Big Texas cities take up fiscal 2027 budgets amid calls for spending limits

Texans for Greg Abbott

Budget season is underway for big Texas cities, which are tackling shortfalls and reaping bond rating improvements, while state political pressure is building to rein in local government spending during the 2027 legislative session.

Republican Gov. Greg Abbott, who is running for a fourth term in November, is pushing an Empowering Texas Taxpayers plan that would limit local government spending to the lesser of increases in population plus inflation or 3.5%, require two-thirds voter approval for their tax increases, and create a mechanism for voters to force a tax hike rollback election. 

The conservative Texas Public Policy Foundation reported last week that from 2015 to 2025 average annual spending growth was 6.64% in Fort Worth, 6% in Dallas, 5.5% in Austin, and 3.54% in Houston.

"Local governments continue to spend above their means and plunge Texans further into debt," John Bonura, a TPPF policy analyst who authored the report, said in a statement. "The 90th legislative session should put guardrails in place to rein in out-of-control local spending." 

Austin launched fiscal 2027 budget deliberations after getting its trifecta of triple-A GO ratings restored with a Moody's Ratings upgrade to Aaa in July. High leverage and fixed costs led to a 2020 downgrade to Aa1 by Moody's.

In a 9-2 vote last week, the Austin City Council passed a $6.6 billion budget that includes $1.5 billion in general fund spending and increases the maintenance and operations property tax rate to the maximum level allowed under state law, while hiking fees for electricity, trash service, water, and drainage to cover escalating operation costs.

In April, Texas' capital city forecasted a $26.4 million general fund deficit for the fiscal year that begins Oct. 1 under the no-new property tax revenue rate. The gap was projected to rise to $64 million in fiscal 2028 and to $71.4 million in fiscal 2029.

Mayor Kirk Watson, who voted against the budget and a two-part, $295 million general obligation bond election on Nov. 3 for parks and libraries, cited a growing tax burden on residents, who last November rejected a ballot measure to increase the property tax rate over a state-imposed cap. 

"This budget bothers me," he wrote in a post. "It goes back on some of the actions we've taken over the past year to strengthen city government and put affordability first." 

Watson also objected to $36 million of certificates of participation to finance capital projects that were included in the budget and do not require voter approval. 

Ahead of Fort Worth's Aug. 27 competitive sale of property tax-backed debt totaling nearly $196 million, Fitch Ratings upgraded the city's issuer rating a notch to AA-plus with a stable outlook. Moody's revised its outlook to positive from stable on Fort Worth's Aa3 rating, citing "healthy operating revenue growth and improved pension metrics that are likely to sustain the long-term liabilities ratio below 350%, even as implementation of the city's sizable capital improvement plan continues."

A proposed $4.35 billion, all-funds budget for the fiscal year beginning Oct. 1 unveiled last week addresses a $94 million general fund shortfall by cutting non-essential contracts, reducing training expenses, eliminating and freezing vacant positions, reducing cash funding for capital maintenance, reducing economic incentives and lowering pay-for-performance increases for general employees, according to a city news release. 

City Manager Jesus "Jay" Chapa recommended a property tax rate increase from $0.6700 to $0.7020 per $100 valuation, mostly to support public safety and maintain infrastructure capacity. 

Proposed general fund spending of $1.156 billion would climb 4.6% from fiscal 2026.

Moody's revised its negative outlook for Dallas' A1 GO and other bond ratings to stable on June 4 after concerns over pension funding eased. Later that month, city staff unveiled a potential Nov. 3 ballot measure for $500 million of taxable pension obligation bonds. Pressure is building on the general fund as the city ramps up contributions to the Police and Fire Pension systems to reach actuarially determined levels by 2030 under a 30-year funding plan approved last year to comply with a 2017 Texas law.

The proposed use of pension bonds elicited a warning from former Dallas Chief Financial Officer Elizabeth Reich, who called the move "incredibly risky and speculative."

The POB measure did not go forward. On Wednesday, the city council opted to focus the upcoming election solely on a $443 million GO bond proposal to finance public safety facilities.

Aside from pensions, other public safety costs are weighing on Dallas' budget. The city commenced action in April to address a $34 million shortfall due to police and fire pay and overtime, along with declining sales tax revenue and increased employee healthcare costs. The latest projection for the fiscal 2027 budget showed a nearly $51 million gap.

A proposition approved by Dallas voters in November 2024 requires the city to spend more on public safety, including to boost police starting pay and maintain a police force of at least 4,000 full-time sworn officers. A lawsuit brought by the Texas Attorney General's Office in February contended the city failed to comply with the measure by shortchanging the amount of the annual revenue increase. 

Earlier this month, the city unveiled a $5.66 billion all-fund budget for the fiscal year starting Oct. 1 that includes a 4.1% boost in general fund spending to $2.04 billion to mainly increase police and fire spending by $83.1 million, while lowering the overall property tax rate from 69.88 cents per $100 of valuation to 69.78 cents.

Mayor Eric Johnson said in a post on Sunday the budget seeks to keep police and fire salaries competitive, continue funding for the Dallas Police and Fire Pension System, and increase police hiring with a sworn staffing goal of over 3,650 officers by October 2027.

The city's GO debt is rated AA-minus by S&P Global Ratings, AA by Fitch, and AA-plus by KBRA  — all with stable outlooks. 

Houston began fiscal 2027 on July 1 with a $7.5 billion budget that slashed a projected budget gap to $26 million from an initial estimate of $209 million, helping gain the city a GO bond rating upgrade to Aa2 from Aa3 this month from Moody's and an outlook revision for its AA S&P rating to stable from negative in June.   

The nation's fourth-largest city has had a negative outlook since September 2024 for its AA GO rating from Fitch Ratings. 

Budget-balancing moves that tap revenue from Houston's combined utility system, including a right-of-way fee for the use of city property, led S&P to revise its outlook for the system's debt ratings to negative from stable last week, warning debt service coverage could "sharply narrow" when factoring in rising expenses and an extensive bond-financed capital plan.