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City projects FY26 general fund balance above target despite lower revenue projection
Summary
Controller and finance staff told the Budget and Fiscal Affairs Committee that preliminary FY26 figures show the general fund balance above the city's 7.5% policy target, but officials flagged an outstanding state audit finding and revenue uncertainty tied to possible state tax-cap legislation.
The City of Houston's controller and finance department presented preliminary financial results for the period ending July 31, 2025, reporting a projected FY26 general fund ending balance above the city's policy minimum but noting revenue risks.
Deputy Comptroller Will Jones told the Budget and Fiscal Affairs Committee that the controller's office projects an ending general fund balance of $328,100,000, or 12.9% of expenditures excluding debt service and pay-as-you-go items, and that the FY26 beginning fund balance is $8.1 million higher than the FY25 ending balance reported in June. "Based on our current projections, the fund balance will be approximately $137,600,000 above the city's target of holding 7.5% of total expenditures excluding debt," Jones said.
Melissa Dabowski, the city's finance director, presented a "1 plus 11" financial report for the period. Dabowski said the city's preliminary undesignated general fund balance for FY25 is $422,000,000 and that FY26 revenue and expenditure projections remain at budget. "Sales tax receipts for June were $7.6 million higher than the same period last year," she said, adding that the department will continue to monitor sales-tax performance as FY26 proceeds.
Officials warned of an unresolved state audit finding. Dabowski said the state comptroller's office has not finalized its review; the city's preliminary understanding is the audit finding could total around $25 million and, if affirmed, repayments could be spread over roughly 43 months at about $600,000 per month. "We haven't started that payment yet, but it is something that we continue to monitor," she said.
The committee also discussed pending state legislation that would alter the voter-approved tax-rate cap. Council Chair Sally Alcorn asked about possible effects if the state's cap were lowered from 3.5% to 2.5%; Dabowski and Jones said any change would not affect the tax rate adopted for the current year but could reduce allowable growth in future years. "Whatever changes the legislature makes with this pending legislation won't impact the tax rate that we adopt this year; it would impact the tax rate for the following year," Dabowski said. Jones noted that if the state cap were reduced below 2.5% there could be greater concern.
Committee members asked about how a revised population estimate affected the property tax projection. Jones said the city incorporated new U.S. Census Bureau population estimates after the proposed budget, leading finance to increase property-tax revenue projection by about $43.9 million compared with earlier assumptions.
Committee Chair Sally Alcorn closed the item after members and staff exchanged several follow-up technical questions and thanked staff for the presentation.
Ending: Committee members signaled continued monitoring of sales-tax trends, the state audit outcome, and pending state legislation that could affect future tax-rate capacity. The city will finalize results when the annual comprehensive financial report is published later in the year.
