Subscribe to The Y’all— a weekly update on the individuals, locations, and regulations shaping Texas, created by Texas Tribune reporters based in various communities throughout the state.
DALLAS — Last year, Fort Worth earned a new title as Texas’fourth largest city with a population exceeding 1 million.
While other large Texas cities experienced slower growth or faced challenges in recovering residents lost during the COVID-19 pandemic, Fort Worth saw significant expansion. The city gained over 100,000 new residents between 2019 and 2024, surpassing all other Texas cities — including its nearby counterpart, Dallas.
Although there was growth, Fort Worth officials encountered a difficult situation this summer, dealing with a nearly $17 million budget shortfall.
They aren’t the only ones facing financial challenges. Texas cities and counties, regardless of size, have been forced to tighten their belts due to economic instability, rising inflation, stringent state restrictions on property tax revenues, and unpredictability regarding upcoming federal funding. This situation has left local governments with the choice of reducing expenses or increasing taxes and fees to compensate.
The pressure seems unlikely to ease in the near future. Several of the state’s largest cities anticipate they will encounter financial shortfalls in the upcoming years, with some facing them sooner rather than later, leading to inevitable future budget reductions and tax increases.
“There needs to be some major financial restraint,” said John Diamond, senior director of the Center for Public Finance at the Baker Institute for Public Policy at Rice University.
Revenue woes
With the state’s economic expansion slowing due to President Donald Trump’s trade conflict and immigration restrictions, sales tax income has also declined, which cities rely on to fund essential services such as police officers, firefighters, street lighting, and sidewalks.
Inflation and the conclusion of pandemic-related lockdowns led to significant increases in sales tax revenue, which contributed to boosting local finances and generating budget surpluses at the state level.
Currently, sales tax revenues have returned to a more stable level, increasing at a pace similar to pre-pandemic rates in some instances and at a slower rate in others. Fort Worth’s sales tax revenue saw double-digit growth in fiscal years 2021 and 2022. City budget planners anticipate a more moderate 4% increase in sales tax revenue for the next budget, which is slower than the growth seen in the years just before the pandemic.
In Austin, sales taxes increased by over 21% during the 2022 fiscal year. This year, sales tax income remained steady. Austin’s budget planners are preparing for this figure to decrease in the city’s next budget. They anticipate that sales tax revenue will rebound in the future, but at a more gradual rate compared to its growth prior to 2020.
This reflects the situation at the state level. Texas’ sales tax income increased by 4.1%, a rise compared to the previous year but at a slower rate than before the pandemic.
More of Texans’ budgets are being allocated toward housing and groceries, expenses that typically don’t contribute to sales tax income, while they are spending a smaller portion of their earnings on items and services that do generate such revenue.
Declining consumer confidence has also impacted sales tax income as households reduce their expenditures. Trump’s tariffs have introduced additional uncertainty, which may have a further effect on sales tax revenue.
In McAllen, the flow of customers from Mexico contributes to sales tax income, which supports the city’s operations.
Traffic has decreased due to increased enforcement of travel regulations on both sides of the Rio Grande. Sales tax revenue has increased at a slower rate compared to recent years, according to McAllen City Manager Isaac Tawil. However, as people are making fewer trips between McAllen and Reynosa to shop and dine, city officials are preparing for sales tax revenue to stay steady when compared to the previous year in their upcoming budget.
The economy is unstable,” Tawil stated. “Although we expect sales tax to rise, we didn’t want to be too bold in our expectations.
Strict limits on city and county property tax income have also placed pressure on local finances. To counteract the high property tax bills at the state level, state legislators in 2019 implemented a stricter cap on the amount that cities and counties can collect in property taxes annually without seeking voter approval. According to state law, this cap is set at 3.5%. City and county officials often cite this regulation as a challenge when trying to address increasing community demands.
Supporters of the law attribute the reduction in tax bills to the cap, stating that they would have been higher without it. Average tax rates have subsequently decreased.
Republican supporters of tax cuts are not content. State legislators have allocated billions of dollars in recent years to reduce the property taxes collected by school districts, which have historically been the largest portion of a homeowner’s tax burden. City property tax revenues have increased at a similar rate as they did before the pandemic, while county property tax assessments have, on average, risen more rapidly.
“That doesn’t seem like a government operation suffering from lack of resources,” said state Senator.Paul Bettencourt, a Houston Republican who developed the existing revenue cap. “That sounds like a ‘hitting the taxpayers hard’ initiative.”
If cities and counties require more property tax income, they can seek approval from voters, Bettencourt stated, pointing out that voters have approved property tax hikes in Austin, Harris County, and Lubbock County.
“What I don’t observe is a series of elections, individuals presenting issues to the voters and the voters rejecting them,” Bettencourt stated.
Adding to the challenge: the rapid rise in property values during the state’s recent economic surge, which helped sustain cities, has disappeared. Following years of growth, Austin budget planners anticipate taxable property values in the capital city will decrease this year, partly prompting city officials to seek voter approval at the November ballot for a 20% rise in the city’s property tax rate.
Additional property value could be removed from the tax rolls if voters approve a constitutional amendment in November that provides business owners with greater tax reductions on their inventory. The state would cover the property tax revenue that school districts would have collected from businesses without the exemption. However, cities and counties will need to either increase tax rates to compensate for the lost income or face reduced funding.
Costs have gone up
At the same time, local governments are dealing with financial limitations, while the expense of delivering services has increased due to inflation. A typical comment from local budget planners: State legislators might have limited the growth of property tax income, but they didn’t limit the cost of asphalt.
Vehicle parts have increased. Vehicle purchases have risen. Street materials have gone up. Our seasonal labor costs have also increased,” said Longview City Manager Rolin McPhee. “It’s really just expenses that are beyond our control.
A major factor in city and county budgets: rising expenses related to public safety. The expense of compensating and supplying police officers, firefighters, and paramedics usually constitutes the largest portion of a local government’s budget. And these expenses are increasing.
Public safety expenses make up over two-thirds of the total increase in Fort Worth’s main budget, which is mainly supported by property and sales taxes, for the next fiscal year. The city is increasing salaries for its police officers and firefighters.
Austin plans to provide sworn police officers with a 6% raise in base pay within the city’s next budget and a 5% increase the year after, as part of a $218 million, five-year agreement reached last year between the city and the union that represents Austin police officers. Paramedics are also anticipated to receive salary increases.
In the majority of major cities, the expense of hiring and supplying police officers and firefighters surpasses the amount the city generates through property taxes, which is typically its primary source of income.
Dallas authorities anticipate collecting approximately $1.1 billion in property taxes during the next fiscal year, yet the share of the police and fire department budgets supported by general tax revenue surpasses $1.2 billion. This creates a challenging financial situation for the state’s third-largest city, especially considering that voters approved a November ballot initiative requiring the city to hire roughly 900 additional police officers.
According to state law, cities and counties are mostly unable to reduce their public safety funding without obtaining voter approval for the reductions.
Expenses are increasing for civilian workers as well, such as retirement benefits and medical coverage.
Hemphill County, a remote area with a population of more than 3,300 residents in the Texas Panhandle, experienced a 30% drop in taxable property values. Local authorities increased the tax rate to make up for the decrease, yet higher expenses for medical and liability insurance for county workers, along with other costs, reduced the extra income generated by the tax hike.
We don’t have a choice about whether we want to insure our property. We are required to do so,” said Hemphill County Judge Lisa Johnson. “We must provide insurance for our employees.
Cities and counties are also facing pressure to offer sufficient wages to employees in order to match rising living costs and maintain their workforce. Officials in Austin and Fort Worth have approved salary increases for non-uniformed staff in their upcoming budget proposals.
That isn’t as straightforward in other areas of the state.
The budget supporting Ector County, a fast-growing industrial oil and gas region with 175,000 residents in West Texas, has stayed the same for many years, according to Dustin Fawcett, the county judge. This budget depends on an industrial sector that is frequently unpredictable.
It maintains the county’s workforce, he stated, but the county is having difficulty providing competitive wages to its employees, which is its largest cost.
That’s the main problem we’ve faced in this year’s budget,” Fawcett stated. “We would have preferred to offer larger salary increases.
Which cities and counties are taking action
Some locations turned to overall reductions to avoid financial difficulties.
Fort Worth authorities discovered over $12 million in reductions following a request for all city departments to identify methods to reduce their budgets by removing empty roles, employing financial strategies, and canceling specific agreements. City officials implemented these cuts after the Tarrant Appraisal District approved a proposal to hold homeowners’ property values steady for 2025, which officials were concerned would create a $16.7 million shortfall in the city’s budget.
However, property values exceeded expectations, thereby addressing the deficit. City officials have decided to maintain several of the cuts they had initially planned, but they have undone those that would have caused significant challenges for city operations, according to Christianne Simmons, the city’s leading budget official, who recently informed Fort Worth City Council members.
In Longview, reductions were unavoidable. The city eliminated eight jobs and several vehicles from its operational fleet, according to McPhee.
As state legislators seek additional property tax relief for cities and counties, officials in several of Texas’ largest cities are considering tax rates that will result in increased bills for residents. San Antonio, the state’s second-largest city, intends to maintain its tax rate at the current level, although homeowners will pay a bit more due to rising property values. In Dallas and El Paso, officials plan to lower their tax rates, but residents in these cities will still end up paying more than they did the prior year because of increases in property values.
In the meantime, Austin officials are seeking voter approval for a 20% rise in the city’s tax rate during the November election. For the average Austin homeowner, this would result in an additional $303 on their tax bill—excluding extra fees for homeowners that the council has already included in the upcoming budget.
This rise has raised worries regarding the city’s affordability. Austin was once the prime example of the state’s housing affordability issue as home prices and rent increased significantly in recent years. City council members have implemented various changes intended to control housing expenses, and a surge in apartment construction has led to lower rents for two consecutive years.
Austin City Council member Marc Duchen, who opposed a plan to increase the city’s tax rate, stated that the city should look for methods to reduce its expenses and that the hike would “make the city less affordable.”
Austin Mayor Kirk Watson recognized there is an “inherent conflict” between requesting residents to pay increased taxes and fees and the city’s affordability challenges. However, Watson stated that the city requires the extra funding to support its ongoing growth.
We are not handling decline in this community as some other areas do,” Watson stated during the August vote. “However, I can assure you, I truly believe that if we don’t make the necessary investments in our people and our services, we will be dealing with decline very soon.
Disclosure: Rice University has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that receives partial funding from member donations, foundations, and corporate sponsors. Financial supporters do not influence the Tribune’s journalistic content. View the fulllist of them here.
Three prominent TribFest speakers have been confirmed! You don’t want to miss out on it.Deb Haaland, former U.S. Secretary of the Interior and 2026 Democratic contender for New Mexico governor; state SenatorJoan Huffman, R-Houston and 2026 Republican nominee for Texas Attorney General; andJake Tapper, host of CNN’s “The Lead” and “State of the Union” at the 15th annual Texas Tribune Festival, Nov. 13–15 in downtown Austin.Get your tickets today!
TribFest 2025 is sponsored by JPMorganChase.
