Connect the dots and the resulting picture isn’t pretty. Economic and political trends will make it harder for local governments in Texas to balance their budgets in the coming years.
Elected officials need to start preparing residents now for the budgetary trade-offs their communities could soon face. If entities cannot grow their tax base through new development, the surest way to balance their books will be to cut programs, positions and services.
The state’s biggest cities already feel the effects of these trends. Dallas, Austin, San Antonio, Fort Worth and Houston all grappled with deficits while assembling their 2026 budgets. In recent years, at least a half-dozen North Texas school districts have decided to close campuses because of declining enrollment and budget constraints.
Cities, counties and school districts still write their own budgets, but state lawmakers have repeatedly restrained local governments’ ability to raise additional revenue through property taxes. These legislative moves have been a reaction to Texans’ mounting frustration with higher tax bills.
Opinion
With strong approval from voters, legislators this year raised the school property tax homestead exemption and gave an extra discount to homeowners who are disabled or age 65 and up. To help small-business owners, lawmakers also raised the business personal property tax exemption from $2,500 to $125,000. Rising exemptions effectively shrink the tax base.
Two other important sources of revenue are leveling off or declining. Dallas’ sales tax did not grow as much as expected, and Austin’s year-to-date sales tax actually dropped slightly. Federal funds, which help local governments address affordable housing, public health and infrastructure, will likely shrivel.
For local governments, that means conservative budgeting is critical. Jurisdictions must keep reserves fully funded and think twice about adding new debt.
Many public executives are wisely scrubbing their budgets, looking for inefficiencies and clarifying spending priorities. Austin leaders took the opposite approach — they asked residents for a 5-cent property tax increase last week. Voters rejected it 2-to-1.
In Dallas this year, staff have wisely focused attention on the city’s unwieldy real estate portfolio. Expediting the sale or transfer of any surplus property could add a bit of income and lower maintenance costs.
Growing the tax base through redevelopment could generate new revenue. Sprawling cities like Dallas need to increase density in commercial districts because that uses infrastructure more efficiently and generates higher tax revenue than single-family houses on large lots. The need for new revenue should encourage Dallas to continue trying to streamline the development process.
If voters support state tax limitations, but consistently reject development that could contribute new revenue, they shouldn’t be surprised if their cities eventually close recreation centers or lay off staff to balance their budgets. Local governments can provide only what voters are willing to pay for, and many voters appear willing to live with less.
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