Texas candidates push tax, spending initiatives ahead of November election

Bloomberg News

Ahead of the Nov. 3 election in Texas, candidates for top offices are proposing measures that could have financial consequences for the state, its local governments, and public schools.

Republican Gov. Greg Abbott, who is seeking a fourth term in a surprisingly tight race against Democratic State Rep. Gina Hinojosa, is pushing "The Abbott Affordability Agenda," which includes his light-on-details plan to eliminate school property taxes for homeowners via a constitutional amendment, as well as ending municipal electric utility monopolies, and curbing local spending and tax hikes. 

The issue of affordability is getting serious traction with voters, according to Brandon Rottinghaus, a University of Houston political science professor. 

"The pivot to talking about economic issues is a result of the fact that there is concern among Texans that things aren't going as well as they could, and you see this in polling too that suggests that people think that Texas is on the wrong track," he said.

As for what voters in the red state might do, Rottinghaus said a Democratic wave could take the state's U.S. Senate seat and perhaps the governor's office, while down ballot races will likely find support from the Republican base.

Triple-A-rated Texas has so far accommodated property tax cuts that grew to $51 billion for the fiscal 2026-2027 biennium with the help of previous big revenue surpluses. Growth in sales taxes, the largest revenue source for Texas' general fund budget, has moderated after soaring 19.3% in fiscal 2022 on an all-funds basis.

Job growth is forecast to slow to 1.2% this year, which would be below the state's long-run average of 2%, the Federal Reserve Bank of Dallas said on Monday.

The sales tax generated $52.24 billion in fiscal 2026, which ended Aug. 31, up 6.5% from fiscal 2025, when collections grew by 4%, Texas Comptroller Don Huffines reported this month. 

Huffines, a former state senator who was appointed comptroller by Abbott in July and is the Republican candidate for the post in the Nov. 3 election, called increased sales tax revenue "a positive sign for meaningful property tax relief."

"The legislature should prioritize lowering the cost of homeownership by dedicating surplus sales tax collections to reducing property taxes," he said in a statement.

That might be a hard sell from a fiscal standpoint, according to Randall Erben, adjunct professor at The University of Texas at Austin Law School.

"I just think that at the end of the day, the budget writers are going to look and say, 'Hold on here a second. We're already spending $50 billion on tax reduction. How much more can we spend?,'" he said. 

Texas voters already committed $1 billion a year in sales tax revenue over 20 years to water supply projects starting in fiscal 2027 as long as annual collections exceed $46.5 billion.  

Democrat calls for tax refund

Hinojosa's campaign also includes a costly proposal to tap the state's hefty rainy day fund to deliver a $1,500 "corruption tax refund" to every Texas household.

"Greg Abbott has hoarded $27 billion in taxpayer money into the Rainy Day Fund – money that belongs to Texans – while families struggle to pay their bills," her campaign website states. "No Texas politician has ever hoarded taxpayer dollars like this — and it's time Texans get that money back."

In July, Abbott and leaders of the Republican-controlled legislature ordered state agencies to reduce their base appropriation requests for the fiscal 2028-2029 biennial budget by 3% to, in part, make room for more property tax relief and school vouchers.

School vouchers

Huffines' office, which runs the state's $1 billion Texas Education Freedom Accounts program that launched with the current school year, is asking for $2.3 billion for the fiscal 2028-29 biennium. 

Travis Pillow, the program's assistant director, told a legislative panel this month that the base appropriation request for just over $1 billion annually will cover the nearly 110,000 students currently participating in the program. 

"Serving wait-listed students would require approximately $980 million in additional funding, and we estimate that serving the newly eligible siblings of current participants would cost approximately $82 million per year," he said.

School voucher programs are adding to Texas public school district financial pressures due to stagnant state per pupil funding, mandated spending, and constraints on their ability to increase property tax rates for operations, according to a S&P Global Ratings report last week. 

"According to a fact sheet from the state comptroller, 43% of the students awarded TEFA money had been enrolled in public schools in the previous year while 11% entered the program at pre-kindergarten," S&P said. "With Texas school state funding tied to average daily attendance, this could dampen public school revenue."

The report showed that in states where S&P rates more than 100 school districts, Texas had the second largest percentage of negative rating outlooks for school district underlying ratings at 9% with Minnesota topping the list at 11%. Texas public school districts issue voter-approved general obligation bonds through the Permanent School Fund's triple-A-rated bond guarantee program. 

Hinojosa has vowed to end vouchers — a move that would require approval from the legislature where Republicans currently hold 88 of the 150 House seats and have an 18-to-12 majority in the Senate. Huffines' Democratic opponent, State Sen. Sarah Eckhardt, who voted against vouchers, would produce an independent audit of the program, according to her campaign website.

Forensic audits of local governments and state agencies are the focus of Huffines' "DOGE" campaign initiative. In August, he announced the comptroller's office will, at the governor's request, undertake "a detailed review of select school districts to ensure they are spending taxpayer funds responsibly."

Municipal utilities targeted

Another part of Abbott's "affordability agenda" has Austin's and San Antonio's bond-issuing municipal utilities in the crosshairs. The governor said his proposal to expand consumers' choice by eliminating what he calls the "monopolies" run by public utilities could save residents in the two cities more than 10% on their electricity bills, while ensuring utility revenues don't subsidize unrelated city spending.

Under current law, public utilities and electric co-operatives are not required to participate in the deregulated retail electricity market for Texas, which has applied to investor-owned utilities since 2002, though they may opt in.

Austin, which had $2 billion of electric utility system revenue bonds outstanding as of Sept. 30, 2025, has the lowest residential electric bills in the Electric Reliability Council of Texas, the state's electric grid, and outperforms the statewide average in reliability, according to Matt Mitchell, a spokesman for the utility. 

Instead of dividends to shareholders as investor-owned utilities might pay, the utility enterprise fund has transferred between $114 million and $125 million annually to the city's general fund between fiscal 2021 and 2025, he added.

San Antonio's CPS Energy, which had $9.14 billion of outstanding revenue bonds as of Jan. 31, did not respond to requests for comment. 

Amid Texans' vocal concerns about data centers and their water and electricity needs Abbott, who is trailing Hinojosa 45% to 49% in a ReconMR poll released last week that also showed tight races for attorney general and lieutenant governor, is cracking down on their development just months after embracing it at an event with Google.

Over the last two months, the governor announced that several tech companies will comply with data center standards he established, including paying for their electric infrastructure, reusing their water, and paying for their projects without government-funded incentives. Abbott on Monday halted all environmental permits sought by data centers until a state audit of their electricity and water use is completed.