DALLAS — Texas cities have floated unusual proposals to slash their spending as they face yawning budget gaps, from laying off employees and charging non-residents higher zoo ticket prices, to asking voters to reconsider public funding to a new arena for the San Antonio Spurs.
These desperate maneuvers — some of which have not come to fruition — underscore how inflation, a slower economy and moves by state lawmakers have put Texas’ biggest cities in a tightening financial noose that will take big moves to get out of.
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“This is going to be our new normal going forward,” Dallas City Manager Kimberly Bizor Tolbert said Tuesday during a briefing on the city’s upcoming budget.
In Dallas, the budget gap is $51 million. In Fort Worth, it’s $94 million. In San Antonio, the city faces a $158 million deficit over the next two years. Austin faces a structural deficit that could grow past $100 million by the start of the next decade.
In Dallas, officials plan to lay off more than 100 employees and cut back on library hours. In Fort Worth, budget writers want to eliminate vacant positions and slash pay increases for civilian employees. Officials in San Antonio and Austin plan to increase property taxes while cutting services or finding ways to deliver them at a lower cost.
Despite those moves, it’s likely cities are stuck in a bind, said John Diamond, senior director of the Center for Public Finance at the Baker Institute for Public Policy at Rice University. It’s politically tricky to make deep spending cuts, he said. At the same time, broader headwinds putting pressure on city budgets like inflation and a slower economy likely won’t let up in the near future.
“I just don’t see an out,” Diamond said. “I keep looking for what would make me believe that the fiscal health of the cities will get any better anytime soon, and honestly, I see no reason to believe that.”
Cities likely won’t get any help from the Texas Legislature to combat their financial woes when lawmakers convene in January. GOP legislators have already placed strict revenue limits on cities as part of an ongoing campaign to rein in the state’s high property taxes.
Gov. Greg Abbott wants state lawmakers next year to further limit city budgets and make it harder for cities to raise property taxes without asking voters.
“You have to live on a budget, and if that’s not good enough, you have to make cuts,” said state Sen. Paul Bettencourt, a Houston Republican who chairs the Senate Local Government Committee and has pushed many of the Legislature’s tax-cut proposals.
Some argue that’s not the right path given cities also face pressure to provide services and maintain infrastructure as the state grows.
“Local governments are closest to the people, and we’ve completely hamstrung them,” said state Sen. Molly Cook, a Houston Democrat who also serves on the chamber’s Local Government committee. “The statewide preemptions and mandates on our cities are one of the most un-Texan things this Legislature continues to peddle.”
Cities need to start looking at creative ways to keep the revenue they give away through tax incentive programs and make daring decisions to grow their tax base by building more housing, experts say.
Slowing revenue
Several factors have pinched off revenue from local budgets, city budget writers and observers have said.
Cities’ sales tax revenue has taken a hit amid a slower economy. What’s more is higher housing, food and healthcare costs mean Texans are spending more on expenses that don’t generate much if any sales tax revenue, Diamond said.
Property values, too, have slowed. In the case of San Antonio and Fort Worth, values have actually fallen, in part because local appraisal districts have changed how they conduct appraisals, budget officials have said. San Antonio’s property values have fallen for three straight years. Fort Worth’s budget hole grew more than expected, budget officials there said, because more homeowners protested their home values.
In a political environment where tax hikes have faced intense scrutiny, some cities are treading lightly while others are considering increases. State law limits how much more in property tax revenue cities and counties can collect each year without asking voters to 3.5% — and localities have partially blamed that limit for their budget crunches.
Bettencourt, who authored the limit, dismissed that criticism.
“If they have a project and they need voter approval, they can take it to the voters and ask,” Bettencourt said. “They’re not doing it.”
Austin officials raised their tax rate to the maximum allowed under state law without going to voters, nearly a year after city voters rejected a tax increase at the polls. That increase will help Austin absorb cost increases and avoid a structural budget shortfall that officials had projected could grow past $122 million early next decade.
For the owner of an average Austin home, that means a $195 increase on their annual tax bill, a 7.4% bump. With additional fee increases, the typical Austin homeowner’s annual tab to the city will grow by more than $400 under the budget.
Austin Mayor Kirk Watson and Council Member Marc Duchen voted against the budget Wednesday on those grounds.
“I don’t feel like the budget takes into account the struggles of so much of our community when it comes to being able to afford to live here,” Watson said in a Thursday morning newsletter.
In San Antonio, budget officials have considered raising the city’s property tax rate for the first time in more than three decades — using wiggle room state law grants them to raise taxes a certain amount without asking voters. For the owner of an average San Antonio home, that would mean an annual increase of about $2.95 a month, City Manager Erik Walsh said in an interview. At the same time, the city’s eying some $90 million in cuts.
“We need to reduce our expense load, and we need to increase our revenue because we’re not structurally balanced right now,” Walsh said.
Fort Worth officials have also proposed raising the city’s property tax rate, paired with spending cuts, to help cover a $94.4 million budget gap. That bump is necessary to avoid deeper cuts that would force the closures of libraries and community centers, City Manager Jay Chapa told City Council members during a budget briefing Tuesday.
The typical Fort Worth homeowner would save about $17 on their annual tax bill under the proposed rate, according to a city presentation, owing to lower property values. But those savings would get washed away by higher city fees on services like water and solid waste.
Dallas officials, meanwhile, have eyed a slight tax cut that would net the typical homeowner about $61 in annual savings.
Some council members don’t think that’s responsible.
“We have to stop putting ourselves in this position for nominal cuts to save somebody a couple of bucks annually,” Dallas City Council Member Adam Bazaldua said. “For us to be put into a position where we have to make service cuts in order to balance our budget is not a place of good governance.”
Rising costs here, cost-cutting there
As city revenue gets squeezed and pressure mounts to deliver tax relief, cities face rising costs. In many major Texas cities, police officers, firefighters and civilian employees are slated to get pay bumps while their health care costs rise.
Public safety is a major driver of cities’ rising budgets. Spending on police and fire protection typically makes up the bulk of a city’s budget, and city officials are often under pressure from the public to hire more cops and firefighters.
In Dallas, officials want to hire 700 new officers over the next two years. At the same time, overtime costs for officers and firefighters have grown.
Some City Council members argued that the approach shouldn’t come at the expense of other services. A number of other city services including parks, libraries and housing are taking a hit in the upcoming budget, they noted.
“Dallas voters overwhelmingly support public safety,” Dallas City Council Member Jaime Resendez said. “But our residents also expect libraries, parks, housing and community empowerment programs, along with other neighborhood services.”
Dallas, Fort Worth, San Antonio and Austin are looking at eliminating vacant positions to save money among other cutting efforts.
Given San Antonio’s deficit, Mayor Gina Ortiz Jones wants city voters to have a direct say in whether the city should put some $489 million tax dollars toward a downtown arena for the San Antonio Spurs.
The San Antonio City Council will vote Monday on whether to stick the mayor’s proposal on the November ballot. In a statement, Jones couched the push as a way to relieve residents’ “unease about our financial picture.”
While those efforts can make bigger dents in their budgets, cities are also hoping enough smaller, more creative cuts can add up.
In Dallas, Mayor Eric Johnson has proposed leasing space in city libraries to coffee shops and cafes, as Austin and Cedar Hill do, and charging non-Dallas residents more to get into the Dallas Zoo and Dallas Arboretum, which are supported by Dallas taxpayers.
“This is fundamentally unfair to our residents,” Johnson wrote in a July memo. “Correcting this imbalance is necessary to save money and stop burdening our taxpayers with the costs of serving the entire region.”
What should cities do?
To shore up their budgets, cities need to adopt different strategies, said Diamond.
Cities might consider contracting out more services so they can save money on employee benefits or rethink how much they give away in property tax exemptions to lure companies or spur development, he said.
Dallas exempts some $75.1 billion in property from paying taxes, city budget officials said Tuesday — up from $41.6 billion from around the start of the decade. That translates to about $524.1 million in revenue the city will forego in its upcoming budget.
State lawmakers could also help cities by getting rid of certain sales tax exemptions, Diamond said, which would boost sales tax revenue for the state and localities alike.
In the meantime, cities need to keep a tighter leash on how quickly their spending grows, he said.
“They’re going to have to be really choosy about where they spend their money,” Diamond said.
Some officials and observers have floated the idea that cities need to allow denser kinds of housing to grow their tax base.
Nearly every Texas city’s tax base is heavily reliant on detached single-family homes on relatively large lots. But those homes often cost more to provide services to than they generate.
Denser kinds of homes like townhomes, duplexes, fourplexes and smaller apartment buildings — often referred to as “missing middle” housing — generate more revenue per acre than traditional single-family homes. But cities largely make those kinds of homes difficult to build.
Allowing denser kinds of homes would rein in the high cost of housing while also firming up local budgets, said Tushar Kansal, a senior officer for the Pew Charitable Trusts’ housing policy initiative. Doing so also broadens the tax base and spreads the tax burden across more households, so each household has to shoulder less of the cost of government, Kansal said.
“Making it easier to build housing in already developed areas is good for people’s affordability, it’s good for families’ quality of life, and it’s good for taxpayers and local budgets,” Kansal said.
More households also means more sales tax revenue, added Bettencourt, who shepherded a series of new state laws last year aimed at easing the state’s housing crunch.
Any move to allow missing middle housing tends to generate considerable “not-in-my-backyard” pushback from existing homeowners that can discourage city officials from pursuing such moves.
Still, city officials should keep in mind that allowing new development means new tax revenue, Dallas City Council Member Chad West said during Tuesday’s council briefing.
“We don’t always have that conversation,” West said.
Disclosure: Rice University has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in The Texas Tribune’s journalism. Find a complete list of them here.