Austin ISD's budget deficit for the 2025-26 school year landed at $105 million, and the district's financial rating dropped to a B for the first time since at least 2017, Superintendent Matias Segura and Chief Financial Officer Katrina Montgomery told the board Aug. 27.
By the numbers
The shortfall grew throughout the year, per district data: $19 million at adoption, $121 million after a mid-year amendment and $105 million in the final unaudited number, $86 million higher than first approved. That drop pulled the district's fund balance down to 8.8% for 2025-26, well below the 15.21% target set at adoption, per district data.
The district's Financial Integrity Rating, a state financial-health score separate from academic grades, fell from a 95/100 last year to an 88 this year. The drop came down to a single pass-fail measure comparing staffing levels to enrollment declines, Montgomery said.
"We could have had a 98 which would have kept us at our superior years achievement," she said, calling the loss "unfortunate."
What's happening
Three things drove the $86 million gap, according to district data. First, revenue came in $132 million short, mostly from property value protests and a delayed property sale.
Then required spending rose by a net $41 million, driven largely by teacher retirement costs and new state funding-formula requirements, and a $16.9 million property sale couldn't count toward this year's books under state accounting rules, so that money rolls into next year's budget instead. The sale would have shaved $7 million off this year's gap had it been allowed, Montgomery said.
AISD held its AAA rating with Kroll Bond Rating Agency, but KBRA shifted its outlook from stable to negative—a signal it wants to see less reliance on one-time revenue like property sales, and confirmation the district hits its full $200 million reduction target by year's end, according to the presentation.
The breakdown
AISD scored zero on the 10-point staffing-to-enrollment measure that cost the district its A grade. Montgomery acknowledged last year's staffing cuts "wasn't as aggressive as it could have been," calling it "something that we are improving on significantly this year."
Pressed by AISD board member David Kaufman on whether AISD disputes that fewer students should mean less staff, Montgomery said the district disagrees with how certain staff, including some special education positions, are classified in the state's formula. The district plans to appeal.
Board members also questioned $3 million to reconfigure the district's new bus "hub" model plus $1.2 million for 24 new transportation positions, on a model meant to save money. Montgomery called the $100 million-plus transportation budget "very nuanced" and promised a clearer breakdown in September. The hub model's projected savings were cut roughly in half, from $5 million to just over $2 million, after middle schools were rolled back out of the plan.
How we got here
AISD's board voted in November 2025 to close 10 campuses for 2026-27 amid declining enrollment, according to previous Community Impact reporting. By June, officials proposed $181 million in cuts districtwide as the current year's shortfall grew to $95 million, later revised to $105 million.
Board members adopted an $887 million budget June 18, closing the gap through $205 million in gross cuts. Paredes Middle School closed weeks later, splitting students between Bailey and Mendez middle schools.
Austin isn't alone, as nearly $8.4 billion in new state funding under House Bill 2 wasn't enough to shield Texas school districts from shortfalls this year, Community Impact reported in June.
What's next
AISD officials plan to borrow $140 million this fall to bridge cash flow until property taxes arrive, up sharply from last year's $19 million note, which cost about $250,000 in fees.
This year's borrowing cost wasn't finalized as of the meeting. A second reduction of $60 million tied to property-sale proceeds is penciled in for FY 2027-28, though it hasn't gone to the board yet.
District officials say an additional $19 million in cuts for 2026-27 is meant to bring reserves back up to 13% by the end of that fiscal year—up from this year's 8.8%—with the ultimate goal being a return to a 20% reserve.
The board's next detailed financial update is set for Sept. 24.
