Cautious FY2026 City Tax Revenue Estimates Yield $2M Budget Surplus at the Expense of Homeowners

Background

City Finance Director David So presented the results of the FY2026 budget that ended June 30, 2026, at the City Council work session on October 19, 2026.

A discussion and summary of the FY2026 budget may be found in the Pulse post Adopted FY2026 Budget Shaves a Penny Off the Tax Rate, May 16, 2025.

With business revenues up, the FY2026 real estate tax rate could have been lower

Near the end of the FY2026 budget discussions last year, budget estimates for sales, meals, business, and personal property taxes were reduced by $1.2 million, forcing the City Council to abandon an earlier 2.5-cent real estate tax rate decrease. The adopted FY2026 budget managed a 1-cent reduction, from $1.21 to $1.20 per $100 real estate assessed value. (This was later reduced to $1.185 when solid waste fees were introduced in a budget-neutral move for the City, though not for most homeowners.)

Sizeable increases in real estate assessments, especially for single-family homes, ensured overall real estate tax revenues still increased by 7% despite the tax rate reduction, allowing the FY2026 General Government budget to increase 6.3% and the funds transferred to the School Board to increase 5.3%.

The year-end FY2026 results showed that businesses did much better than expected and closer to the initial estimates that were later revised downward. While such caution may seem prudent, it comes at the expense of property owners who must make up the estimated reductions through higher real estate taxes.

The FY2026 year-end surplus tax revenues of $2.6 million come primarily from:

• Personal Property Taxes – $1.2 million over budget (+16%)
• Sales Taxes – $771,000 over budget (+10%)
• Meals Taxes – $678,000 over budget (+11%)

The main budget revenue shortfalls came from:

• The cancellation of West Falls Phase II – $800,000 (-100%)
• Lower investment returns, unrealized loss in the market values of bonds – $119,000 (-6%)
• Lower business licenses taxes – $130,000 (-2%)
• Lower (traffic) fines and forfeiture – $91,000 (-12%)

The City had anticipated that Hoffman & Associates, the West Falls developer, would pay the City $800,000 to extend the option to develop Phase II in the future. According to the West Falls Comprehensive Agreement, Phase II would have brought the City a $10 million lease payment if completed. However, Hoffman informed the City that it was not going forward with Phase II.

The total City government expenditures came in $334,000 below budget, primarily due to unfilled staff vacancies. The net surplus for FY2026 is $2 million.

Details of the year-end results are shown in the tables at the end of this post.

Kudos to the Commissioner of the Revenue for increasing car registration compliance

City residents are required to register all their vehicles with the City, and residents pay personal property taxes on them. The $1.2 million tax revenue increase is largely due to the efforts of the Commissioner of the Revenue, Tom Clinton, an elected official, to increase compliance through a number of steps described in our recent post, Successful Efforts to Increase Car Tax Compliance Boost City’s FY2026 Revenue, August 19, 2026.

When asked by City Council members about the compliance rates, Mr. Clinton responded, “There’s a fair amount of room for improvement. We’re not getting the compliance that we should.”  With respect to the multifamily buildings, he said, “It’s a constant education process with new people coming in, with new building staff.”

City Manager Seth Hendler-Voss said that he would like to provide Mr. Clinton with additional support to increase compliance, and he will propose that in his next budget. He believes it will be worth the return on investment.

Whole Foods and Grocery Outlet drove increase in sales taxes

Mr. So reported that grocery sales taxes came in 18% above budget, driven by Whole Foods and the new Grocery Outlet that opened in February 2026. The City also sees a sales tax revenue bump from new construction, but Mr. So warned that that source is tapering down.

The increase in meals taxes is the result of a net increase of about 20 restaurants in the City. In 2025, there were 135 restaurants on average; in 2026, meals taxes were received from an average of 155 restaurants.

Although transient occupancy taxes from hotels were below estimates, receipts were stronger in the third and fourth quarters, so Mr. So is hopeful the performance of those businesses will continue to improve.

Year-end unaudited results for FY2026

Below are the unaudited actual revenues and expenses summaries for FY2026. Our separate post covers the proposal for allocating the $2 million net surplus. Note that revenues from licenses and permits are not considered either budget surplus or shortfall as they are carried forward from year to year to be applied to the services covered by those payments as they occur.