San Marcos officials flag $4M shortfall as budget planning begins

San Marcos city staff told the mayor and council on Jan. 29 that their fiscal‑year 2027 budget forecast shows a gap of roughly $4 million under current assumptions, signaling the start of a yearlong budget process in which council direction will shape priorities and program funding.

Finance Director John Locke summarized the outlook, saying changes to state law and weaker sales‑tax receipts are the largest known factors. Staff modeled a roughly $450,000 annual revenue reduction tied to House Bill 9’s personal‑property adjustment and said three housing finance‑corporation properties remain under protest; should those parcels be ruled taxable, they would generate about $800,000 in additional revenue. Sales‑tax growth was modeled conservatively at 1.8 percent, with staff noting a major sales‑tax contributor had fallen then partially rebounded.

Locke described assumptions on both revenue and expense sides: the city is forecasting modest property‑tax and sales‑tax receipts, expects continuing declines in reappraisal values, and plans for expense growth in the 3–5 percent range (higher for meet‑and‑confer agreements). He said the forecast assumes the city will continue to see supplemental department requests — roughly $5 million in unmet requests in the current year’s general fund — and warned that prolonged gaps between revenues and costs would reduce service capacity.

City Manager Stephanie Reyes told the council staff is offering a voluntary early‑retirement incentive to reduce personnel costs without a reduction‑in‑force. “We’ve been clear we don’t want layoffs,” Reyes said; she characterized the incentive as a tool to lower personnel expense while the city explores structural changes to staffing and service levels.

Locke also reviewed other funds and risks: several enterprise funds rely on incremental rate increases to meet bond‑covenant targets, and water/wastewater debt will include a roughly $600,000 principal payment in FY27 tied to the regional authority’s recent financing. He noted the airport contract and some federal aid that supported transit and other programs are expiring, increasing local funding pressure.

Next steps include the budget‑policy workshop in February, a public hearing before the March policy adoption, a sequence of summer workshops and a formal adoption schedule tied to the certified tax roll in July and a final adoption in September. Staff said it will present refined projections as more data — including the preliminary certified values — becomes available.

The council did not take formal action during the visioning session; staff will return with more detailed options and the council’s direction will determine whether staff pursues spending cuts, new revenues, targeted program reductions or targeted use of one‑time funds.