Austin city manager proposes $6B+ budget, as mayor floats tax rate change

AUSTIN (KXAN) — The city of Austin released its fiscal year 2026 budget to the public late Friday, a new step in the city's budget adoption process. But in a Saturday morning memo, Austin Mayor Kirk Watson said he'll seek other proposals from Austin City Manager TC Broadnax and could ask voters to approve a new maximum tax rate.

Broadnax's staff has largely focused on meeting a $40 million gap, he said in an interview with KXAN in the last episode of Inside Austin's Agenda.

“We are still working through how to close a $40 million budget gap primarily driven by reduced sales tax and a small shift in how our land valuations came back to us,” Broadnax said. “I’m deliberately focused on ensuring that there is not a wholesale negative impact on any specific service, and/or things that would be highly objectionable within reason."

The city of Austin also must grapple with ended American Rescue Plan Act funds and the loss of federal grants allocated to the city prior to 2025.

“We find ourselves in real financial pressure for this upcoming budget cycle and the needs of our community are great and they are increasing as more services are cut at the federal level,” Austin Mayor Pro Tem Vanessa Fuentes told KXAN in April.

Key items in the budget

The released draft proposes a budget of over $6 billion. In his Saturday memo, Watson said he was ready for headlines (like ours) to highlight that figure, but said that number doesn't give the whole picture.

"For clarity, however, it should be noted that the General Fund budget is $1.5 billion," Watson said. "The larger number includes the Enterprise Funds such as the airport, Austin Energy, Austin Water, Austin Resource Recovery, Transportation & Public Works and our Watershed Department."

The General Fund is largely created from Austinites' property and sales taxes. KXAN previously reported that Broadnax said 100% of property taxes and around 75% of sales taxes go to public safety and emergency response — EMS, fire and police. Parks, libraries and other city departments are mostly funded through city fees.

The proposed budget also includes a 4% cost-of-living adjustment for city employees, setting a living wage of $22.01/hour for non-salaried employees. City workers will also not see an increase in employee health premiums.

Other items highlighted by Watson's memo include:

• $1 million for Street Outreach Coordinators within the Homeless Strategy Office and funding for the 8th Street Shelter and the Marshalling Yard shelter;
• $375,000 to the Parks & Recreation Department for youth fields and pools;
• $4 million for the emergency rental assistance program; and,
• $2.5 million for the Austin Infrastructure Academy.

It is important to note that contracts and state laws create constraints on Austin's budget process — for example, bargaining agreements with the Austin Police Union, its firefighters union and other city labor unions.

Will voters approve a tax rate increase?

In the mayor's estimation, a state law concerning municipal taxes may be the city's primary obstacle. In his memo, Watson states that city council "must consider going to the voters" for approval of a Tax Ratification Election, or TRE.

"As noted, the Manager’s proposed budget utilizes the maximum tax rate of 3.5% ... any increase to this proposed budget would require a TRE," Watson wrote. "Over the next couple of weeks, we will have conversations about how to navigate best the current financial situation the city is facing."

Texas' "Truth in Taxation" process requires "local taxing units," such as a school district or a city, to "make taxpayers aware of tax rate proposals," according to the state comptroller's website. A TRE is taxpayers' "opportunity to limit tax increases."

For city council, adhering to this process requires it to declare a maximum property tax rate in its budget. The city isn't compelled to use that rate in its budget and may use a lower rate; however, council could limit its options if it doesn't put forth a higher rate.

"Historically, the city has set this maximum tax rate at the voter-approval rate—the highest property tax rate the city may adopt without triggering an election," Watson said. "Because our community has raised important issues and questions about Austin’s needs ... I anticipate we will declare a maximum rate at a level that, if ultimately adopted, would trigger a TRE."

The memo alludes to preliminary conversation with council members and city residents, from which Watson suggests that the city's current tax rate might not "meet our growing city’s needs and help us maintain our success."

"Either we’re going to have to ask the public to help out some more, which is tough and we recognize that, or we’re going to have to really tighten our belts and say ‘these things that you expect of us, we can’t do,'” said Council Member Ryan Alter in a May interview.

Austin's budget process

Besides this year's new step of a public release of the budget, city residents should be able to expect a similar process to prior years. On July 15, Broadnax and his staff will present the budget to city council.

After that presentation, council members will likely hold town halls with constituents in their district. Those meetings, along with feedback sent to council members' offices, serve as a means for city residents to inform their elected leaders.

Every Tuesday, Austin City Council will convene to discuss and work on the budget. Those meetings are scheduled for July 22 and 29, as well as Aug. 5 and 12, and can be watched live on ATXN at 10 a.m.

Watson also said he plans to, during the July 15 meeting, formally ask Broadnax to prepare alternate proposals "that increase the budget in $0.01 increments above the base budget," by July 18.

Those option would be presented at a special meeting of the city's Audit & Finance Committee on July 22, Watson said. That meeting will likely also be when council members discuss the potential TRE.

On July 31, the council will open the floor for public comments on the budget, according to Watson's memo. During this meeting is also when council could vote to declare a new maximum tax rate.

"I also think that, on July 31st, it is possible (more likely, probable) that the rate we will declare on July 31st is higher than what we will ultimately actually adopt," Watson wrote.

Actual adoption of the budget is expected to happen between Aug. 13-15. The city's fiscal year starts Oct. 1.