Watson warns of Austin’s ‘budget asteroids’ in speech to real estate council

At last week’s annual address to the Real Estate Council of Austin, Mayor Kirk Watson stressed a number of “budget asteroids” the city could face as a result of upcoming state and federal policy decisions.

Along with the potential impact of tariffs on international goods, Watson explained to the room filled with developers and other real estate professionals how bond costs could increase by more than 20 percent in the near future based on the possible elimination of a federal tax exemption on bond funding. And there’s a potential new state law that would require a two-thirds approval by voters for local tax increases.

“It is not a political statement, it’s an economic statement to say that tariffs are going to add some cost to things in Austin and those costs will go down the chain,” Watson said during his opening remarks while discussing the city’s progress in adding housing stock to address affordability. “There are other things that impact the budget at the city. In fact, Congress would be wise to take care in its upcoming deliberations, or else it’s going to end up raising your local taxes to pay for not raising your federal taxes.”

By some estimates, the federal action on tax exemptions for bond funds could add $22 million in new costs for every $100 million of debt. Besides increasing the costs for municipalities’ infrastructure projects, Watson said the same increases would apply for municipal utility districts created by developers to fund water and energy for new housing projects.

“I really worry what that does to affordable housing and whether it is even doable anymore under those circumstances,” Watson said. “It also undermines the progress we’re making on infrastructure that’s already underway. And that would include the desperately needed airport expansion that would cost an additional $1 billion.”

Watson also addressed the work City Council needs to do related to managing the end of federal American Rescue Plan spending, which allowed for the purchase of assets related to homelessness services but will have ongoing operational costs. With nearly two-thirds of the General Fund budget taken up by police, fire and emergency services costs, he said some programs will need to be restructured or eliminated.

“Some of that one-time money has been spent on very important but ongoing expenses, creating a potential structural imbalance,” he said. “We’re going to have to make some very difficult decisions once we have good numbers on how much one-time money paid for something that we now need to find other recurring funds to fill the hole – or, if there isn’t money, stop the program.”

Aside from budget worries, Watson did tout the city’s progress on housing reform including the two rounds of the HOME initiative to add density throughout the city. The recent passage of the “site plan lite” policy to simplify approvals for small housing projects and the reduction in site plan review time were discussed as some of the positive steps the city is taking to work with the real estate industry to add housing supply.

When asked about public safety and the recently approved five-year contract with Austin police, Watson said the 50 percent increase in enrollment in the current cadet class suggests longstanding hiring gaps at Austin Police Department could be filled gradually.

“Part of what I think this Council wanted to do was send a strong message. Not just a three-year – even though that would have been good – not just a four-year, but a five-year contract to really send the message about how dedicated we are to this and making sure that people that are looking to become police officers in Austin can know what their future is. They have some security with regard to that future. I think it’s making a result.”

Photo made available through a Creative Commons license.

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