Texas school districts and municipalities are experiencing widespread fiscal challenges, with many projecting or enacting deficit budgets. Major school districts, including Dallas and Austin, report shortfalls, driven by inflation and inadequate state funding increases. Austin ISD faces an estimated $181 million deficit, leading to staff reductions and campus closures. Dallas ISD has a $108 million deficit, and Houston ISD $25 million. Over 70 percent of surveyed districts anticipate budget cuts, with 44 percent expecting a deficit, according to the Texas Association of School Business Officials. Many districts have already closed neighborhood schools.
Large cities and counties also face funding gaps. The City of Dallas manages a $30 million budget shortfall, recently furloughing over 4,000 municipal workers. Harris County, the state's most populous, faces a “structural deficit” of $130 million, potentially reaching $800 million by decade's end. Local governments lost COVID-era emergency funds and face state limitations on property tax revenue. Sales tax revenues have decreased. Despite population growth, localities struggle with rising payroll and supply costs, and some cities see revenue bases threatened by corporate employers moving to suburbs.
Governor Greg Abbott has addressed these local fiscal crises, proposing property tax relief through state initiatives cumulatively costing over $50 billion. In June, Governor Abbott outlined a new property tax policy plan in Houston. This plan includes requiring localities to secure a two-thirds majority for tax rate increases and pursuing a constitutional amendment to effectively eliminate school property taxes.
Further financial shifts could impact the state. Governor Abbott, Lieutenant Governor Dan Patrick, and House Speaker Dustin Burrows recently directed state agencies to prepare for three percent program cuts, excluding public education funding and private voucher programs. The state’s 'rainy day fund' reached approximately $25 billion last year; rumors suggest a new comptroller could issue a more austere biennial revenue estimate.
Democratic leaders have proposed alternatives: gubernatorial candidate Gina Hinojosa called for returning state surpluses to households, and State Senator Sarah Eckhardt noted the state could cover all school district deficits while retaining roughly $24 billion in its reserve fund. If legislative shifts occur, state Republican majorities might revisit public education funding and property tax reform with renewed focus, mirroring actions taken in 2019.
