The projected shortfall for fiscal year 2027 rose from $25 million to $88 million due to lower expected property tax revenues. The municipal rate will remain at $0.519190 per $100 of taxable value.
The city of Houston faces a projected budget deficit of $88 million for fiscal year 2027, up from the $25 million previously calculated. Despite the deficit increase, the City Council approved on Wednesday, October 14, to keep the property tax rate unchanged for tax year 2026.
Houston’s Chief Financial Officer, Melissa Dubowski, attributed the change primarily to a reduction of roughly $63 million in expected property tax revenue. Assessed values turned out lower than anticipated after protests and appeals filed by property owners.
The mayor, John Whitmire, and the attending councilors backed maintaining the municipal rate at $0.519190 per $100 of taxable value. The administration plans to use reserves and other revenues to cover the shortfall, although it has not yet presented a detailed savings plan to offset the entire difference.
Houston expects to collect $63 million less than budgeted from property taxes
Houston approved in June a municipal budget of approximately $7.5 billion for the fiscal year spanning July 1, 2026, to June 30, 2027.
The city had reduced a much larger budget deficit through funding structure changes, including reorganizing garbage collection services and adding a $5 monthly fee for certain residential accounts.
After those adjustments, the estimated shortfall was $25 million. However, during the October 14 discussion, the Finance Department presented a new projection of $88 million.
Dubowski explained that the city expected to receive more property tax revenue than it now anticipates collecting. Among the factors are the decrease in assessed values following owner protests, slower-than-expected growth, and changes in assessment rates.
Property owners can challenge the appraisal values of their properties using the procedures established by the appraisal districts. When those protests lead to reductions in values, it can also reduce the amount of taxes that local entities expect to collect.
The new projection corresponds to estimated revenues for the fiscal year, not a final $63 million cash loss already recorded.
Houston Maintains the rate of $0.519190 per $100 of taxable value
The City Council approved maintaining the same municipal rate used in the previous year, equivalent to 51.919 cents per $100 of taxable value.
Houston’s 2026 fiscal information includes the calculations and documents used to establish the rate, in accordance with the certified values of the corresponding appraisal districts.
Maintaining the rate does not mean that every property owner’s individual bill will remain the same. The municipal tax is calculated from the property’s taxable value, after applying the applicable exemptions.
In the example of the average primary residence included in the city’s tax notice, the assessed value would rise from $341,336 to $348,808. Although the rate does not change, the Houston tax would rise from approximately $1,772.18 to $1,810.97, an estimated difference of $38.79 per year.
That example does not necessarily represent the increase any given owner will receive and does not include taxes from other entities.
During the October 14 discussion, Finance also presented scenarios with higher rates. According to the calculations presented by Dubowski, raising the rate to near $0.55 per $100 of taxable value would have allowed for roughly $87 million in additional revenue, with an estimated additional cost of $108 per year for an average home.
The City Council chose to maintain the $0.519190 rate. The decision preserves the percentage applied by the city but does not eliminate the projected budget deficit.
The approved rate corresponds to tax year 2026, while the $88 million deficit is calculated for fiscal year 2027, which began July 1, 2026 and will end June 30, 2027. These are different periods used to determine taxes and manage the municipal budget.
The Harris County tax increase is a separate decision
The rate approved by the city of Houston should not be conflated with the rates adopted by Harris County and other entities that levy property taxes in the region.
In September, Harris County approved increases affecting the county itself, the Harris County Flood Control District, Harris Health, and the Houston Port Authority. The combined rate of those four entities rose from about $0.62413 to $0.67147 per $100 of taxable value.
Property owners within Houston’s limits may receive a bill that includes city, county, school district, and other jurisdiction taxes, depending on the property’s location.
Related: Harris County approves increase to property tax: average home would pay $193 more.
Houston plans to use reserves to cover the shortfall
The city administration expects to cover the projected deficit through financial reserves, higher-than-anticipated sales tax revenues, and other resources.
Dubowski indicated that the available balance at fiscal year-end could amount to about 11.6% of expenses, above the city’s minimum of 7.5% but below the 13% calculated in a prior projection.
That percentage represents the resources the city expects to retain at the end of the fiscal year. It should not be confused with the amount of the deficit, nor does it imply that the available reserves are sufficient to indefinitely cover operating expenses.
The $88 million figure is not the only estimate presented. The city comptroller, Chris Hollins, calculated a revenue decline of about $38 million and a $64 million shortfall, according to information published by the Houston Chronicle.
The difference corresponds to the projections of the respective offices and not to two separate deficits to be added together. Both estimates are subject to change as revenues and expenditures are updated.
Hollins has questioned the reliance on reserves to cover operating expenses and argues that this practice does not provide a sustainable financial solution. Whitmire, for his part, argues for exhausting savings and efficiency opportunities before raising the municipal tax rate.
Whitmire proposes retirement incentives and agreements to cut costs
Whitmire has proposed a second round of incentives for eligible city employees to retire. He also seeks to obtain resources through agreements with Harris County and the state government, including the possible coordination of library and park systems.
These measures are part of his proposals to reduce costs, but they do not amount to specific service cuts already approved as a result of the new projection.
During the budget discussion, some council members expressed concerns about the ability to maintain municipal services while labor, contract, and infrastructure costs rise.
The chair of the Council Budget Committee, Sallie Alcorn, questioned whether the city can indefinitely meet its operating needs without additional revenue. While she backed maintaining the municipal rate, she noted that the needs for public services continue to generate costs.
Houston maintains its municipal property tax rate of $0.519190 for tax year 2026. The Finance Department will continue reviewing revenue and expenditure forecasts during fiscal year 2027, which will end on June 30, 2027.
