City Council is entering budget adoption season with the city facing a structural deficit that cannot be easily closed by borrowing money from the city’s emergency reserves or by making minor cuts to services. It’s hard to pinpoint the last time Council had to deal with a fiscal problem this severe, but it’s certainly unprecedented in 21st century Austin.
Typically, Council members enter budget deliberations with some kind of revenue surplus, or one that can be created by moving some money around. That allows CMs to fund new programs or expand existing services. But a host of factors – most of which are beyond the city’s control – have created a fiscal environment that requires a new approach to budgeting.
In the past, local policymakers may not have had enough money to pay for everything on their budget wish list, but they would certainly have money to cover the basics (public safety, libraries, parks maintenance, etc.) and have some extra funds to pay for new services that can make a city more attractive, to longtimers and newcomers alike.
Examples of how those surplus funds have been deployed in recent budgets include: establishment of a rental assistance program; launching of a guaranteed basic income program that has helped low-income families; and funding to ensure mental health care workers are available to respond to 911 calls 24/7.
But the CMs we talked to agreed that those good times are coming to an end thanks to a range of factors: a state-imposed limit on how much revenue cities can generate from property taxes; stagnant growth in property values throughout Austin; declines in sales tax revenues; the expiration of federal stimulus money approved by former President Joe Biden through the American Rescue Plan Act; escalating costs around providing police, fire, and EMS service; and a current presidential administration hellbent on slashing federal spending on local programs.
In April, it became clear that the convergence of these forces would make for a difficult budget season. At a Council work session on April 8, the city’s budget office delivered the bad news: At current expenditure and revenue levels, the city would enter the next fiscal year with a budget deficit of $33.4 million. In four years, the deficit would grow to $80 million.
Those are numbers that require hard choices, as several CMs told us – choices that are virtually certain to include a combination of cuts to programming and an election to increase the city’s property tax rate beyond the state-imposed limit.
Already, City Manager T.C. Broadnax has instructed his subordinates to prepare for the cost-savings piece of the puzzle. In March, the Chronicle reported on a memo issued by Broadnax requiring all city departments to identify 5% of their budgets that could be cut to help the manager present a balanced budget (he is expected to unveil his proposed spending plan July 15).
Just last week we got a preview of what efficiency savings might look like when the Parks and Recreation Department made the abrupt decision to effectively end “night swim” at Barton Springs – the hour at Austin’s iconic watering hole where anyone could take a dip, free of charge. The city quickly rolled back the plan following community uproar, but as a city spokesperson told KUT, the decision was reflective of the “tougher conversations” the city was preparing for ahead of budget adoption.
But, Mayor Kirk Watson says, the city is not yet in a financial crisis. “I don’t see us as in an emergency situation,” Watson told us May 23. “I do see us in a different situation than in the past that requires us to develop a methodology and a new approach to how we’re going to budget.”
Road Closed: The State Limits Revenue
Council members, and the professional budget staff at the city, have known this day would come. The writing appeared on the wall in 2019 after the Texas Legislature passed a law, known as Senate Bill 2, that restricted the amount of revenue cities could generate from property taxes, which is the largest and most stable revenue stream available to local governments.
Prior to passage of SB 2, cities could increase their property tax rate by up to 8% every year, which gave cities an enormous amount of flexibility in using property taxes to cover expenditures. SB 2 lowered the rate increase maximum to 3.5% – a figure that, critically, has been well below inflation rates seen in recent years – and required any increase above that threshold to be approved by voters in a tax rate election, or TRE.
Looking at historical property tax rate increases in Austin, it’s clear to see how this was an effective finance tool for local governments. Going back to 2006, the lowest property tax rate increase approved by Council was 4.1%, in 2011, and in the years 2007-2010 – the time period that largely overlaps with the Great Recession – Council approved tax rate increases at the maximum level of 8%.
This made it easier for local governments to pay their bills – but harder for homeowners to pay theirs due to steadily increasing property tax payments. That’s the problem the Lege was trying to solve with passage of SB 2, but the effects for individual homeowners have been limited – especially in Austin – because property values continued to grow post-SB 2 and the lion’s share of a homeowner’s tax bill is for taxes levied by the school district, not the city of Austin. (That’s because of the state’s broken school finance system, but we digress.) In 2025, for example, the owner of a median-priced home ($450,000) in the AISD portion of Austin can expect to pay about $1,719 in city taxes and $3,372 in school taxes.
Still, SB 2 has been successful in abating the growth of property taxes throughout the state, as a 2022 study found. It also found that the decline in rate increases translated to tens of millions of dollars less in tax revenue for cities – and that means millions of dollars less for city services.
Staff within Austin’s budget office have also studied the impacts of SB 2. In April, they showed Council what city revenues would have looked like had they been able to increase the tax rate by 8% in the past five fiscal years. Under these scenarios, the city would have generated $200 million in additional revenue by FY 25.
“The property tax caps have killed us,” Council Member Ryan Alter said, referring to the SB 2 threshold. “It is a wholly different paradigm. We really have to find the money at the expense of something else.”
Detour Ahead: All DOGE’d Up
Other factors have pushed the city budget into the red, too. In 2021, Biden’s American Rescue Plan Act not only provided a vital lifeline to communities struggling to battle the economic calamity brought on by the COVID-19 pandemic – it created a buffer in Texas cities that protected them from the harm of SB 2.
Essentially, ARPA money acted as a giant pot of surplus tax revenue supplied by the federal government – the kind of surplus that cities used to be able to create on their own, pre-SB 2. Through ARPA, Austin officials had about $188 million to spend on services to reduce homelessness, increase food access, and provide child care for low-income families. But all of that money has been spent. Not only that, but in some cases, the money was spent on programs – like the creation of permanent supportive housing – that came with ongoing costs that the city must now pay for with local tax dollars (about $100 million of the ARPA dollars were spent on homelessness programs).
Of course, it’s not just that the ARPA buffer is gone. President Donald Trump and Elon Musk’s Department of Government Efficiency has led a crusade to slash federal discretionary spending, including on the kind of grants that help local governments pay for programs like vaccine initiatives, medical services for refugees, and diabetes care.
So far, Austin Public Health has been hardest hit by DOGE. In April, APH Director Adrienne Sturrup warned Council’s Public Health Committee that the city could lose up to $23 million in grants that fund about 100 jobs due to federal cuts. A month later, members of AFSCME 1624 – the union that represents city workers – rallied outside of City Hall to urge Council to save as many of the public health jobs as they could despite the looming deficit.
And these are just the cuts local leaders know about. CMs fear that, as Republicans control Congress for at least another year, more may be coming. Or that the generally chaotic nature of Trump’s leadership – his on-again-off-again trade war, for example – may spur an economic recession that would create even more financial challenges for the city to face.
All the Basics: Police, Fire, and EMS
But it’s not just hostile state and federal governments that are fueling the city’s budget deficit. Local spending on the city’s three public safety departments – police, fire, and EMS – has grown year-over-year at a rate unsustainable with 3.5% tax rate increases. Particularly, the five-year, $220 million labor contract between the city and the Austin Police Association authorized by Council last fall has been a concern.
It’s not just the contract’s price tag – possibly the most expensive contract awarded to any police department in Texas. State law prohibits cities from reducing the budgets of their police departments. Known as House Bill 1900, the law was passed in 2021 during a backlash to the Black Lives Matter movement that prompted Council to cut about $20 million from the Austin Police Department budget. HB 1900 means that every additional dollar the city invests in APD’s budget every year is a dollar the city cannot cut – no matter how much of a deficit Council may be facing down.
The Council members we talked to who voted on the contract (Watson, CMs Alter, Chito Vela, Zo Qadri, and Mayor Pro Tem Vanessa Fuentes) all stood by their contract votes. Except Qadri, all of them voted for it, and they knew its cost and the long-term impact it would have on the budget. “That wasn’t a vote I really struggled with,” Qadri said May 21. “The fiscal impacts were always concerning and we’re being impacted by it now, even if the contract is only playing a small part in the deficit.”
Others pointed to slight improvements in APD staffing as signs that the contract, expensive as it is, could be moving APD toward fuller staffing. And they all acknowledged that Council would have had to approve some kind of contract with the police union – maybe Council could have approved a slightly less expensive deal, but it was never going to be cheap.
For Watson, who championed the contract on the dais – at a pivotal time during his reelection campaign, some City Hall sources have observed – it’s a done deal and now the city just has to deal with its financial repercussions.
“Look, I feel comfortable with our contract,” Watson said. “We have the contract, and now we need to figure out how we’re going to budget and get all of the needs met, including a contract with the police union.”
Fines Go Up in Work Zones: Voting to Raise Our Taxes
The “how” is all but certain at this point: a tax rate election. Watson does not want to commit to the notion at this point, but most of his colleagues do. A consensus has formed on the dais that neither Broadnax nor Council will be able to penny-pinch their way out of the deficit – at least, not without serious consequences for city services. So, Council will have to raise taxes.
But what will that look like? On May 22, Council adopted a process for calling a tax rate election. First, the manager proposes his budget, which serves as the baseline for what the city’s spending capacity will look like in the next year. Then, the manager or Council can recommend a TRE to cover planned spending.
If a TRE is recommended, Council can’t just make the budget’s price tag sky-high. Instead, they must ensure various criteria have been met before they adopt a budget that would require voters to approve tax increases. They will first have to finish a comprehensive analysis of the city’s budget to identify cost savings, identify exactly which programs and services the TRE will fund, and ensure the increased taxation covers a “balance” of funding for both one-time and ongoing expenditures.
The TRE framework also indicates that Council should only attempt to raise taxes beyond the 3.5% cap once every four years, and that tells us two important things: One, Council may need to ask voters to approve TREs at a regular cadence – like they currently do with the municipal bonds that fund capital projects – and, two, the tax rate increase will be large enough to cover financial fluctuations over a four-year period.
That has prompted the CMs already in favor of a TRE to begin contemplating the next question – how much of a tax increase should voters be asked to approve? Council is already considering significant costs – the potential cuts to public health programs, increased costs from new fire and EMS labor contracts which are expiring soon, and an ambitious spending plan aimed at reducing homelessness.
“I am concerned about overburdening our families,” Fuentes told us, “but I think we need a tax rate election that will stabilize us and allow local government to provide the safety net that the federal government is no longer providing.”
The potential cost of the TRE is prompting some CMs to look even further down the line at how to successfully win the city’s first-ever electoral campaign around a tax rate increase (the Project Connect tax in 2020 was technically a TRE, but the one likely to be called in 2025 is different because it would be exclusively for city services).
“My goal is to resist austerity and build as broad a coalition that brings together labor and community organizations,” CM Mike Siegel said. “I want everyone at the table when we go to voters. Police officers, firefighters, nonprofit workers – I want us all to be singing from the same songbook.”
Debris Ahead: Why We Didn’t See This Deficit Coming
All of the focus on the city’s budget deficit has surfaced an issue that has become something of an elephant in the room for some at City Hall – the fact that, in a span of six months, the city’s budget office misforecasted deficits in future fiscal years by tens of millions of dollars. Last July, Broadnax’s proposed budget estimated a minor deficit beginning in FY 26 that would grow to $11 million in FY 29. A month later, in a budget presentation to Council, staff admitted that their forecasted growth in taxable property value was off by a staggering 84% (and that was because staff forecasted 5.3% in property value growth when the city only experienced 0.9% in growth that year).
On Oct. 22, as Council was torn over the police contract vote set to take place two days later, staff offered a forecast that assuaged the concerns of some CMs. Approval of the contract would barely put a dent in the budget, staff said, producing just a $2 million deficit in FY 26 and a $6 million deficit in FY 29 – the kinds of budgetary holes that could be plugged by minor departmental cuts and by dipping into the city’s savings account.
But six months later, in April, the forecast looked much less rosy. That’s when the $33.4 million deficit in FY 26 and $80 million deficit in FY 29 first appeared (staff explained that an unexpected decline in taxable property values and declining sales tax revenues contributed the most to the sudden appearance of a deficit).
Financial forecasting is an inexact science, at best, and no one we talked to felt like the miss amounted to a fireable offense. But, concern lingers. For some who closely watch the city’s budget process – like local policy buff Julio Gonzalez Altamirano – the concern is around a loss of trust within the community whenever local policymakers communicate with the public about budget issues.
Gonzalez Altamirano is no casual observer. He arrived in Austin in 2006 and, two years later, leapt into the Austin civics scene as one of the many volunteers who help the city by serving on various task forces. Around that time, he also launched a blog called Keep Austin Wonky where he has shared his granular analysis of the budget and planning issues for over a decade (he’s planning to relaunch the project as a newsletter soon).
Gonzalez Altamirano agrees with CMs who feel the city will need to adopt a new approach to budgeting beginning in the next fiscal year – and that includes taking a hard look at the predictive work Council depends on to craft functional budgets.
“We’re no longer in the world where blistering property taxes and red hot sales tax can bail us out,” Altamirano said. “There’s going to be a perception of budgetary chaos if we are not continuously improving the statistical calculations we use to forecast revenues and expenditures.”
Fuentes and Alter agree that accurate forecasting is even more important now that revenue surpluses are slim and costs for services continue to increase. “It’s going to require us to ask more questions,” Alter said, “be more thorough, clearer with staff about what information we need, and even clearer with the public about how we’re using that information to make our decisions.”
This article appears in June 6 • 2025.