Budget ‘headwinds’ could force tough Council decisions headed into summer

City Council members received an early look at some of the difficult budget decisions they could face this summer thanks to an expected decline in sales tax revenue and the end of federal funding related to the American Rescue Plan Act. The presentation from budget and finance staff at Tuesday’s work session was also a preview of the midyear budget review and five-year forecast that Council will receive in March.

City CFO Ed Van Eenoo said the 4 percent sales tax growth the city baked into this year’s budget could lead to a shortfall of around $15 million if the current trend of flat sales taxes continue through the end of the budget year. He also noted that Council will have to begin deciding how to adjust service levels in a number of departments and programs once the remainder of the $188 million received through ARPA is spent by the end of 2026.

Interim City Manager Jesús Garza noted the combination of a slowdown in sales tax growth after years of double-digit increases and the falloff in federal aid in some ways returns the city to a pre-Covid financial climate.

“ARPA has provided a distortion of what we can afford in terms of a run rate,” he said. “If we have an ability to spend $20 million on a program because that’s in our run rate, it’s in our base budget. But ARPA came in and we added $40 million to that … when that $40 million goes away, all you can afford is $20 million.”

Budget officer Kerri Lang provided a number of snapshots of budget quirks and outliers Council should take into consideration heading into the more comprehensive April budget review. Among them: Some sales tax shortfalls were offset by $5.9 million in EMS billing recovery that materialized faster than expected. Another positive was stronger-than-expected investment performance due to ongoing high interest rates.

The city’s many programs related to tenant rental assistance, housing stability and wraparound services for permanent supportive housing also came under review, with some Council members expressing a need for action anticipating the end of tenant stabilization funds in May.

“We’ve got to keep continuity in these programs. The stop-and-start nature is not good for the people receiving and asking for the funds. It’s not good for the contractors that are administering the funds,” Council Member Chito Vela said. “We want something a little more steady and stable, and the fact the program has already closed for new applications and is likely to run out of funding before the end of the fiscal year is a real concern.”

Council Member Vanessa Fuentes echoed Vela’s concerns, pushing Lang for details about the city’s contributions to its reserve fund and how far beyond the typical amount it went with this year’s contribution, suggesting she and Vela may work together for a budget amendment soon to find more money to assist renters in danger of losing their residence.

“Clearly, given the demand that we have in our community, given the housing crisis that we’re in and given our commitment to prevent homelessness, it is incumbent on us to have a permanent fund dedicated for emergency rental assistance,” she said. “Knowing that we have an increase here in our reserve fund and we were told we were gonna have a midyear budget review process, it seems like April might be that time frame for us to consider midyear budget amendments.”

A question from Council Member Ryan Alter regarding Austin Police Department’s overtime costs exceeding its budgeted amounts was answered by Van Eenoo, who said the department’s shortage of roughly 350 officers has resulted in savings on the normal staffing budget, with additional overtime pay needed to make sure all shifts are covered properly.

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