You might not realize it, but Texas has a massive pile of cash — tens of billions of dollars, in fact. It’s known as the Economic Stabilization Fund (or the rainy day fund, as most people call it) and it’s one of the biggest of its kind in the country.
And the fund, mostly fueled by taxes on oil and gas production, is about to get even bigger — so big that it’s expected to surpass the legal limit.
Without any new spending from lawmakers, the rainy day fund is projected to reach a record $28.5 billion by the end of fiscal year 2027, according to Texas Comptroller Glenn Hegar.
So, how did Texas build up such a huge treasure chest?
The rainy day fund was established by lawmakers in 1988 during an oil bust to provide the state with financial support during economic downturns.
In recent years, the rapid growth of Texas’ oil and gas industry has caused the fund to grow significantly. Hegar estimates it is now expected to exceed its constitutional limit, which is determined by a formula in the Texas Constitution based on the general revenue deposited into the fund during the previous biennium.
Any funds exceeding this limit are transferred to the general treasury, where lawmakers can allocate them as needed. The rainy day fund can be tapped in the event of budget deficits or for any purpose with approval from three-fifths of the Legislature.
In fact, this has happened multiple times over the years. More than $17 billion from the fund has been used to address pressing needs such as disaster relief, water infrastructure, public education, and health services. For example, during the nationwide recession in 2011, $3.2 billion was withdrawn to cover a major budget shortfall.
Despite these expenditures, the fund’s ballooning size has fueled debate, with many calling for more spending on critical needs like public education. Big school districts across the state have had a tough financial year: Houston ISD had a $250 million deficit, Dallas ISD is $187 million short, Austin ISD is $92 million in the red, and San Antonio’s largest districts are all running deficits.
The education policy group Raise Your Hand Texas notes that the state ranks among the bottom 10 for per-pupil spending, making it hard not to eye the massive pile of cash sitting in the rainy day fund.
“Texas lawmakers have access to substantial funding in the 2025 Legislative Session – at least $21 billion in available state general revenue and over $23 billion in the state’s Rainy Day Fund,” the group says on its site.
The fund is the biggest in the United States in terms of dollars, and among the largest in terms of percentage of expenditures, Shannon Halbrook, who oversees fiscal policy research and advocacy for the nonprofit advocacy group Every Texan, told The Barbed Wire.
Lawmakers have been “short-changing Texans for some time in many areas,” including public education, housing, infrastructure, and increases in state worker pay, Halbrook said.
Halbrook favors “sensible, one-time investments for the future to benefit all Texans equitably, or to hang onto in case of natural disasters or other unexpected events.”
“Spending that money on permanent property tax cuts, for example, would incur an ongoing cost to the state budget that we won’t always be able to afford,” Halbrook told The Barbed Wire.
Lt. Gov. Dan Patrick has said any budget surplus should prioritize property tax relief over new spending. Many other Republicans believe the fund should remain untouched or be returned to taxpayers.
“Just like your savings account helps cushion your rainy days, the (Economic Stabilization Fund) must be preserved to do the same,” wrote Vance Ginn and Elliott Raia for the conservative think tank Texas Public Policy Foundation.
Hegar has proposed raising the rainy day fund’s cap, arguing that removing the limit could allow it to grow significantly through investments, providing a larger safety net during future recessions.
“By 2035, if the cap continues to be in place and we keep adding more money and they don’t take money out… it’ll probably grow to be about $40 billion,” Hegar told the Texas Tribune. “If we remove the cap, that fund would grow to $80 billion.”
Some believe there’s a bipartisan use for the fund: water infrastructure.
“If I can pick one area to spend money on from the Texas Rainy Day Fund, I would spend on water infrastructure,” Joyce Beebe, a fellow in public finance at Rice University’s Baker Institute for Public Policy, told The Barbed Wire.
Water demand could outpace supply by 2070. And with more than 165,000 miles of pipes — many installed in the 1960s — Texas is losing billions of gallons of water each year due to leaks and breaks. In 2021 alone, infrastructure issues led to the loss of 130 billion gallons of water, enough to supply nearly 1.2 million households for an entire year.
“Aging systems, leaking pipelines, and the need for major capital improvements make such investment more critical given Texas’ extreme weather patterns in recent years,” Beebe told The Barbed Wire.
Voters in 2023 approved $1 billion to create the Texas Water Fund to address these issues, but Beebe says much more is needed to modernize the state’s water infrastructure and keep up with future demands.
“One billion is much lower than what (the Texas Water Development Board) deemed sufficient to bring Texas’ water infrastructure to modern standards,” she said.
The future of Texas’ giant piggy bank comes down to what lawmakers prioritize and how loud their voters yell. Whether it’s fixing schools, patching up leaky water pipes, or just sitting on the cash like a dragon hoarding gold, the decisions made in the current legislative session will leave a huge impact. And as the fund grows, so does the tug-of-war between spending now and saving for later.
