In August, the Austin City Council approved a 2026 budget with a $33 million deficit. To cover the shortfall, the city is asking voters to approve Proposition Q on Nov. 4, which would increase property tax rates for Austin property owners by about 10 cents per $100 of property value. Such an election, called a Voter-Approval Tax Rate Election (VATRE), is required by state law when proposed tax rates would increase local revenue by more than 3.5% over the previous year. 

Minimizing tax rates while preserving revenue for local governments is not an easy task, and Austin’s proposed rate increase is not to be taken lightly. Austin is not alone in its budget woes; cities, counties, and school districts across the state are facing shortfalls – from major metros including Dallas, Houston, Fort Worth, Harris County, and Travis County, to smaller localities like Kerr and Hemphill counties. Many school districts are also holding VATREs this year, including Liberty Hill, Hays, Boerne, Abilene, Garland, and Santa Fe ISDs (to name a few). Austin ISD voters approved a VATRE last year to raise an additional $171 million for maintenance and operations.

Local officials across the state have to decide between raising taxes, cutting services, or dipping into reserves to balance their budgets. While some simply blame officials’ fiscal management for the deficits, other compounding factors make this situation more complicated.

What Prop Q Would Do

The proposal put to Austin voters as Proposition Q would increase city property tax rates by about 10 cents per $100 of value, producing about $110 million of new revenue for the city. If the new tax rate is approved, an Austin homeowner with a median-value home of $495,000 would see their annual tax bill rise by approximately $303. As Every Texan has pointed out, property taxes do impact everyone directly or indirectly – not just homeowners – so all city residents should deeply consider the tradeoff between a higher tax bill and the important services the city provides its residents.

According to the city, the rate increase would provide:

$35.5 million for continuing efforts to reduce homelessness and increase housing affordability (a major issue for the city.) The funding would help add shelter beds, support outreach and case management, help people in transition to permanent housing, and continue the Family Stabilization Grant program. $22.6 million for public safety and to expand mental health crisis response capacity, including dozens of new staffing positions for EMS.$10 million for facility and sustainability improvements.$7.7 million for public health and workforce development.$1.3 million for employee benefits, including an across-the-board COLA and flat wage increase for city staff paid below $53,000.Federal Cuts Causing Chaos Nationwide

Austin’s budget deficit is not unique; cities, counties and school districts across the country are struggling too, a big contributor being sharp drops in federal funding. The State and Local Fiscal Relief Fund (SLFRF), created with the passage of the American Rescue Plan Act (ARPA) in 2021, provided local governments with a crucial fiscal lifeline during and after the COVID-19 pandemic. Through that fund, Texas cities and counties were given a direct influx of $10.5 billion in federal dollars to be obligated by the end of 2024 and spent by the end of 2026. Additionally, the CARES Act’s Coronavirus Relief Fund (CRF) provided $3.2 billion to Texas local governments, while Texas public schools received about $19.2 billion in extra federal funding through the ESSER program to cope with the challenges of the pandemic.

The City of Austin received about $188.5 million from the SLFRF, using it to make investments to fight the homelessness crisis ($95.3 million), boost public health programs ($46.3 million), and promote economic recovery ($28.2 million). Those funds are drying up.

Simultaneously, the chaos created by budget and policy changes at the federal level this year is putting pressure on local governments. The cruel cuts to SNAP and Medicaid inflicted by H.R. 1, rescission of other federal funds, and prioritization of tax cuts for the rich have made it much more difficult for state and local governments to provide vital social services, especially harming low-income communities. Just this year, the Austin has seen unanticipated federal cuts of about $200 million, including funding related to I-35 construction ($100 million), public health cuts (at least $15 million but likely more), and cuts in grants for solar energy projects through the EPA-funded Solar for All program ($32 million). The cancellation and expiration of grants for Austin Public Health are particularly concerning. The department provides essential public health screenings, immunizations, and disease tracking that are particularly important to immigrants, refugees, and other low-income Austinites.

The city also relies heavily on local sales tax revenue. That revenue, which has returned to normal levels after pandemic highs, is likely to decline further if tariffs suppress consumer spending as projected.

Cost Drivers, Inflation, and Growth

One of the most important things a city provides, and one of the biggest items in its budget, is public safety. Public safety spending continues to rise as state law effectively prohibits cities from reducing police budgets without voter approval. The Austin Police Department (APD) represents about one third of the city’s general fund budget. The proposed 2026 budget includes $542 million for APD in all, a 6.5% increase since 2023. Last year, the city of Austin signed a new labor contract with the Austin Police Association for $218 million that includes a 28% pay increase for APD officers over the next five years. Other major public safety items in the proposed budget include $263 million for Austin Fire Department and $148 million for EMS (an 8.7% increase since 2023).

Furthermore, local governments are being squeezed by inflation. Local revenue needs are rising because costs are rising. Currently, inflation is approximately 3%, but the cumulative inflation rate since 2020 has been over 25%, according to the Bureau of Labor Statistics. Beyond that, the prices for many of the goods and services purchased by local governments – construction costs, equipment and facility maintenance costs, infrastructure, electricity, public transportation, health insurance, wages, fire trucks, school buses and more – have increased more than general inflation.

At the same time, many Texas cities and counties continue to experience significant population growth, even if Austin’s growth slowed in 2023 and 2024. According to the Census Bureau, Houston, San Antonio, and Fort Worth all ranked in the nation’s top five for numerical growth in 2024, while 7 of the top 15 U.S. cities by percentage growth are in suburban and exurban Texas. This growth also puts more pressure on local governments simply trying to continue current services.

Local Control of Local Government Services Matters

Local tax revenue pays for public services that local governments best provide. It is the lifeblood for the on-the-ground services we all rely on, including our roads, parks, police, fire, and EMS. We share the benefits of those services, and we also share the cost. Our local governments work with what funding is available to keep the costs of those services reasonable, but they are dealing with a number of forces beyond their control: federal cuts, inflation, and legislative interference.

If local governments cannot set sufficient property tax rates to deliver crucial public services, they will have to obtain revenue in other ways. That might include an increase in the sales tax, or an increase in fines and fees — both of which hit low-income residents the hardest. That could also include requesting that the Legislature provide assistance comparable to the support provided to rural Texas communities for water infrastructure and police departments.

To serve constituents, local government officials must have the flexibility to respond to their communities’ needs. They have to do the job that Texans elect them to do, and they need tax revenue to do it.