City facing a $33 million deficit for 2026

Given current conditions, the city’s budget analysts are projecting a $33 million shortfall in the city’s General Fund in Fiscal Year 2026, with that number increasing to $79.9 million by FY 2030. City Council heard the bad news from City Manager T.C. Broadnax and Budget Director Kerri Lang at Tuesday’s City Council work session.

One of the biggest factors in the projected deficit is the 3.5 percent cap on yearly property tax increases without voter approval in an election. That limit was imposed by the Texas Legislature in 2019. Some members of Council, including District 4’s Chito Vela, have been particularly emphatic about the need for such an election.

Council members have taken to referring to that election as a TRE (tax rate election), so the public will likely be hearing that term for at least the next six months. As Broadnax noted, the city is also facing “a continued slowing of sales tax revenue growth.”

Mayor Pro Tem Vanessa Fuentes noted that it was a sobering update. In addition, she said, they had learned just this week that a $50 million grant from FEMA has been cut. That grant was to provide flood mitigation in East Austin.

Despite the news about revenues, Lang had some good news for city employees. The Budget Office is planning to present a budget with a 3.5 percent wage increase for civilian employees as well as planned wage hikes for police and EMS workers. The city will also be contributing another 5 percent for health insurance.

Negotiations with firefighters will be starting soon, she noted. The city will also be increasing its contributions to the retirement funds for city employees and police retirees.

According to Lang’s presentation, the city saw a 5.2 percent increase in sales tax revenue in December 2024 but a 3.5 percent drop in January. Sales tax collections were essentially flat in February but fell 2 percent in March. In order to meet the city’s projections for the budget, collections would have to go up by 3.7 percent. But growth is only expected to be 1.5 percent, budget writers say.

Austinites are evidently drinking less – at least in bars and restaurants, the city says. Budget analysts project that taxes on alcoholic beverages will fall $1.8 million below the expected revenue.

In addition to the drop in sales tax revenue, Travis County property values are also expected to decline. Preliminary results from the Travis Central Appraisal District indicate that the total certified taxable value for Austin will fall from $236.3 billion for FY 2025 to $212.7 billion for FY 2026. Fewer properties are being added to the tax rolls this year, according to Erik Nelson, deputy director of the Budget Office. New properties accounted for $5.4 billion in taxable value for the current year, but that number is expected to drop to $2.2 billion, he said.

The decline in valuations of commercial properties is expected to be steeper than the decline for residential properties. In addition, more people are protesting their values, leading to decreased tax bills, Nelson said.

He projected the overall property tax bill for nonsenior homesteads would go up 10 percent, which is about $197 on a $475,000 property. For senior and disabled homeowners, that number is likely to increase by about $103. He reminded the audience that Austin ISD takes the lion’s share of property taxes.

On the bright side, EMS has been able to bring in $4.1 million more than what had been projected due to billing deficiencies. That growth was attributed to recently added staff.

The city’s utilities, Austin Energy and Austin Water, contributed more than 20 percent of the General Fund revenue in 2010, with property tax at just 37.6 percent. The FY 2025 estimate shows property taxes will contribute more than 48 percent of the General Fund revenues, while the utilities will provide only 12.5 percent. Sales taxes provided about 23 percent in 2010 and are expected to hit 26 percent in 2025. However, it is not clear whether that number will hold.

General Fund departments, which have given back money in recent years because of vacancies, are projected to close out the year close to budget. The city has experienced robust hiring recently, with few vacant positions remaining.

In a memo to Council that accompanied a detailed explanation of the forecast, Lang promised her staff would make “necessary adjustments and plan to present a balanced budget for both FY2026 and FY2027 to City Council.”

Also Tuesday, the city launched an online survey as an opportunity for residents to voice their opinions about the budget. This is in addition to five community budget conversations in locations across the city that Broadnax had conducted over the past few months.

In a news release, the city noted that “over the next several weeks, City management and budget staff will make necessary adjustments to close the projected 2026 gap. The City Manager plans to present a balanced Fiscal Year 2026 Proposed Budget and Fiscal Year 2027 Plan to City Council in July.”

Broadnax said, “Given the uncertainty in the global and national economy and the effect of property tax caps, we knew we’d be facing headwinds this year. We’ve prepared for them and will adjust as necessary.”

The city is encouraging Austinites to take part in the new budget survey, which will be available until early May. You can find it at austintexas.gov/budget. City Council will host their own district community meetings during the months of June and July.

Photo by Pen Waggener – Flickr: Economic Landscape, CC BY 2.0, via Wikimedia Commons.

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