Sales tax receipts will be closely watched as Texas tracks economic jolt of tariffs

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As looming tariffs rock the U.S. economy, the Texas comptroller says he is closely monitoring sales tax revenue and the price of oil, and that the current forecast already anticipates a softening of the economy.

Even before President Trump announced new tariffs — hiking up the chances of a recession, according to the nation’s biggest banks — Texas saw a 2.7% year-over-year decline in sales tax revenue in March, the first drop since last April.

Glenn Hegar, state comptroller, declined an interview with The Texas Tribune. In an emailed statement, his office said current conditions “do not necessitate an update to our forecasts.” Hegar, chosen last month to be the next chancellor of the Texas A&M University System, expects to step down July 1, his spokesperson said.

A recent Texas Workforce Commission report shows a strong labor market, the comptroller statement noted, adding that the current forecast already anticipates the economy will slow down.

Those assessments were before Trump imposed a minimum 10% tariff on products imported from other countries. On Wednesday, the administration paused many tariffs for 90 days.

“While it remains too early to quantify the impacts of changing trade policy at the federal level, as the nation’s top state for international trade and the 8th largest economy in the world, Texas is particularly sensitive to disruptions in trade and associated industries,” Hegar wrote. “We have seen some slight softening in sales tax revenue but I would caution against jumping to conclusions based on limited data from a single month.”

Texas’ two largest trading partners — Mexico and Canada —- have already threatened to retaliate with their own tariffs. And some business leaders in the state are raising an alarm over the potential impacts.

Glenn Hamer, president of the Texas Association of Business, said he expects the tariffs will disrupt supply chains and erode investor confidence, as well as increase consumer costs.

The Legislature still expects to finalize a $336 billion budget before the session ends in early June with a $24 billion surplus, and maintain its $28.5 billion rainy day fund, according to the January analysis by the Legislative Budget Board, made up of the lieutenant governor, House speaker, and leaders of the other legislative committees related to the budget. The House plans to debate its budget plan on Thursday.

At a news conference last week — one day after the White House’s announcement, Lt. Gov. Dan Patrick said he was proud of the budget the Senate passed last month, and that the state’s conservative approach to spending would lead to investments in property tax cuts, teacher pay and public education.

“We are better positioned economically, financially, business-oriented — taking care of our folks — than any other state in the country — I would say than any other country in the world,” Patrick said.

Mark Jones, a professor of politics at Rice University, said the uncertainty around the tariffs makes any updated revenue outlook difficult — especially given how far along state budget negotiations are. The state’s surplus provides a cushion if there is a drop in revenue, he added.

Rep. Gene Wu, a Democrat from Houston who serves on the appropriations committee, echoed the sentiment around uncertainty. He also said that the Legislature kept a tight pocketbook this session.

That said, he told the Texas Tribune he thinks the tariffs will be “catastrophic for Texas.”

“If Canada and Mexico, our No. 1 and No. 2 … and China, the No. 3 largest trading partners for the state — are all in a war against us, we're going to have real problems,” he said. “I think the leadership in this state is acting like nothing's happening. Whereas I'm telling our local people, we need to be battening down the hatches and preparing for the worst.”

Any criticism from Republican lawmakers is likely to be muted, according to Joshua Blank, research director of the Texas Politics Project at the University of Texas at Austin.

“Politically, it's really difficult right now for the Republicans in charge of the legislature and state leadership to show any kind of distance between themselves and the president,” he said, “and so it puts the legislature in the position of moving forward as If these huge market shocks aren't likely to impact Texas's budget estimates, or ultimately, its budget needs.”

While an outdated revenue estimate could throw off the planning, the governor and Legislative Budget Board have the authority to make adjustments in agency spending throughout the year.

The comptroller issues a second revenue update later in the year. In the past, the comptroller has issued updates to the revenue based on changes to long-term trends, according to Chris Bryan, a spokesperson for Hegar’s office.

He “has been very clear that he will update as he sees necessary,” Bryan said. “He just doesn't see that at this time.”

For now, Hegar, in his statement, urged lawmakers to continue exercising fiscal restraint.

“As many other states have clearly demonstrated, large surpluses can quickly swing to untenable deficits in the absence of fiscal discipline,” he wrote. “Given the added levels of uncertainty surrounding the global economy, I urge lawmakers to continue their careful scrutiny of spending decisions and commend their ongoing commitment to prudent, conservative fiscal management.”

Disclosure: Rice University, Texas A&M University, Texas Association of Business and Texas A&M University System have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.

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