AUSTIN, Texas — The City of Austin is staring down a $33 million budget deficit for the upcoming fiscal year—and city leaders warn that the shortfall could grow if federal funding is delayed or pulled altogether.

Officials say the gap stems from a shortfall in the city’s General Fund, where costs are rising faster than the city’s main revenue sources can keep up.

“The General Fund has a structural imbalance—our revenue is growing slower than our expenditures,” said Karri Lang, Budget Officer for the City of Austin, during Monday’s City Council work session.

One of Austin’s largest sources of revenue—sales tax collections—is slowing down amid inflation and economic uncertainty.

“More recently, due to inflationary pressures and economic uncertainty, we’ve seen sales tax really level out, and those growth rates barely stay in positive territory,” said Erik Nelson, Acting Budget Officer.

Sales tax receipts are projected to be $7.9 million below budget expectations, and city staff warn that any additional slowdown could make it even harder to fund essential services.

Adding to the challenge, federal grants and reimbursements that support public safety, flood mitigation, and COVID-19 response may be delayed—or canceled entirely due to policy changes under the Trump administration.

ALSO| Austin allocates $5 million to aid nonprofits preventing displacement along transit routes

Mayor Pro Tem Vanessa Fuentes called the situation troubling, “Hearing that we anticipate a $30 million deficit for next year is deeply concerning, especially at a time when our community is experiencing federal funding cuts.”

If those funds don’t arrive, the city may need to make even deeper cuts or reallocate money from other departments.

“I think we’ll have to make some tough decisions on what things we may no longer be able to do—or what shifts we need to make,” Lang added.

Austin’s General Fund is the city’s main operating fund, covering core services like:

• Police, Fire, EMS, and Forensic Science – 65.2% of the budget
• Community services like Parks & Recreation, Austin Public Health, Libraries, Animal Services, Municipal Court, Homelessness Strategy, and Housing – 29.9%

The city is expecting General Fund expenditures to total $1.5 billion in Fiscal Year 2026, a 5.4% increase from the previous year.

Much of that increase is being driven by:

• $22.5 million in sworn public safety personnel costs
• $17.3 million for civilian wage and benefit increases
• $3.5 million to operate the 8th Street homeless shelter
• $2 million for new firefighter positions and equipment
• $2 million to support Central Booking services through Travis County

This growing deficit could mean real-world impacts for Austinites.

• Water and wastewater bills are projected to rise nearly 10% next year
• Public safety costs are increasing across police, EMS, and fire
• Shelters and homelessness programs are in need of ongoing funding to stay operational

“This forecast describes the headwinds the city's General Fund will be facing in the coming years,” said City Manager T.C. Broadnax.

In an effort to involve residents early in the budget process, Broadnax recently held five community budget conversations in locations across the city. Hundreds of Austinites participated—praising the opportunity to share their top funding priorities in person.

Now, the city is inviting all residents to participate in its 2025 Budget Priority Survey, which is available online in multiple languages and open through early May.

“We will also continue to vigorously work to identify areas across the city that can be reallocated,” Broadnax said. “We want to ensure we are addressing the highest priorities of this community and the City Council.”

The City of Austin Budget Priority Survey is live now and takes just a few minutes to complete. Feedback from the public will help shape the proposed budget Broadnax will present to City Council in July.

Click here to take the survey.