Editor’s Note: This story has been updated to reflect the city’s final budget shortfall projection of $23.3 million.
AUSTIN (KXAN) — Austin’s chief financial officer said the city is looking at a more than $20 million budget deficit for Fiscal Year 2022. Initial projections were upwards of $30 million — something he hadn’t seen since he started with the city’s budget office.
“We were dealing with a $30 million deficit for Fiscal Year 10. That was on the heels of the financial collapse,” Ed Van Eenoo said.
The final number for this upcoming year was $23.3 million, but Van Eenoo said that deficit is projected to grow to $70 million down the line, according to the office’s five-year forecast released this week. He said much of that is related to the pandemic.
“Partly because of the revenue reductions we’re seeing in other parts of our budget due to the pandemic, that big drop in sales taxes,” Van Eenoo said.
Sales tax is the city’s second biggest source of revenue. The first is property tax revenue, which Van Eenoo said changed substantially after legislators passed a calculation cap about two years ago.
Under the law, if city of county officials want to raise 3.5% more property tax revenue from the previous year, they have to hold an election.
“We were very upfront with the city council, with the state legislature and with the community that under a three and a half percent revenue cap, our budget outlook didn’t look good,” Van Eenoo said.
Even without the pandemic, he said they projected a budget deficit for FY22 of $6 to $7 million, due to the cap.
Van Eenoo said this deficit is different than previous ones related to recessions. He said the revenue cap makes it a structural problem.
“During those times we can make reductions to our budget, and then restore those programs when the revenues come back,” he explained. “As we do business today, the cost of that is growing more than the revenues we’re able to grow under the revenue limitations.”
Meaning, with increasing costs and a cap on revenue, the city won’t be able to catch up.
There is an exception to the new tax law under disaster declarations.
“Essentially the language says that, you know, if there’s a disaster declaration, the year of that disaster declaration and the subsequent year, cities have the opportunity to go to the 8% increase,” Van Eenoo said.
He estimates that change would result in about $15 to $20 million more in revenue for the city.
City council would first have to take action in June to allow the budget office to calculate property taxes using the increased rate. The city manager will make his proposal in July, and then city council will make their ultimate budget decisions in August, according to Van Eenoo.
the budget office says city council members elected to not consider going past the 3.5% revenue cap last year because a tax rate election was already being planned for Project Connect.
He said all options are on the table to cover the city’s shortfall, including increasing fees for city services and programs.
Van Eenoo said right now, the budget doesn’t include funding for several council-approved programs or any additional funding for the Reimagining Public Safety initiatives.
Appraisal values are also up
The Travis Central Appraisal District said appraisals, which are also used to calculate property taxes, have also increased for many people.
In 2020, Travis County’s median home value was $354,622. This year, TCAD said it has reached $413,403.
Patrick Brown, a former Travis County chief appraiser, said with people already strained, an increase in the property tax calculation cap may put too much of a tax burden on Austinites.
“It’s definitely going to affect all the commercial properties and land, and rental properties and the landlords, particularly ones that have acquired a mortgage loan in the last two or three years,” Brown said.
That, in turn, he said will affect rental rates.
“And that could push a number of residents out into the periphery and make Austin even less affordable than it is already,” he said.
Property owners have until May 17 to protest their appraisals.