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LFC projects modest revenue growth for FY26; interest earnings and permanent funds reshape long-term outlook
Summary
LFC economists told the committee that FY26 revenues are forecast to grow about 2.8% to $13.4 billion, with interest earnings from large permanent-fund balances becoming an increasingly important and stabilizing revenue source, while noting risks from oil-and-gas volatility and tax-policy choices.
The Legislative Finance Committee’s revenue team briefed the Legislative Education Study Committee on preliminary FY26 revenue estimates and longer-term fiscal trends.
Jennifer Fabian, economist with the LFC, said the CREG’s August estimate projects FY26 general fund revenues to grow roughly 2.8% to about $13.4 billion, after a near-flat current fiscal year. She described a structural change: large transfers into permanent funds and the resulting interest earnings are increasing the share of general-fund revenue derived from investment income. “Looking into the budget year, FY26, revenues are growing at about 2.8% up to $13,400,000,000,” Fabian said.
Fabian walked members through underlying assumptions for employment, wages and oil-and-gas production; she said the early childhood trust fund and the severance tax permanent fund are accumulating significant balances, and interest earnings driven by those funds are expected to be the fastest‑growing revenue source in the forecast period. LFC staff presented stress tests that show current reserves would provide runway in short-term downside scenarios but cautioned sustained multi-year downturns would require legislative reprioritization.
Members asked about target reserve levels and the trade-off between investing now (for example, early-childhood programs) versus saving for future earnings. LFC staff emphasized Moody’s guidance and recommended reserve planning but noted setting a formal target is a policy decision for the Legislature.
What’s next: The committee will use these revenue estimates in upcoming budget discussions; members signaled interest in balancing near-term investments against long-term fiscal stability.
