The City Charter requires the City Manager to keep the City Council fully advised as to the financial condition of the City. The Finance staff provides City Council a quarterly update of the City's finances in order to meet this requirement.

At the end of each quarter, the Finance Department reviews the City's finances for the preceding three months and provides a summary of the finances for the City's major funds. The fiscal year 2026 second quarter financial update was provided to City Council in July. This financial update represents the third quarter of the 2026 fiscal year.

Staff has reviewed the City's finances through the third quarter of the 2026 fiscal year, which includes April through June. The update through the third quarter represents 75% of the fiscal year. Compared with the second quarter report, year-to-date revenues remain modestly ahead of the elapsed-year target, while expenditures continue to pace well below the 75% benchmark. Property tax collections, which drove the strong mid-year position, have largely plateaued as expected after the January 31 deadline. Sales tax collections strengthened further versus both prior-year actuals and the year-to-date target. Hotel occupancy tax collections remain the principal area of concern, with year-to-date receipts well below budget and June hotel performance continuing to trail the prior year.

For the City's major funds, which include the General Fund, Water Fund, Wastewater Fund, Governmental Interest & Sinking Fund, Hotel Occupancy Tax Fund, and the Sanitation Fund, the total budgeted revenue remains $47.43 million. Through the end of the third quarter, the City collected $37.37 million for these funds, or 78.8% of budgeted revenues. The increase from Q2 to Q3 of approximately $8.92 million is consistent with ongoing utility, sales tax, and remaining property tax collections, and continues to be offset by weaker hotel occupancy tax performance. For expenditures, the budget for the major funds totaled $51.54 million. Expenditures through the third quarter totaled $30.48 million, or 59.1% of the major-fund budget. Spending increased by approximately $8.71 million during the quarter but remains 15.8 percentage points below the 75% year-to-date target, reflecting conservative pacing, seasonal timing, encumbered purchases that have not yet been invoiced, and transfers that have not yet been posted.

Other Key Financial Highlights

1.    General Fund Expenditures

• Target: 75.0% of budgeted expenditures for Q3.
• Actual: 67.2% of budgeted expenditures for Q3.
• Overall expenditures remain below pace for three-quarters of FY 2026, reflecting prudent pacing and timing differences across departments.
• Streets & Drainage – Remaining vehicle purchases are encumbered, and invoices are expected soon.
• Non-Departmental – The transfer to the General CIP Fund expected in Q4 for Capital Projects funded by the General Fund.
• Development Services – Third-party review expenses have been reduced. The budget will reflect the reduced amount after the projected budget approval by City Council.
• Community Relations – Art Projects not yet spent.
• Fleet Maintenance – Repair activity continues to run lower than expected.
  

2.    Sales Tax Revenue Performance

• Sales tax collections increased by 4.2% compared to the prior year through June.
• Actual collections through June accounted for 78% of the total budgeted amount.
• This exceeded the target collections by $345,197 (approximately 3.4%)

3.  Property Tax Revenue Update  

Budget expectations:

• Total collected as of June: $11.2 million.
• Actual collections account for 97.4% of the total budgeted revenue, $243k under the target of 99.5% collection by this point in the fiscal year.

Compared to prior year:

• Represents $443k increase compared to the $10.7 million collected during the same period last year.

• The increase due to the adopted property tax rate increasing from $0.3395/$100 AV in the prior year to $0.3576/$100 AV.

4.    Hotel Occupancy Tax (HOT) Revenue

• City of Buda's hotel tax collections continue to trend downward due to reduced travel activity and weaker room-rate performance.
• Occupancy: 62.1% (2026) vs. 65.3% (2025), a -4.9% change.
• Average Daily Rate (ADR): $87.47 vs. $93.02, a -6.0% change.
• Hotel revenues collected (on an accrual basis) totaled approximately $220,425, however decreased compared to $243,947 in Q2 of the prior year (down ~9.6%).
• Statewide hotel tax collections are also experiencing a similar downward trend.

• City of Buda is experiencing a regional hotel slowdown. Revenue per available room is showing a decline indicating broader regional pressure on hotel performance.

• The ongoing decline in hotel tax revenue has impacted tourism-related initiatives. The City’s adopted budget for FY 2026 reflects a reduction in services with a frozen Marketing Specialist position. Recurring revenues in this fund have been projected to NOT meet recurring expenditures and therefore the City has temporarily frozen the vacant Event Coordinator position as well. Further monitoring is needed to assess long-term impacts as the City enters the final quarter of the fiscal year.

Staff's review of the City's finances is prepared for City Council at the end of each quarter. Revenues and expenditures in all the major funds except the Hotel Occupancy Tax Fund are on target with staff's expectations regarding the receipt of revenues and expenditures of funds through the fiscal year.

Staff reviews the revenue and expenditure amounts in the City's budget on a monthly basis to ensure the City is receiving its budgeted revenues, and also ensures the expenditures are being properly recorded and are in line with the budget adopted by City Council. Any discrepancies are addressed. The attachment includes information on revenues and expenditures through the third quarter for the City's major funds, total property tax receipts, total sales tax receipts, and total hotel occupancy revenue.

In conclusion, revenue sources remain solid through three-quarters of FY 2026, driven by property tax timing and improved sales tax collections. Expenditures remain well-managed and below pace. All major fund balance requirements continue to be met with comfortable margins. However, the continued decline in hotel tax revenue should be monitored closely for potential future budget impacts on tourism and related programs.

Pros

• Satisfies the City Charter requirement that Council be kept fully advised of the City's financial condition.
• Gives Council a quarterly view
• Confirms all four major fund balance policy requirements are met.
• Surfaces the hotel occupancy tax shortfall early enough to inform FY 2027 budget discussions.

Cons

• Figures are unaudited and preliminary; they may shift through year-end close and the annual audit.
• Timing differences — encumbered purchases not yet invoiced and transfers not yet posted — mean the expenditure rate may understate true commitments. Items could be carried over to the next fiscal year also.

• Accept the update as presented. (Recommended)
• Accept the update and direct staff to return with additional detail on a specific fund or department.
• Accept the update and direct staff to bring forward budget amendments or corrective measures.