San Marcos staff outline $1.1 million shortfall, offer tax-rate and cut scenarios to balance FY26 budget

San Marcos city staff presented a preliminary fiscal year 2025–26 general fund forecast Tuesday, telling the City Council that the proposed budget currently shows a $1,100,000 shortfall and outlining options that include program cuts, use of one-time funds and raising the tax rate.

City staff emphasized that property-taxable value declines and falling sales-tax receipts are the primary drivers of the shortfall. “Collections have been down compared to prior year and budget,” staff said, and sales tax is a major revenue source together with property tax, which “make up two thirds of the overall general fund revenue,” Finance Director John Locke said.

That combination of weaker revenues and ongoing inflation has pushed the city to consider both spending reductions and tax-rate adjustments. Staff presented a range of scenarios: keeping the current tax rate of 60.3¢ would leave the city about $1.1 million short and require cuts; keeping the rate but making additional structural reductions would require roughly $2.6 million in cuts; a structurally balanced tax rate was shown as about 63.41¢; and the staff’s estimate of the “no new revenue” tax rate was about 64.47¢, which would provide roughly $900,000 of additional capacity.

Why it matters: staff said the gap is driven by a combination of declining sales-tax receipts, lower new development…