Estimated Time to Read: 8 minutes
A quiet but consequential proposal is moving through the Texas Legislature—one that could reshape the state’s approach to savings and spending for years to come. Senate Joint Resolution 4 (SJR 4), recently passed by the Texas Senate, seeks to amend the Texas Constitution to raise the cap on the Economic Stabilization Fund (ESF), better known as the Rainy Day Fund. If approved by voters in November 2025, the measure would allow the state to hold onto a larger portion of its surplus tax collections—raising the cap from 10% to 15% of general revenue deposits from the prior biennium.
But the proposal has sparked debate. Supporters say it’s a prudent step to safeguard against future downturns. Critics argue it strays from the Rainy Day Fund’s original purpose and risks turning the state into a fiscal hoarder at the expense of taxpayers. With billions of dollars and long-term financial philosophy on the line, the future of SJR 4 deserves a closer look.
What Is the Rainy Day Fund?
The Economic Stabilization Fund was established in 1988 after a downturn in oil prices sent Texas reeling. Funded primarily by oil and gas severance taxes, the ESF was designed to serve as a savings account the state could tap into during budget shortfalls or emergencies. The fund currently caps out when it reaches 10% of the general revenue (excluding interest income and borrowed funds) deposited in the preceding two-year period.
Once the cap is reached, any excess severance tax revenue stays in the General Revenue (GR) Fund, where it can be used for general appropriations or tax relief. As of 2024, the ESF balance is expected to exceed $23 billion—making it one of the largest state-level savings accounts in the country.
How the ESF Differs from the Current Budget Surplus
It’s important to distinguish between the balance in the ESF and Texas’s current budget surplus. The ESF is a constitutionally dedicated savings account with restricted use, mainly for covering budget shortfalls or responding to emergencies. It requires legislative approval to tap into and is meant to provide financial stability during downturns. On the other hand, the budget surplus is a snapshot of unspent general revenue in the current biennium—available for appropriation, tax relief, or program funding. While the ESF holds funds long-term for emergencies, the surplus reflects excess collections over expenditures and is more immediately accessible to lawmakers for budget decisions.
According to the Texas Comptroller, Texas has a nearly $24 billion surplus, which alone represents a significant opportunity to provide tax relief to Texas taxpayers. Taken together with an ESF approaching its constitutional cap, lawmakers have ample revenue to lessen the burden on Texas taxpayers.
What Does SJR 4 Propose?
SJR 4, authored by State Sen. Charles Schwertner (R-Georgetown), would amend Section 49-g(g), Article III of the Texas Constitution, to raise the ESF cap from 10% to 15% of applicable general revenue deposits. This change would allow the state to retain billions more in oil and gas revenues rather than redirecting them to the GR fund once the cap is hit. The committee substitute version of the bill sets the change to take effect on September 1, 2027, with a temporary provision expiring one year later on September 1, 2028.
The resolution is scheduled to go before voters during the November 4, 2025, general election. The ballot language will read:
“The constitutional amendment providing for the maximum amount of money allowable in the economic stabilization fund.”
The Missing Bill: Senate Bill 23
Notably, the push to reform the ESF cap was originally part of a broader financial vision announced by Texas Lt. Gov. Dan Patrick (R). Ahead of the 89th Legislative Session, Patrick named “Removing the Cap on the Rainy Day Fund to Secure Texas’ Long-Term Financial Future” as one of his top 40 priorities. His envisioned legislation—Senate Bill 23—was expected to create a so-called “Texas Sovereign Fund,” potentially modeled after sovereign wealth funds in other states or countries. But SB 23 was never filed before the bill filing deadline.
That leaves SJR 4 as the lone vehicle this session for significantly altering how the state manages its reserves.
How Would It Impact the Budget?
According to the Legislative Budget Board, the fiscal implications of SJR 4 are far from negligible. By raising the cap, more severance tax revenues would be transferred into the ESF instead of staying in the General Revenue Fund.
This means less money available for immediate spending on state programs or, more importantly, tax relief. In fact, the LBB projects a nearly $2.95 billion hit to GR-related funds by the end of the 2026–27 biennium and an even steeper $6.81 billion loss in the following biennium ending August 31, 2029.
The ESF would, in turn, grow substantially—collecting between $3.2 billion and $3.6 billion annually in new deposits between 2028 and 2030. This increase in principal would also generate growing interest income, projected to reach $537 million by fiscal year 2030.
In sum: less short-term cash in lawmakers’ hands, more money in the state’s savings account, and a more substantial fund generating larger investment returns.
Arguments For Raising the Cap
Supporters of SJR 4 argue that Texas needs to prepare for the long haul. Economic downturns, natural disasters, and unforeseen public emergencies all require swift and significant funding. A larger Rainy Day Fund ensures the state can weather future crises without raising taxes or slashing services.
They also note that the size of the Texas economy—and the state’s overall budget—has grown significantly since the 10% cap was first set. Updating the cap to reflect this growth is seen as a natural evolution of the ESF’s purpose.
And with the ESF already holding one of the largest balances in the nation, increasing the cap doesn’t automatically mean more spending. Rather, they argue, it ensures that the fund continues to grow with the state’s needs.
Why Critics Say It’s a Bad Idea
Opponents, including us here at Texas Policy Research, say SJR 4 misses the point. The cap wasn’t arbitrarily set—it was intentionally put in place to prevent the state from stockpiling excess tax dollars that could be better used by the people who earned them.
They argue that the current cap serves as a built-in discipline mechanism. Once the cap is hit, excess funds stay in the GR fund and can be returned to taxpayers via relief measures or used to address immediate needs. By raising the cap, lawmakers are effectively choosing to keep more taxpayer dollars out of reach for current use.
From a liberty-oriented perspective, the state isn’t a savings account—it’s a service provider. The state is not meant to be a ‘for-profit’ entity. Keeping billions more in the ESF may look responsible on paper, but it reflects a growing government mindset that prefers hoarding taxpayer money to reducing tax burdens or streamlining spending.
Liberty Principle Impact
SJR 4 has significant implications across all five liberty principles:
- Individual Liberty: While the resolution doesn’t directly impact civil liberties, it shifts financial control from taxpayers to the state. By retaining more surplus revenue, the government limits opportunities for tax refunds or relief, reducing individuals’ economic freedom.
- Personal Responsibility: Rather than implementing structural spending reforms or tax cuts, SJR 4 allows government to pad its finances—arguably avoiding the hard choices that responsible governance requires.
- Free Enterprise: Dollars locked in the ESF aren’t circulating in the private economy. That means less available capital for investment, hiring, or expansion—especially harmful in times when businesses are already dealing with inflation and workforce challenges.
- Private Property Rights: Over-collected tax revenue is, in essence, private income redirected to government use. By raising the cap, SJR 4 expands the state’s authority to hold property (in the form of funds) beyond what was previously allowed.
- Limited Government: This resolution erodes a core limitation placed on state financial growth. It opens the door to larger surpluses being retained and used at lawmakers’ discretion without necessarily tying those funds to emergency needs or taxpayer returns.
What’s Next?
Now that SJR 4 has passed the Senate, it heads to the Texas House for consideration. If approved by a two-thirds majority, it will appear on the November 2025 ballot for final approval by Texas voters.
The coming weeks will likely see a flurry of debate—not just in the Capitol, but among advocacy groups, fiscal watchdogs, and taxpayer organizations who will campaign for or against the proposal leading up to the election.
While the resolution may seem like an administrative tweak, its long-term implications on budget priorities, fiscal discipline, and the relationship between taxpayers and their government are anything but minor.
Final Thoughts
SJR 4 represents a philosophical fork in the road for Texas. Will the state prioritize long-term reserves and even more financial insulation from economic shocks, or will it return surplus dollars to the taxpayers who funded the boom?
Supporters argue it’s a necessary adjustment for a growing state. Critics say it’s the first step toward normalizing government hoarding. Either way, voters will have the final say in 2025.
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