The big picture
Under a state law approved in 2019, Texas cities aren’t able to raise revenues from local property taxes by more than 3.5% year-over-year. That limit is a drop from a past annual revenue cap of 8%.
If city leaders believe more funding is needed, they can ask voters to approve a higher tax rate to collect revenue beyond the 3.5% limit. Austin hasn’t waded into that process in its first five years operating under the lowered state-imposed cap, but city officials and staff have been pointing to the likelihood that a tax rate election, or TRE, is now likely on the horizon.
“It’s premature to indicate that we’re going to do something. But it’s not premature—it’s frankly mature and smart—to start the process of asking, ‘How do we address these important issues and the fiscal situation that the city will find itself in this year?’” Mayor Kirk Watson said during a March 26 City Council discussion.
The details
Austin has passed balanced budgets based on tax revenues under the 3.5% cap since it went into place. However, financial staff have recently projected growing annual deficits through the late 2020s—especially with the added costs of a record police contract approved last year, and with the city's hundreds of millions of federal American Rescue Plan Act relief dollars expiring in 2026.
City officials are expected to receive an updated look at Austin's financial outlook in April. For now, they're considering new policies for possible TREs as the budget grows more strained.
Council member Chito Vela said Austin hasn't been able to collect hundreds of millions of dollars it previously could have before the 3.5% revenue cap, and that the city had regularly adopted tax rates above that limit through the 2000s.
“Honestly, it’s mildly remarkable that we haven’t had to bust that cap at this point just given the growth of the city, given the challenges that we’ve faced," he said.
City staff are now developing a TRE policy that'd focus only on necessary spending that couldn't be covered with other cuts or reallocations, Budget Officer Kerri Lang said. A higher tax rate would be designed to fund city services across multiple years' budgets, and not base cost drivers like increased wages or insurance costs.
Staff would recommend holding any elections no more often than every four years to avoid "voter fatigue," Lang said. She and some officials said it'll also be important to coordinate with other local entities that may propose higher taxes, like Travis County and Austin ISD did last fall.
What's next
Council members are hoping to review a finalized TRE plan before getting deeper into this year's budgeting process, which runs through the summer and wraps up mid-August. It remains to be seen if they will move to place a tax election on the ballot this November.
Mayor Pro Tem Vanessa Fuentes said the city should focus on investments related to homelessness, a council priority that received extra attention in last year's budget and in Austin's ARPA spending. Council member Ryan Alter said any election policy should leave flexibility if conditions change in the future. And Watson said the new guidelines, and an eventual TRE itself, must be "fully cooked" with in-depth information for voters on why the extra funding might be needed.
“In a time of discussing affordability, and recognizing what we have with issues related to affordability, we’re going to have to show that we’ve walked it through a thoughtful process, and that’s part of what we’re attempting to do here," he said.
