Texas cities, counties pinch pennies amid slowing economy | State

Regardless of that progress, Fort Price officers discovered themselves in a good spot this summer time, going through an almost $17 million price range deficit.

They’re not the one ones with price range woes. Texas cities and counties, massive and small, have needed to pinch pennies as financial uncertainty, inflation, strict state limits on property tax collections and uncertainty round future federal funds have crimped their budgets. That’s left native governments to both lower spending or elevate taxes and charges to make up the distinction.

The strain doesn’t seem like letting up any time quickly. Most of the state’s largest cities mission they’ll face price range shortfalls within the coming years, some ahead of later, making future price range cuts and tax hikes all however inevitable.

“There should be some important belt-tightening,” mentioned John Diamond, senior director of the Heart for Public Finance on the Baker Institute for Public Coverage at Rice College.

Because the state’s financial progress has slowed amid President Donald Trump’s commerce conflict and immigration crackdown, so too has gross sales tax income, which cities use to pay for key companies like law enforcement officials, firefighters, road lights and sidewalks.

Inflation and the tip of pandemic-era lockdowns fueled double-digit gross sales tax progress, which helped fill native coffers and create price range surpluses on the state degree.

Now, gross sales tax revenues have come again to earth, rising about as rapidly as they did earlier than the pandemic in some instances and extra slowly in others. Fort Price’s gross sales tax income grew by double digits in fiscal years 2021 and 2022. Metropolis price range writers mission gross sales tax income will develop at a extra modest 4% in its upcoming price range, slower than it did within the years instantly previous the pandemic.

In Austin, gross sales taxes surged by greater than 21% in fiscal yr 2022. This yr, gross sales tax income was flat. Austin price range writers are bracing for that quantity to fall within the metropolis’s upcoming price range. They count on gross sales tax income to recuperate within the coming years, however at a slower tempo than it grew earlier than 2020.

That mirrors what’s happening on the state degree. Texas’ gross sales tax income grew by 4.1%, an uptick from the earlier yr however a slower tempo than it did earlier than the pandemic.

Texans are spending a bigger share of their price range on maintaining a roof over their heads and meals on the desk, prices that largely don’t generate gross sales tax income, and aren’t spending as a lot of their earnings on items and companies that do.

Waning client confidence has additionally bitten into gross sales tax income as households pull again on spending. Trump’s tariffs have additionally created extra uncertainty, which might additional have an effect on gross sales tax income.

In McAllen, foot site visitors from Mexican guests drives gross sales tax income that helps preserve the town buzzing.

That site visitors has slowed amid stricter enforcement on journey on either side of the Rio Grande. Gross sales tax income has grown at a extra modest tempo than lately, McAllen Metropolis Supervisor Isaac Tawil. However with folks making fewer journeys between McAllen and Reynosa to spend cash in shops and eating places, metropolis officers are hedging their bets, planning for gross sales tax income to stay flat year-over-year in its upcoming price range.

“The financial system is risky,” Tawil mentioned. “Whereas we anticipate that gross sales tax will enhance, we did not wish to be over aggressive in that anticipation.”

Exhausting limits on metropolis and county property tax income, too, have strained native budgets. In a bid to blunt the state’s excessive property tax payments, state lawmakers in 2019 put a tighter cap on how far more in property taxes cities and counties can acquire annually with out asking voters. Underneath state regulation, that restrict is 3.5%. Metropolis and county officers have continuously talked about the regulation as a constraint on their budgets as they attempt to meet rising group wants.

The regulation’s proponents credit score the cap with curbing tax payments greater than they might have absent the regulation. Tax charges have since fallen on common.

Republican tax-cut proponents aren’t glad. State lawmakers have spent tens of billions of {dollars} lately to decrease the quantity of property taxes collected by college districts, historically the largest chunk of an proprietor’s tax invoice. Metropolis property tax collections have risen at roughly the identical clip as they did previous to the pandemic, whereas counties’ property tax levies have grown at a sooner tempo on common.

“That does not sound like a starved authorities operation,” mentioned state Sen. Paul Bettencourt, a Houston Republican who crafted the present income cap. “That appears like a ‘hitting the taxpayers exhausting’ operation.”

If cities and counties want extra property tax income, they’ll ask the voters, Bettencourt mentioned, noting that voters have signed off on property tax will increase in Austin, Harris County and Lubbock County.

“What I do not see is a bunch of elections, folks taking stuff to the voters and the voters failing them,” Bettencourt mentioned.

Complicating issues: the red-hot progress in property values amid the state’s latest financial increase that helped preserve cities afloat is gone. After years of progress, Austin price range writers mission taxable property values within the capital metropolis will fall this yr, partially why metropolis officers will ask voters on the November poll field to log out on a 20% enhance within the metropolis’s property tax charge.

Much more property worth could also be taken off the tax rolls when voters think about this November a constitutional modification to provide enterprise house owners greater breaks on the taxes they pay on their stock. The state would decide up the price of property tax income that college districts would have in any other case collected from companies if not for the exemption. However cities and counties will both have to boost tax charges to make up for the misplaced income or go with out it.

On the identical time localities’ pocketbooks face constraints, the price of offering companies has solely grown with inflation. A typical chorus amongst native price range writers: State lawmakers might have capped property tax income progress, however they didn’t cap the price of asphalt.

“Components on automobiles have gone up. Purchases of automobiles have gone up. Road supplies have gone up. Our seasonal labor prices have gone up,” Longview Metropolis Supervisor Rolin McPhee mentioned. “It is actually simply prices which are outdoors of our management.”

A key driver of metropolis and county budgets: rising public security prices. The price of paying and equipping law enforcement officials, firefighters and paramedics tends to make up the majority of any given locality’s price range. And that price is rising.

The expansion in public security prices accounts for greater than two-thirds of the general progress in Fort Price’s core price range, or the portion primarily funded by property and gross sales taxes, for the upcoming fiscal yr. The town is boosting pay for its law enforcement officials and firefighters.

Austin will give sworn law enforcement officials a 6% enhance in base pay within the metropolis’s upcoming price range and a 5% pay bump the next yr, a part of a $218 million, five-year contract struck final yr between the town and the union that represents Austin law enforcement officials. Paramedics, too, are anticipated to get pay bumps.

In a lot of the huge cities, the price of paying and equipping law enforcement officials and firefighters exceeds what that metropolis collects in property taxes, usually an area authorities’s largest income supply.

Dallas officers count on to gather about $1.1 billion in property taxes in its upcoming fiscal yr, however the portion of its police and fireplace division budgets funded by means of its common tax income exceeds $1.2 billion. That places the state’s third-largest metropolis in a tricky monetary spot provided that voters authorized a November poll measure to compel the town to rent about 900 new law enforcement officials.

Underneath state regulation, localities largely can’t lower their public security budgets except voters log out on the cuts.

Prices are going up for civilian workers, too, together with pensions and well being care.

Hemphill County, a rural group of simply over 3,300 folks within the Texas Panhandle, noticed a 30% decline in taxable property values. County officers raised the tax charge to offset the loss, however will increase in medical and legal responsibility insurance coverage for county workers, in addition to different prices, ate into extra income raised by that enhance.

“We don’t get to decide on whether or not we wish to insure our property. We’ve got to have that,” Hemphill County Choose Lisa Johnson mentioned. “We have to insure our workers.”

Cities and counties are additionally below strain to pay workers sufficient to maintain up with cost-of-living will increase and retain them. Austin and Fort Price officers green-lit pay bumps for civilian workers of their upcoming spending plans.

That is not as simple in different elements of the state.

The price range sustaining Ector County, a quickly rising industrial oil and gasoline county of 175,000 residents in West Texas, has remained stagnant for years, mentioned Dustin Fawcett, the county decide. That price range is beholden to an industrial and infrequently unstable financial system.

Its most up-to-date price range retains county workers afloat, he mentioned, however the county’s struggling to supply aggressive salaries to its workers, its largest expense.

“That’s the largest challenge we have had in simply this yr’s price range,” Fawcett mentioned. “We might have liked to have been in a position to give extra wage raises.”

Some locations appeared to across-the-board cuts to stave off price range woes.

Fort Price officers discovered greater than $12 million in cuts after asking each metropolis division to search for methods to trim their budgets by eliminating vacant positions, utilizing accounting tips and nixing sure contracts. Metropolis officers pursued these cuts after the Tarrant Appraisal District green-lit a plan to freeze householders’ property values for 2025, which officers feared would blow a $16.7 million gap within the metropolis price range.

However property values got here in greater than anticipated, eliminating the shortfall. Metropolis officers have opted to maintain most of the cuts that they had deliberate, however reversed cuts that may’ve made some metropolis operations too tough, mentioned Christianne Simmons, the town’s high price range official, just lately advised Fort Price Metropolis Council members.

In Longview, cuts weren’t non-obligatory. The town lower eight positions and a lot of automobiles from its working fleet, McPhee mentioned.

As state lawmakers goal cities and counties for added property tax reduction, officers in a lot of Texas’ largest cities want to enact tax charges that can result in greater payments for taxpayers. San Antonio, the state’s second-largest metropolis, plans to maintain its tax charge flat, however householders can pay barely extra owing to greater property values. Officers in Dallas and El Paso plan to cut back their tax charges, however taxpayers in these cities can pay greater than they did the earlier yr due to property worth progress.

In the meantime, Austin officers have requested voters to approve a 20% enhance within the metropolis’s tax charge in November. For the everyday Austin house owner, that may imply a rise of about $303 of their tax invoice — not together with payment will increase for householders the council authorized within the upcoming price range.

That enhance has sparked considerations concerning the metropolis’s affordability. Austin was the poster baby of the state’s housing affordability disaster as house costs and rents there skyrocketed lately. Council members have enacted a number of adjustments geared toward containing housing prices, and an condo constructing increase there has pushed down rents for 2 years straight.

Austin Metropolis Council member Marc Duchen, who voted in opposition to a proposal to boost the town’s tax charge, argued the town wants to seek out methods to trim its spending and that the rise is “going to make the town much less reasonably priced.”

Austin Mayor Kirk Watson acknowledged there’s an “inherent stress” between asking residents to pay greater taxes and charges and the town’s affordability issues. However Watson argued the town wants the extra income to maintain its increase.

“We aren’t managing decay on this group like another locations,” Watson mentioned throughout the August vote. “However I’ll let you know, I imagine it in my coronary heart that if we’re not making the sorts of investments we have to make in our folks and our companies, we will probably be managing decay in a really brief time frame.”