From Houston Public Media:
As Houston City Council members kick off budget hearings with more than 23 units of municipal government this week, the city faces economic turmoil caused by President Donald Trump’s trade and immigration policies as well as a legislative tug-of-war over toll road funding with Harris County.
“The uncertainty really is the big issue,” said Robert Gilmer, Director of the Institute for Regional Forecasting at the University of Houston’s Bauer College of Business, which works with the city to forecast sales tax revenue.
At about $1.5 billion, property taxes comprise the largest share of the projected $2.9 billion in the city’s revenue for fiscal year 2026, which starts in July. Sales tax comes in second at $902 million, and that’s where Gilmer forecasts potential problems. He said a trade war triggered by Trump’s tariffs could cause a “mild recession” in the United States, though Houston “typically grows faster than the rest of the country.”
“If we’re going to be able to slide past that recession better than the rest of the country, we’re going to slow, but the damage to city revenues will not last very long,” Gilmer said.
Gilmer argued the administration’s immigration policies, especially a ramp-up in deportations, could have a more significant impact than an escalation in tariffs.
According to the nonpartisan Migration Policy Institute, there are about 481,000 people without legal status in Harris County, including 312,000 in the workforce based on Census data from 2019.
“This crackdown on illegal immigration just basically leaves us with no labor force,” Gilmer said, pointing to estimates from various forecasters of a 0.4% to 1% loss of national gross domestic product this year. “It’s going to do real damage, and perhaps more damage in terms of labor and production, than the tariffs themselves. It will be longer lasting than the tariffs themselves.”
The city is currently forecasting a 1% increase in sales tax revenue from the 2025 fiscal year. Finance Director Melissa Dubowski said the administration is “comfortable” with that forecast, which is based on local employment figures, inflation and the price of oil.
The city’s proposed expenditures for 2026 come out to about $3 billion, a $74.5 million drop from 2025. That leaves a $107 million gap, which would require tapping into the fund balance — essentially a savings account projected to hold $331 million at the end of the current fiscal year.
“This is a balanced budget, but not a structurally balanced budget,” Dubowski told the city’s budget and fiscal affairs committee this week. “We drew almost $200 million of fund balance down to close the gap last year. We’ve been able to cut that draw from fund balance in half based on the additional revenues that we’re assuming, as well as the expenditure reductions … It’s not a structurally balanced budget, but it is a large step in that direction.”
Raising property taxes would be a fast route to closing the gap, though Mayor John Whitmire shot down a proposed rate hike last year saying he wanted to first eliminate waste and boost efficiency.
“I think the mayor has been clear that that’s his first priority,” Dubowski said. “Do that first and then based on that in the future, you know, we have to talk to the citizens about what type of services do they want to have based on the resources that we have available to us. So, I think that’s an important discussion.”
Political scientist Mark Jones with Rice University said Whitmire “is effectively foreshadowing that he will be bringing to Houston residents at some point in the not too distant future a proposal to increase property taxes,” primarily to fund public safety. After blockbuster deals with the police and fire unions, those departments will take up nearly 60% of the $3 billion general fund budget — up from about 57% in 2025. Meanwhile, under the proposed budget, libraries would see a nearly $4 million cut, neighborhoods would lose more than $7 million, and the parks budget would be slashed by more than $4 million.
Jones said the administration will have to make the argument “that if you want the public safety, you need to pay for it, or if you want the other services that the city provides and don’t want them to be diminished in order to maintain public safety, you have to be willing to pay for those as well.”
Whitmire, for his part, has said “the savings are going into the services.”
State lawmakers in Austin could take action to bridge the projected gap by redirecting funds from Harris County to the city. Senate Bill 2722 would require the county to allocate 30% of the Harris County Toll Road Authority’s more than $300 million projected surplus to the city.
“The mayor has a much better relationship with the leadership in Austin, especially Lieutenant Governor Dan Patrick, but also Governor (Greg) Abbott, than say, (Harris County) Judge (Lina) Hidalgo, who has a pretty poor relationship with the leadership,” Jones said. “The reality is that the Harris County Toll Road Authority has a large surplus, and there’s no God-given reason why it should definitely go to Harris County and not to the city at least partially.”
On Thursday, county commissioners directed the county attorney to negotiate potential compensation with the city for Houston first responders who provide service along the toll road system.
“The county is ready to work in any form or fashion with the city going forward,” Commissioner Tom Ramsey said. “The message today is we want to work with the city.”
Whitmire said his proposed budget doesn’t account for toll road revenue, though he appeared eager to receive the funding.
“We all serve the same people,” Whitmire said in April. “(It is) never going to be personal with me, but it really gets down to just the best use of funds … It’s an opportunity to receive some fairness in the revenue stream that, quite frankly, we provide.”
The bill passed the Texas Senate in a 24-2 vote in late April. If passed by the House and signed by Abbott, the change would close the city’s projected $107 million deficit.
