Austin faces shrinking tax rolls with budget cuts ahead

Erik Nelson, deputy director of Austin's budget office, said "essentially all" types of property are contributing to lowered values.

"With respect to residential property, median home prices and sales have declined, and inventory is growing. Industrial development is slowing, and new office building development has nearly halted," he said at an April 15 briefing.

Zooming in

Annual property tax increases in Texas are limited by a 2019 state law that caps cities' year-over-year revenue growth at 3.5%, down from a previous 8%. That ceiling applies only to properties that were previously taxed, meaning new construction isn't counted against that cap and can result in more revenue for cities.

Austin's development boom helped bring in more taxes for years. However, slower activity is now reducing additional value faster than expected.

New construction in Austin is expected to add $2.8 billion in value for the 2026 tax year, per TCAD, nearly 10% below city staff projections and a decline from last year's $3.3 billion total. That would represent a steep drop from just two years ago, when new construction value peaked at nearly $5.5 billion.

Given current financing challenges and the amount of time needed to develop new buildings, Nelson said Austin will likely continue to have "relatively modest" additions to the tax rolls for years.

Nelson cited regulatory and legal changes as other factors now affecting Austin's tax revenues.

One is last year's voter-approved state Proposition 9, which increased Texas' tax exemption for business personal property by 50 times this year, from $2,500 to $125,000. That measure was meant to save businesses thousands of dollars annually, and was anticipated to result in hundreds of millions of dollars in lost revenue for any cities, counties and other entities that don't raise their taxes.

Austin can expect 0.5%-2% less taxable value this year from the new business personal property exemption alone, according to TCAD.

Separately, Nelson said the appraisal district is reporting an "extremely high volume" of court appeals over property valuations that will impact Austin's rolls.

TCAD has seen a surge in appraisal protests for years. If a settlement over a property value isn't reached in that process, owners can seek further review by the Appraisal Review Board. And if they disagree with the board's decision, owners may then appeal their case in court.

Nelson said successful court appeals led to a $1.8 billion decrease in Austin's original 2025 tax rolls since last summer alone, another trend likely to continue.

“This is going to adversely affect our current year property tax collections. And because of the way the state property tax calculations work, there will likely be adverse effects as we project revenue for [fiscal year 2026-27] as well," he said.

What's next

After members of City Council's finance committee reviewed the new tax roll information, the full council will discuss city finances and the FY 2026-27 budget process at an April 21 work session.

Mayor Kirk Watson has said this year's budget talks should be based around several different potential tax rates and future revenue projections to provide more context about likely cuts to come.

“As we go into this process, one of the helpful things might be for there to be transparency so that the public will be able to see at the different levels of the forecast and what can happen and might be cut, what’s at risk," he said.

That plan includes budget calculations at the "no new revenue" tax rate, which would result in the same level of city collections year-to-year and smaller increases to most residents' tax bills. Mayor Pro Tem Chito Vela said he appreciated the approach and more discussion of taxing options, but still believes officials should consider increases up to the state's 3.5% annual revenue cap—a move he said has been the "unspoken assumption" in recent years.

"Don’t get me wrong, that is the right policy, but I do think we need to talk about that decision and look at the alternatives as a part of educating and informing the public," he said. "Obviously, the [2025 tax rate election] did not pass. At some point down the road, we will need additional revenue, and I feel like if we don’t have these conversations, then it doesn’t really prepare the public to make an informed decision when they go and vote for a potential TRE.”