Houston officials outline FY26 proposed budget, say gap narrowed to a $107 million draw from reserves

City Councilmember Sallie Alcorn, chair of the Budget and Fiscal Affairs Committee, and Finance Director Melissa Dubowski presented an overview of the City of Houston’s proposed fiscal year 2026 budget during a virtual town hall meeting. Officials said the overall proposed city budget is about $7 billion and the tax-supported general fund is roughly $3.1 billion; the administration reduced an initial estimated FY26 gap and plans a $107 million draw from fund balance to balance the proposed budget.

The presentation and subsequent discussion focused on how the administration lowered a previously projected budget shortfall through a mix of revenue adjustments, expenditure reductions and one-time use of reserves. Dubowski said the proposed general fund shows a 10.8% fund balance (about $273 million), which she said is roughly $84 million above the city’s 7.5% target set by city ordinance. She outlined major changes that reduced the projected gap from roughly $230 million to the $107 million planned drawdown.

Why it matters: the general fund pays for core, tax-supported services — chiefly public safety, which accounts for the largest share of the general fund budget — and the balance and reserves determine the city’s ability to respond to emergencies and future revenue shocks.

Key figures and measures - Total proposed city budget: about $7,000,000,000 (rounded, presented in thousands on slides). - General fund (FY25 to FY26): proposed decrease in the general fund portion to roughly $3.1 billion. - Fund balance: proposed 10.8% of expenditures (excludes debt service and pay-as-you-go transfers), roughly $273 million; city policy minimum is 7.5%. - Planned draw from fund balance to close FY26 gap: $107,000,000. - Deferred maintenance backlog reported by general services: $760,000,000 (as cited during Q&A).

Major revenue and expenditure adjustments cited by Dubowski - Revenue-side adjustments: a $5 million positive adjustment to property-tax projections tied to inflation measures; a $20 million increase in “other revenues” (driven by higher interest earnings and ambulance fee collections); offset by lowered sales-tax and franchise-fee projections (sales tax reduced by about $5 million; franchise fees down about $3 million). - Expenditure-side actions and savings: negotiated phasing of a drainage-related court judgment (implementing a phased-in transfer rather than a single-year $100 million increase, with a roughly $16 million increase to transfers for drainage this year), negotiated labor costs (a roughly $50 million increase tied to the finalized HPOU/police contract and about $9 million for a municipal labor contract), and a suite of efficiency and consolidation savings: $29 million estimated from the voluntary municipal retirement incentive, $25 million pension-cost savings from statutory pension mechanics, $18 million from category-management procurement reforms, $16 million from departmental budget reductions, and various consolidation savings (call-center and code-enforcement consolidations among them). - Personnel and pay: the proposed budget includes a 3.5% pay raise for municipal (non-classified) employees, a 3% increase for fire classified employees, and a police-classified 10% pay raise (approved by council the session before the town hall, per Dubowski). The budget funds 5 police cadet classes and 9 fire cadet classes.

Policy context and actions under discussion Alcorn and Dubowski described implementation steps that reduced the gap: a voluntary retirement incentive that reduced civilian positions funded by the general fund (civilian general-fund positions shown dropping from about 4,200 to 3,800), procurement and category-management reforms recommended in an Ernst & Young citywide efficiency study, and targeted departmental reductions. The proposed budget also delays full replenishment of the city’s budget stabilization fund: the plan is to add $12 million this year toward the $25 million requirement to be fully replenished by FY27.

Public questions and officials’ responses During the question-and-answer portion, residents asked about drainage and street projects, deferred maintenance, centralizing services with Harris County, solid-waste equipment and staffing, the impact of federal grant cuts, and tax-increment reinvestment zones (TIRZ). Officials said: - Drainage and streets: City leaders said the drainage settlement is being phased in and that the city will transfer additional funds to drainage projects this fiscal year (officials described an increase of roughly $40 million in transfers for street and drainage projects when accounting for debt and phased schedules). - Deferred maintenance: General Services conveyed a deferred-maintenance backlog figure of about $760 million, and Alcorn said little of that backlog will be fully addressed in FY26. - Interlocal cooperation: Alcorn said the city passed an interlocal agreement to share health-data with Harris County Public Health and indicated further shared-service opportunities are being explored (animal welfare, some library functions, clinics). - Solid waste: Councilmembers said 30 new trash trucks were purchased (capital budget) and that the solid-waste division is reorganizing logistics to reduce overtime and improve service; additional capital and operational changes will be addressed in the capital budget later in the summer. - TIRZ/tax increment concerns: officials acknowledged 23% of Houston’s taxable value lies within tax-increment reinvestment zones and said the mayor has requested an Ernst & Young review of TIRZ operations; further policy discussion is expected after the report.

Officials’ next steps and timeline Councilmembers said amendments to the proposed budget will be submitted the following Wednesday and will be publicly posted; amendments are then “tagged” (delayed) for one week and taken up the following Wednesday. Officials encouraged residents to review the full presentation and the five-year forecast available on the city’s website and to complete the chair’s “Your 2 Cents” budget survey.

Ending note Councilmember Alcorn framed the budget as “probably the most important piece of legislation that city council does each year” and reiterated that public input and performance measures will be used to monitor whether the city’s restructuring and contract spending produce the expected service outcomes.

Speakers quoted in this article are listed in the speakers section below; all quotes are taken verbatim from the meeting transcript.