City presents $7 billion FY 2026 budget with $107 million fund-balance draw and staff cuts

Finance Director Melissa Dabowski presented the City of Houston—9s proposed FY 2026 budget to the Fiscal Affairs Committee, outlining a roughly $7.0 billion spending plan that draws $107 million from the city's fund balance and trims general fund expenditures by about $74 million compared with the current year.

Dabowski told the committee the proposed plan is "a balanced budget, but not a structurally balanced budget," and said the administration used a mix of expenditure reductions, revenue adjustments and a voluntary retirement incentive to close a $230 million projected gap down to the $107 million draw now included in the proposal. "It's about a $7,000,000,000 budget," she said, describing the package of program-budget alignment, performance measures and category-management savings the administration relied on.

Why it matters: Council members pressed for clarity on the plan's sustainability as five-year forecasts show larger budgetary gaps under baseline assumptions. The proposed budget funds pay raises tied to collective-bargaining agreements (a 10% proposed increase for police classified positions, 3% for fire classified and 3.5% for municipal employees), funds multiple cadet classes for police and fire, and preserves pension contributions in compliance with state statute.

Key figures and actions in the proposal include a $107 million draw from fund balance, a $74 million reduction in general fund spending, and voluntary-retirement savings of about $99 million across all funds (with roughly $29 million recurring general-fund savings recognized in the FY 2026 proposal). Dabowski said the voluntary-retirement option was offered to roughly 3,000 eligible employees; about 1,059 accepted the package (about a 35% acceptance rate), and administration analysis expects to backfill only a limited number of those roles.

On revenues, the presentation assumes 0% population growth (pending Census figures), a 2.46% CPI used for Prop 1/H calculations, and a 1% net increase in sales tax that factors in a planned repayment for a state sales-tax audit (an estimated repayment roughly $7 million per year over about four years, if a repayment agreement is reached). Dabowski said projected property-tax revenue increases $79.2 million relative to FY 2025 estimates, subject to final certified roll figures later in the year.

Council members pressed the director on several risk points: whether the budget is structurally balanced (Council Member Ed Pollard called the reliance on a fund-balance draw "starting off structurally imbalanced from the jump"), the plan to replenish the budget-stabilization fund ahead of hurricane season, and the projected five-year gaps that rise substantially under baseline and pessimistic scenarios. Dabowski said short-term remedies include implementing Ernst & Young's category-management recommendations, continuing hiring controls and department reorganizations, reviewing the citywide fee schedule and pursuing intergovernmental collaborations; long-term options will require public conversations about service levels.

On long-term liabilities, Dabowski said pension liabilities have fallen since reforms and now stand at about $1.8 billion (a large reduction from earlier estimates), while OPEB liability remains roughly $2.0 billion and the administration is temporarily pausing full implementation of the OPEB trust to reassess priorities.

Council members also asked for detailed follow-up materials the director committed to provide: an updated deferred-maintenance estimate, the 42 job-classification list that will be eligible for backfill (and the departmental breakdown of positions that will and will not be backfilled), and clarifications on how consolidations (for example, code enforcement moving between departments) shift costs between the general fund and special revenue funds.

Public comment: Two public speakers voiced concerns and praise. Dominic Mazock praised the city's domestic-violence work and asked the council to consider fiscal impacts from coming events (noting World Cup and Super Bowl-related activity). Jack Valensky urged a longer-term fix to recurring deficits and flagged overtime and service-delivery risks.

What happens next: The chair announced budget workshops May 13-20, two town halls (May 17 and May 22), a public hearing May 21 and council amendment and vote dates (amendments presented May 28 and consideration on June 4). The administration will provide requested follow-ups in departmental budget workshops and monthly financial reports.

Reporter's note: Quotes and attributions in this article come from remarks on the record to the Fiscal Affairs Committee. Where vote tallies or formal motions were not recorded in the transcript, the article reports the administration's stated assumptions and committee discussion as described at the hearing.