Despite threats of a recession, the Texas economy is slipping, Comptroller Glenn Heger says

AUSTIN — Comptroller Glenn Heger tells lawmakers that next week’s special session could cost billions of dollars more as education-related topics are tackled.

But „risks to the economic outlook” abound, Heger said Thursday.

The strong performance of the state economy forced him to add nearly $5 billion to his previous projection that the state would finish the new two-year budget cycle roughly $13.5 billion short of spending, Heger said in a letter to Gov. Greg Abbott. Lt. Governor Dan Patrick and Speaker Tate Phelan.

And the „rainy day fund,” or state savings account, should have nearly $24 billion as of Aug. 31, 2025, Heger said. That’s $2 billion more than he predicted at the end of June.

But Heger, the state’s chief tax collector and revenue assessor, added several caveats.

„This revenue estimate does not account for the recession in Texas,” he said in a 30-page forecast, which he delivers before each session of the Legislature, regular or special.

„The risks to the economic outlook and the possibility of a recession are very real,” he said.

If the state continues its strong growth, he said, the final balance of state general-purpose revenue could be larger than the $18.3 billion projected by Hegar. But prudence required restraint.

„Revenue is conservatively estimated for the 2024-2025 biennium,” he wrote.

Abbott said lawmakers should plan to meet Monday at 1 p.m. for the third special session of the year. Legislators must tackle an agenda set by the three-term Republican governor that includes school choice and immigration.

Although Abbott has not called the session and issued a required declaration, it is expected to include „school choice” measures to help families afford private school tuition; topics related to border security and immigration; Also, improved funding for public schools, including pay raises for teachers and school staff.

Although Heger usually focuses on earnings estimates and brushes off unpleasant events, his predictions can seem too rosy, Jupiter had a longer-than-usual recitation of bleak possibilities.

He wrote that the Federal Reserve’s recent interest-rate hikes are among several factors „that could fuel a further recession.”

Regional banks’ leverage is threatened by „plunging commercial real estate values.”

Consumers are racking up large credit card balances, which can limit their spending.

There are also foreign threats, he said. Heger cited stagnant or weakening economies in some of America’s major trading partners, a „faltering Chinese economy” and disruptions in oil, gas and food supplies caused by Russia’s invasion of Ukraine.

After inflation, Texas’ gross state product is projected to increase by nearly $90 billion to nearly $1.95 trillion in fiscal year 2023, which ends Aug. 31, Heger said. This is 4.8% higher than the previous year, he said.

Although real gross state product will pass $2 trillion for the first time in fiscal year 2025, Heger predicts growth rates of 2.3% this year and 1.7% next year.

Correction, 5:30 PM, October 5, 2023: An earlier version of this story incorrectly said Hegar added nearly $3 billion to earlier estimates, leaving the new two-year budget cycle with nearly $15.5 billion in unspent state funds. In fact, he added nearly $5 billion to his $13.5 billion valuation.