The City of Austin is looking at a $33 million shortfall in next year’s budget, forcing city leaders to tighten the spending belt.
The budget pays for things like staff salaries, including for police officers and firefighters; projects involving parks and roads; and programs like rental assistance and homelessness initiatives. It's primarily made up of revenue from property and sales taxes.
A five-year financial outlook presented to the City Council on Tuesday pointed to some financial strain due to flat sales tax revenue, limited property tax revenue and an end to some federal funding.
Kerri Lang, director of the city’s budget office, said Austin's expenses are growing quicker than its revenue. She said that has a lot to do with the property tax cap.
Property tax is money residents pay on their home value each year; it's the biggest portion of the city's revenue. The city used to be able to collect up to 8% more in property taxes year over year. But in 2019, state lawmakers passed a bill lowering the cap from 8% to 3.5%. If the city wants to exceed 3.5%, it must ask voters for approval.
“We know we are going to have to look closely at what that means for the city as far as services and the programs we provide,” Lang said. “We will have to look at what we are prioritizing and make sure we are doing our fundamental things and our core services.”
Sales tax revenue has flattened post-pandemic, too, because people aren’t spending as much money at restaurants and shops around town as they used to. Erik Nelson, acting deputy director for the city’s budget office, said that's put some financial strain on the city.
“Due to inflationary pressures and economic uncertainty, we’ve seen sales tax really level out,” he said. “Locally, we are not seeing a lot of job creation. We’re seeing a slowdown in building, which wears on future sales tax growth. While higher prices due to tariffs might help in the short term — because higher prices lead to more sales tax revenue — it will offset demand, and that will then lower sales tax.”
During the pandemic, cities across the country got money from the American Rescue Plan Act, and that money is also drying up.
“Some of the dollars we received as part of the pandemic response made it seem like we had more money as a city," Lang said, "and so we were able to make some adjustments."
Heading into next fiscal year, she said, the city has some hard decisions to make.
“There has to be some give and take,” she said. “We would love to fund every single thing that was needed in the community, but that is not the reality of anyone’s budget.”
Council Member Ryan Alter said funding for many city programs, like the emergency homeless shelter at the Marshalling Yard, just can’t go away.
“This is the exact time that we need to invest in people,” he said. “We know the federal government is not going to do it. We know that state is not going to do it. I think it's incumbent upon us to recognize that times are tough and we need to be responsible with the dollar, but we are the last line.”
While the city looks at where it can curb spending, it's also weighing whether to ask voters for more money through a tax rate election. How much and what that would look like is to be determined.
The city will build out the budget over the next several months with presentations beginning in July. The City Council is set to vote on the budget in August.
