Austin city leaders might have to make some tough decisions about spending as projections show an upcoming budget deficit just five months into the fiscal year.
In August, the city adopted a $5.5 billion budget expecting to generate enough money from sales and property taxes to cover the year’s expenses.
Ed Van Eenoo, chief financial officer for the city, said officials had projected a 3.5% growth for sales tax revenue, but sales have fallen flat, putting the city behind its financial projections.
“We have continued to see really flat sales tax revenues over the last few months,” Van Eenoo said. “The good news is that flat is better than down, but the bad news is that flat is not good enough."
There are about seven months before the fiscal year ends on Sept. 30, and by then, Van Eenoo said the city will have a budget deficit.
On top of that, Van Eenoo said the city’s COVID relief funding is nearly gone, putting programs like tenant stabilization in jeopardy.
Property taxes make up nearly half the budget. The city expects to fall behind in those revenues because of protests and refunds processed after the adoption of the budget, according to city documents.
The potential shortfall does mean the city will have to go back and re-evaluate some of the programs it had intended to fund.
The four areas officials want to try and fulfill the initial funding for include tenant stabilization, permanent supportive housing voucher programs and wrap-around services, and the city’s child care assistance program.
Kerri Lang, the city's budget officer, said there's enough funding for the permanent housing and child care assistance programs. However, the city will likely have to scale back its commitment to tenant stabilization.
Fewer households might see tenant stabilization benefits
During the coronavirus pandemic, thousands of people were put under financial strain when they lost their jobs.
With the help of federal relief funding, the city began providing financial assistance for rent and utilities. Over the last two years, the city has allocated $9.6 million in tenant stabilization for financial assistance with rent, moving, storage and relocation costs.
Lang said Tuesday the city expects all remaining money to be spent by May. It is estimated to serve about 1,500 households, but the need is greater than the resources available.
Mandy DeMayo, interim director for the city’s housing departments, said the city received more than 7,000 applications for financial assistance since the form opened in September.
“The need far outpaces the resources,” DeMayo said. “We are looking at ways to perhaps reprioritize applicants so we can narrow the pool of applicants to better have resources to meet the demand.”
She said that could mean lowering the income requirements needed to receive the funds.
“We would serve fewer households, but serve people with higher needs,” she said.
Council Members Chito Vela and Vanessa Fuentes both expressed concern with the limited funding and said they would support finding permanent funding for the program, considering the ongoing housing and affordability crisis in Austin.
“We have to keep continuity in these programs,” Vela said. “The stop-and-start nature is not good for people asking for funds, it's not good for contractors administering the funds. We want something more steady and stable, and the fact that the program has already closed and is likely to run out of funding is a real concern.”
Tenant stabilization is just one of the many programs that could be impacted.
The path forward isn't clear yet
Sales tax is only about 30% of the budget revenue. Property taxes have a much larger impact and are used to help absorb some of the additional spending. But recent changes to the property tax rate increase rules have put the city in a tough spot.
Mayor Kirk Watson said in a newsletter last week that the city used to be able to raise property tax revenue up to 8%. The City Council would regularly increase taxes near that cap. But in 2019, state lawmakers passed a bill lowering the cap from 8% to 3.5%. If the city wants to exceed this number, it has to hold an election and get the voters' OK.
"Austin’s economic prosperity along with some pandemic-related factors helped to paper over many of the challenges of budgeting under a tight property tax cap," Watson said. "Now, we’re beginning to understand the fiscal reality of those caps at the same time sales tax growth slows."
Lang said before more decisions are made, the city will take another six weeks to study the growth of sales tax and other potential revenue streams to get more complete projections, including what this could mean for city spending over the next five years.
Correction: A previous version of this story incorrectly said the city used to be able to raise the property tax rate up to 8%. It could raise property taxes up to that cap.
