The Economic and Revenue Forecast Council (ERFC) estimates that revenues from funds subject to the outlook (NGFO) will be lower than expected when the 2025–27 operating budget was adopted earlier this year.

Compared to the March revenue forecast (on which the adopted 2025–27 budget is based), the forecast for the current 2023–25 biennium increased by $692.3 million, to $67.137 billion. The forecast for 2025–27 increased by $3.804 billion, to $74.756 billion. The forecast for 2027–29 increased by $3.589 billion, to $80.014 billion. The total increase over the outlook period is $8.085 billion.

However, those increases reflect the tax package that was adopted this year. Compared to March, economic changes to the forecast (excluding the legislative tax changes) increase revenues by $407 million in 2023–25 but decrease revenues by $490 million in 2025–27 and by $638 million in 2027–29. Over the outlook period, the economic changes reduce revenues by $721 million.

As a result, the 2025–27 operating budget no longer balances over four years. Further, there is an estimated unrestricted NGFO ending balance of just $2 million in 2025–27.

As I’ve noted, the enacted budget had a thin margin for error even before this news. The enacted budget left unrestricted ending balances of $80 million in 2025–27 (the lowest first-biennium balance in the outlook era, as a percent of revenues) and $381 million in 2027–29. The balance relied on unusually high estimates of reversions (appropriations that are not ultimately spent), and the state didn’t even fund a backfill for the liability account, which could be much higher than $80 million.

There are two more revenue forecasts before the governor proposes a 2026 supplemental budget. In the meantime, Gov. Ferguson has said that, even with the June revenue forecast, he does “not anticipate calling a special session.” Indeed, given current information, the 2026 session will be time enough to address the budget problems.