El Paso projects a modest FY2026 surplus as sales tax and bridge transfers outperform; FY2027 budget faces pressure from staffing and contracts

City budget staff told the El Paso City Council on June 23 that the city is on track to finish FY2026 with a modest surplus and a substantial fund balance, even as key cost pressures persist.

Robert Cortinas, deputy city manager, said revenues through the first nine months of the fiscal year were about $29.2 million higher than the same period in FY2025, largely because sales‑tax collections are running ahead of last year and international bridge transfers have increased. Cortinas said sales tax for the period is projecting roughly $4 million above budget and that the city’s total revenue projection for FY2026 is about $625.3 million, with projected expenditures slightly under that amount.

The report projects a fiscal‑year surplus of about $185,000 and a beginning fund balance of approximately $154.27 million, including both restricted and unrestricted reserves. Cortinas emphasized that the adopted FY2026 budget had assumed a $3.25 million use of fund balance; current projections suggest that plug may not be needed.

Why it matters: Cortinas said the revenue gains help stabilize the city’s near‑term finances, but he and council members noted that recurring cost increases — chiefly salaries, benefits and contract services — remain the largest long‑term pressure as the council prepares the FY2027 budget.

Details and drivers: Cortinas told the council the two biggest positive revenue drivers this year have been sales tax and operating transfers (including international bridge receipts). He singled out increased activity by El Paso Electric as lifting the utilities portion of the sales‑tax base. He also warned that some year‑over‑year comparisons are affected by a prior‑year audit adjustment that removed a company’s sales‑tax remittance from the city’s totals, making the current increase look larger in comparison.

On the expenditure side, personal‑services costs (salaries and benefits) are the single largest driver of the budget increase; Cortinas said roughly $15 million of the $20 million year‑over‑year expenditure increase is attributable to personal services, with the fire department and public‑safety wage increases among the contributors. Contractual increases — including IT contracts and a public‑safety radio maintenance contract — also pushed costs higher.

Cortinas outlined steps staff is taking to contain costs, including a line‑by‑line review of three categories directed by council (outside contracts, professional services and materials and supplies), continued vacancy reviews and seeking efficiencies through procurement and contract management. He said the budget office identified approximately $243,000 of potential adjustments from that directed review but cautioned that many changes are one‑time and that unknowns remain for contracts and services next fiscal year.

Debt and reserves: The city completed a debt refunding earlier in June that staff said produced about $15.7 million in net present‑value savings; savings were structured across years to limit near‑term tax‑rate impacts. Cortinas said the city expects to finish FY2026 with about 70 days in its rainy‑day fund (down slightly from 73 at the start of the year) after balancing restricted and unrestricted reserves.

Next steps: The council will receive certified appraisal values on Aug. 3 and is scheduled to introduce the tax rate that day; the formal tax‑rate hearing is set for Aug. 17 and budget adoption on Aug. 18. Staff said FY2027 will be presented without relying on recurring use of fund balance and that further budget workshops and fee‑study updates will be provided to the council.

Caveats: Cortinas noted a two‑ to three‑month lag in detailed sales‑tax reporting and stressed that some categories remain difficult to project, including franchise fees and future contract renewals. He said staff will return with year‑end actuals for the council in December.