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San Marcos finance director outlines FY26 budget and multi-year tax-rate choices; council set a ceiling ahead of public hearings
Summary
City finance staff presented a structurally balanced FY26 budget and tax-rate scenarios, flagged a projected FY27 shortfall if rates remain at the no-new-revenue level, and described council-set public hearings and a breakeven rate to avoid next-year shortfalls.
John Locke, San Marcos finance director, presented the proposed fiscal year 2026 budget and three tax-rate options to the Neighborhood Commission on Aug. 20.
Locke said the city—s total operating budget is approximately $366 million and described council priorities included in the FY26 package: submission at the no-new-revenue rate (the rate that produces the same revenue on properties taxed in both years), a $200,000 increase in the Human Services Advisory Board allocation (bringing the total to $750,000), and creation of an Office of Community Support and Resource Navigation with net cost of about $50,000 using existing staff reassignments.
Locke said departments were asked to hold flat budgets in FY25 and to find an additional $100,000 collectively for FY26; he said sales-tax projections for FY26 are lower than FY23 levels and that, adjusted for the potential removal of several apartment complexes from the tax roll if appeals succeed, property-tax revenue could decline without new rate action.
He described a legal action the city filed after several housing finance corporations sought tax-exempt status for apartment complexes; the city won the initial hearing but expects appeals.
Staff presented multi-year forecasts showing a FY27 projected shortfall under the no-new-revenue rate (the presentation showed larger shortfalls in FY27 if the city does not adopt a higher rate). Locke said council set a ceiling on the rate to allow further public hearings and that two public hearings are scheduled (Sept. 2 and Sept. 16) for public comment on the tax rate and fee proposals.
Locke highlighted the —breakeven— tax rate the city—s modeling calculated as the rate that would eliminate the FY27 shortfall given the assumptions in the forecast. He also summarized the potential impact of a state change to the homestead exemption (Senate Bill 4) that could reduce total property tax bills for homeowners by increasing the school-district homestead exemption; staff said that change would not reduce city revenues but could lower the overall tax bill seen by homeowners because school taxes would be reduced.
Commissioners asked clarifying questions about the makeup of the forecasts, how the no-new-revenue rate is recalculated annually, and the duration of ARPA-funded items such as tenant-rights legal aid (staff said some funding runs through 2026 and that continuation decisions will be required). Several commissioners expressed support for a higher rate that would reduce multi-year projected shortfalls; others emphasized the need to keep city budgets lean and pursue further efficiencies.
