
Texas’s economic trendsTexas’s per capita income (per the Bureau of Economic Analysis) was $59,674 in 2021, ranking 24th among the states. It was below the national average of $63,444, but above the Southwest regional average of $57,647. The state’s median household income (five-year estimate) was $63,826 in 2020, ranking 21st among the states and below the national average of $64,994. Texas’s poverty rate was 14.2 percent in 2020 (five-year estimate), above the national rate of 12.8 percent. Although Texas’s averages tell a story about the entire state, Texas is composed of diverse localities. For example, the city of San Benito’s median household income was $30,565, and its poverty rate was 32.4 percent; the city of University Park’s median household income was $247,716, and its poverty rate was 3.9 percent. Texas’s unemployment rate historically follows the trend of the national average. The state’s rate was slightly below the national average following the Great Recession, but it has again paralleled the US rate for the past few years. Unemployment rates (like other economic indicators) often vary significantly by race and ethnicity. In Texas, the average unemployment rate in 2021 was 5.3 percent for white residents, 9 percent for Black residents, and 6.9 percent for Hispanic or Latino residents. The major industries that contributed the most to Texas’s gross domestic product (GDP) in 2021 were finance, professional services, manufacturing, government, and wholesale trade. Professional services, manufacturing, and wholesale trade contributed more to Texas’s GDP than they did to the nation’s and region’s GDP, while finance and government were less important to Texas than they were to the nation and region in 2021. Looking at more specific industries, among those that accounted for at least one percent of Texas’s GDP in 2020, oil and gas extraction produced far more for the state than for the nation, contributing 3.2 percent to Texas’s GDP and 0.5 percent to the nation’s. Other industries that overperformed in Texas relative to national averages in 2020 were wholesale trade, petroleum and coal manufacturing, chemical manufacturing, and construction. Texas’s demographicsAs of July 2020, Texas’s population was 29,360,756. That was up 16.2 percent from 2010. The state’s population growth rate was faster than than the nation’s 6.5 percent growth over the same period. The Urban Institute estimates the state’s population will increase 29.9 percent between 2010 and 2030, more than the nation’s estimated growth rate of 16 percent. Additional resources
What budgetary requirements or restrictions are found in the Texas Constitution?The Texas Constitution includes four limitations on state spending: Debt limit • Welfare spending limit • Pay-as-you-go limit • Limit on the growth of certain appropriations (a.k.a. What Appropriations are Limited by Pay-as-You-Go?
What type of budget process does Texas have?The Texas budget process begins during the year prior to each regular session of the state's Legislature, which are held in odd-numbered years. Each state agency prepares a detailed legislative appropriations request (LAR) under the guidelines of the state's Legislative Budget Board (LBB).
Does the Texas Constitution requires a balanced budget?The Texas Constitution requires that Texas operate under a balanced budget. The state may only spend as much as it estimates it will receive in revenue during any fiscal biennium.
How is the federal budget process different from that of Texas?The first difference is that the Texas Legislature appropriates funds for two fiscal years, whereas the U.S. Congress appropriates for one fiscal year. The state fiscal year begins September 1, but the federal fiscal year begins October 1.
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