Houston staff raise FY25 sales-tax forecast; city projects hundreds of millions in fund balance

Houston finance staff told the Budget & Fiscal Affairs Committee on June 3 that stronger-than-expected March sales-tax receipts have led them to raise the city—s FY25 sales-tax forecast and that the city expects to end the year with hundreds of millions of dollars in general-fund balance.

Deputy City Controller Will Jones, substituting for the controller—s office, told the committee the office is "projecting an ending fund balance of $354,000,000" for the general fund for FY25 and said the office raised its sales-tax estimate by $17.3 million after March receipts came in about 7.3% above the same month last year. Finance Director Melissa Dubowski presented a separate projection that the general-fund balance would be $380,800,000, or about 14.7% of expenditures excluding debt service and pay-as-you-go items.

Why it matters: the two projections differ by more than $26 million in part because of differing revenue assumptions. Both, the presenters said, are above the city's formal fund-balance target of 7.5% of expenditures (excluding debt service and pay-as-you-go). Committee members pressed staff about how to treat one-time windfalls, the timing of property-tax data and whether the city might need to adjust its tax rate after appraisal-roll data arrive.

Jones and Dubowski emphasized caution in budgeting despite the stronger sales-tax receipts. Jones noted special factors that complicate forecasts, including global trade uncertainty, household pressure from elevated mortgage rates and a pending $26 million audit repayment the city is negotiating with the state that could be repaid over roughly 3½ years "and that impact is roughly $7,000,000 per year," he said. Jones told the committee that the budget stabilization fund currently holds about $14 million and that city policy directs excess revenue above the adopted budget to fund balance.

City staff said they increased the sales-tax projection toward about $903 million for FY25 but cautioned that April receipts were still pending. Jones said, "we were trying to get the best projection going into FY '26" and that, while the city will benefit from large events such as the World Cup, it should not budget recurring spending on one-time event gains.

Committee members asked when final property-assessment rolls will be available. Officials said appraisal districts must deliver roll information by law in July; staff said the city sets the budget using the Prop 1 capped amount and may need a future vote to adjust the tax rate "up or down" once final rolls arrive. On preliminary appraisal data, staff said the preliminary roll showed about 1.9% growth; past years have shifted between low single-digit and double-digit changes, and that variability can force tax-rate adjustments to meet state cap limits.

On expenditures, Jones said the general fund expenditure estimate was lowered $92 million from the prior month because of a lower captured revenue transfer tied to a drainage settlement recently approved by Harris County District Court. Staff said there were no projected changes in the enterprise or special-revenue funds in the reports they presented.

The committee moved quickly to public comment after the presentations. Speakers raised operational concerns about solid-waste pickups and service communication, and committee members flagged the upcoming FY26 budget vote and the timing challenges created by the calendar for property-roll data.

What—s next: staff said they will continue to monitor sales-tax receipts and appraisal-roll updates and expected to refine estimates before the FY26 budget is finalized. The city—s formal budget vote and related tax-rate decisions remain subject to later council action once the final roll is available.

(Reporting based on presentations by Will Jones, Deputy City Controller; Melissa Dubowski, Finance Director; and committee discussion.)