Highland Village staff outline lean FY26 general fund budget, warn of near‑term deficits

Highland Village finance staff on July 8 told the City Council the city is facing a tightening general fund as revenues plateau and key income streams underperformed, producing a projected base fiscal‑year 2026 deficit of about $1.9 million.

Heather (finance staff) told council members the total projected revenues used for closing FY2025 were about $7,675,000 and that the city expects to come in under budget on both property and sales tax receipts. Heather said, "We're gonna be under budget in sales tax also," and explained lower interest income contributed to the shortfall.

The warning came during the council's early work session as staff reviewed year‑end estimates for FY2025 and the base budget proposed for FY2026. Heather presented a combination of revenue changes and expenditure movements that reduce the forecasted FY2025 deficit from a budgeted $1,000,138 to an expected $736,000 and raised the citywide fund‑balance ratio from an audited 51 percent to an estimated 46 percent at year end. Looking forward, staff projected a base FY2026 shortfall of roughly $1.9 million; if council approves department supplementals, that gap could increase to about $2.0 million.

Why this matters: Highland Village is largely built out and staff said the city is reaching a plateau in property‑value growth and sales taxes, limiting revenue upside. In addition, state limits on property‑tax increases and a cooling of interest rates reduce common budget levers the city has relied on in prior cycles. Heather summarized the single largest drivers for the FY2026 change as property taxes, sales tax, and franchise fees; the net increase proposed for FY2026 over FY2025 was only about $36,000.

Key details and tradeoffs: Staff told the council that FY2025 wage and benefit expenses were expected to be under budget by roughly $422,000, largely from turnover and timing of hires. Insurance and unemployment expenditures were also tracking under budget. On the capital side, some projects originally scheduled for FY2025 (for example a generator and electrical upgrade) have been delayed into the next fiscal year, reducing near‑term spending.

At the same time, FY2026 base personnel costs in the proposed budget increase by about $946,000 (about 3.5 percent on the general fund side), reflecting a proposed cost‑of‑living/market adjustment and specific pay‑schedule changes. Kim (human resources staff) and other presenters explained the city’s compensation strategy is to remain roughly mid‑market for most positions while addressing compression and recruitment issues in public safety; staff proposed a market adjustment and step‑schedule corrections for nonexempt positions. For police officers, staff proposed targeted grade adjustments to improve recruitment competitiveness after a period of high vacancies.

Council discussion: Council members pressed staff on the basis for property‑tax revenue estimates, asking why FY2026 property‑tax revenues would be higher than the current adjusted rolls when FY2025 estimates had recently been revised downward. Heather said the FY2026 proposal uses the preliminary appraisal roll for tax year 2025 and the council’s direction on tax‑rate assumptions; staff noted the certified roll will not be available until July 25 and that protests and adjustments can continue through the year. Councilmember Rhonda Hurst and others asked for clearer side‑by‑side comparisons of last year’s adopted budget, year‑end actuals, and the proposed budget to improve transparency about budgeting assumptions.

Staff direction and next steps: Staff recommended the council consider the FY2026 base budget while pruning supplementals to limit fund‑balance depletion. Council members asked for a supplemental spreadsheet and said they would review supplemental requests and return for final decisions in the upcoming budget meetings (special revenue and utility fund reviews are scheduled for later July and August, with the tax‑rate adoption process in September). Heather emphasized the city’s fund‑balance policy and urged caution given the projected multi‑year drawdown if all supplementals are approved.

Ending: Council members did not take a final vote on the FY2026 budget at the July 8 work session; staff scheduled follow‑up presentations and asked council to return in later sessions with direction on supplementals and whether to pursue budget reductions or use reserves.