City Manager T. C. Broadnax convened an April 8 briefing on the city’s five‑year financial forecast, and staff told the Austin City Council the general fund faces near‑term deficits if current revenue assumptions hold. “This forecast describes the headwinds the city’s general fund will be facing,” Broadnax said at the start of the presentation.

The forecast presented by Carrie Lang, director of the Budget and Organizational Excellence Office, and Eric Nelson, acting deputy director, shows a $33.4 million projected shortfall in fiscal year 2026 under baseline assumptions and a projected cumulative gap that grows to about $79.9 million by the end of the forecast period if no policy changes are made.

Why it matters: City staff said revenue pressures are concentrated in weak sales‑tax collections and limits on property‑tax revenue growth imposed by state law (SB 2). While property tax remains the largest general‑fund source, staff said earlier‑year caps reduce how much the city can rely on rate increases to offset rising costs. The forecast also incorporates contractually driven wage and pension costs and higher internal service charges.

Most important facts

- Fiscal year 2025 estimates: staff said they now expect an overall fiscal‑year‑to‑date revenue shortfall of about $5.7 million, driven mainly by sales tax results. Eric Nelson said sales tax is trending to a 1.5% year‑end growth estimate, after a 3.9% figure that included one‑time audit collections. That weaker trend produced an estimated $7.9 million sales‑tax shortfall for FY25.

- FY26 baseline: staff projected a 3.4% increase in overall general‑fund revenue for FY26 (roughly $49 million) but also outlined baseline expenditure growth that produces a $33.4 million deficit in FY26 under current assumptions.

- Cost drivers: personnel and benefits were highlighted as a primary pressure. Lang said the forecast assumes a 5% increase in the city’s health‑insurance contribution, a 3.5% civilian wage assumption, police and EMS wages per current contracts, placeholders for upcoming fire negotiations, and increased retirement contributions tied to legacy liabilities. Citywide internal‑service allocations (support services, CTM, fleet) were modeled with multi‑year increases.

- Property tax dynamics: Nelson summarized preliminary conversations with the Travis Central Appraisal District (TCAD), saying TCAD’s initial indications were for about a 10% decline in assessed values on the roll and for new‑construction taxable value to be materially lower than the prior year (staff said new value might fall from a record roughly $5.4 billion added last year to about $2.2 billion this year). Staff noted that because of the 3.5% revenue cap (SB 2) many homestead properties have “capped value” effects that complicate the distribution of tax bills across taxpayers.

- Reserves and reimbursements: staff is counting some FEMA reimbursements in the reserve calculations but cautioned that timing and receipt are uncertain. Lang said anticipated FEMA receipts (COVID and storm reimbursements) affected the projected 17.2% reserve figure for FY26 but that those receipts remain subject to timing risk.

- American Rescue Plan Act (ARPA): Lang said the city met the federal encumbrance deadline and that roughly $32 million remained to be expended by the federal deadline (Dec. 31, 2026). She said most ARPA dollars funded one‑time projects but about 10 projects are ongoing and not included in the baseline budget.

Council response and next steps

Council members pressed staff for further detail about the drivers and implications. Council member Kadri asked staff to confirm the $33.4 million deficit figure; Lang confirmed it. Other council members asked for more granular breakdowns of the wage, pension and internal‑services increases, for documentation of assumptions about TCAD values and new construction, and for clarification of reserve assumptions. Staff said it will return July 15 with the proposed FY26 budget and supporting work sessions; a public hearing is scheduled for July 31 and budget adoption is expected in August.

Staff said it will continue to refine assumptions as formal appraisal roll notices and additional sales data arrive and to work with departments on potential efficiency and fee‑recovery options. Lang said the department teams are performing service‑prioritization reviews and working to identify potential savings and fee adjustments that could reduce the forecast gaps.

What staff will return with: a balanced proposed budget on July 15, more refined forecasts as official TCAD rolls and sales‑tax reports arrive, a debt‑and‑bond calendar tied to the 2026 bond planning process, and follow‑up on ARPA projects whose ongoing costs are not in the baseline.

Context and caveats

Staff emphasized the forecast is conservative and subject to significant near‑term change as official appraisal notices, sales‑tax remittances and federal reimbursement timing are confirmed. Several council members, and multiple public speakers earlier in the meeting, urged the council to consider both the long‑term investment needs and short‑term fiscal constraints as staff prepares the proposed budget.

Ending note: Lang reiterated that staff will continue to refine the numbers and try to find departmental savings but that council direction on priorities will shape which programs are preserved if revenue shortfalls persist.