Amarillo homeowners could see an increase in the City portion of their property tax bills next year under a proposed tax rate presented to the Amarillo City Council Tuesday during the first of three budget workshops.

City staff is proposing a 2026 tax rate of $0.44728 per $100 of property valuation, up from the 2025 rate of $0.43070.

At the proposed rate, the City portion of the tax bill on the average Randall County home would increase by $58.99 to about $1,118. The average Potter County home would see an $85.04 increase, bringing the City portion of the bill to $697.09.

The council is considering the tax rate as part of its work on the proposed 2026-27 budget, which is about $63.4 million lower than last year’s budget. Council members also have about $6.2 million in a working budget left to allocate as they consider additional requests later this week.

Tuesday marked the beginning of several days of budget discussions. The first workshop ended before the council’s 1 p.m. executive session and 3 p.m. regular meeting. Council members are scheduled to return at 8 a.m. Thursday and Friday for full-day budget workshops.

Chief Financial Officer Lola Ogunremi walked the council through the draft budget Tuesday, starting with revenue history and projections before moving into property taxes, proposed fee changes, cost recovery, changes in the draft budget and funds available for the council to allocate.

Thursday and Friday will give council members an opportunity to ask more detailed questions, focus on specific areas of the budget and give staff direction.

Sales tax projected at $90.5 million

Sales tax continues to be a major source of revenue for the City.

Over the past 10 years, Amarillo’s sales tax revenue has grown by more than $23 million. The City expects to collect about $87 million during the current fiscal year, although August and September collections are still pending.

Deputy City Manager Andrew Freeman said sales tax performance has been strong across several industries. Retail, general services and food sales are showing gains of 6% to 8% in 12-month averages, and online sales have also grown.

Wholesale has seen the largest increase but is also the most vulnerable to changes in regional and national economic cycles.

The City is budgeting about $90.5 million in sales tax revenue for 2026-27.

When sales tax collections come in above budget, that money can help cover overtime overages in public safety or be used for one-time capital expenses.

The council also reviewed several other revenue sources Tuesday.

Business tax revenue, which comes mainly from utility fees, has grown by more than $5 million over the past decade, with much of that growth coming from electricity and sewer.

Hotel occupancy tax revenue has increased by about $3 million over the same period despite dropping nearly 25% during the coronavirus pandemic. The City collected almost $10 million in hotel occupancy tax during the 2024-25 fiscal year and expects to collect about $10.7 million by the end of the current fiscal year.

Mayor Cole Stanley asked whether staff had projected additional hotel activity from large industries coming to the area and workers who will need places to stay.

Freeman said the City does not collect hotel occupancy tax when someone stays longer than 30 days. Ogunremi said staff is keeping the hotel occupancy tax budget flat next year to remain conservative.

Utility revenue is also expected to remain relatively steady. For the current fiscal year, the City expects more than $36 million from sanitation utilities, about $122 million from water and sewer sales and approximately $10.9 million from drainage. The 2026-27 revenue estimates for those areas are roughly the same.

Staff proposes voter-approved tax rate

Tuesday’s workshop also included a refresher on Texas’ truth-in-taxation process and how Amarillo’s property tax rate is calculated.

Property values used to calculate City taxes are determined by the Potter-Randall Appraisal District, which operates independently of the City.

Amarillo provides an $8,600 exemption for residents who are over 65 or disabled. Qualifying residents can also apply for a tax freeze, which means they generally will not pay more than the frozen amount in future years unless improvements are made to the property.

Those freezes will account for about $7.5 million in property tax revenue the City will not capture in the upcoming fiscal year.

Under truth-in-taxation requirements, taxing entities calculate both a no-new-revenue rate and a voter-approved rate.

The no-new-revenue rate is intended to produce approximately the same amount of property tax revenue as the previous year. Amarillo’s no-new-revenue rate for 2026-27 is $0.42170.

The voter-approved rate allows the maintenance and operations portion of the tax rate to increase by 3.5%, along with unused increments that can be carried forward for up to three years. State lawmakers lowered that threshold from 8% to 3.5% with Senate Bill 2 in 2019.

The interest and sinking portion of the rate, which pays principal and interest on previously issued debt, is not subject to the same cap.

Amarillo’s voter-approved rate for 2026-27 is $0.44728, which is the rate staff is recommending.

Under that proposal, the maintenance and operations rate would increase from $0.33114 to $0.34594, bringing the City an estimated $911,192 in additional property taxes.

The interest and sinking rate would increase from $0.09956 to $0.10134, generating an estimated $2.6 million more.

If a taxing entity adopts a rate above its voter-approved rate, a November election is required.

Council has $6.2 million to allocate

As the council moves into its two full-day workshops, one of the larger decisions will be what to do with approximately $6.2 million available in the working budget.

Freeman said council members will get into those discussions Thursday as they review supplemental requests.

Several expenses are already built into the proposed budget, including pay increases for police officers and firefighters, software costs, IT charges, fleet charges, insurance and bonds.

Some proposed expenses, including fire trucks and street work, would be funded through debt.

Freeman said departments are also dealing with higher costs for materials, supplies and software, adding pressure to different areas of the budget.

Staff addressed another issue Tuesday involving the City’s financial software, which it switched to in January 2025. According to staff, the new system was running a report differently than staff had been accustomed to, creating cash flow issues that needed to be corrected.

That has resulted in some available funds appearing as negative numbers in the proposed budget. Staff also had to keep the figures consistent with numbers reported in the City’s annual comprehensive audit.

City Secretary Stephanie Coggins said staff is working with the audit firm to correct a footnote and will update the cash flows after the correction is made. The issue affects projected year-end balances but does not affect the proposed budget.

Overall, the proposed 2026-27 budget is about $63.4 million lower than last year. Capital improvement projects and fleet services operating show the largest decreases, while the water and sewer operating budget is up 15%.

Council members also discussed the rising cost of living, whether the proposed tax rate could be lowered and how the budget should be presented before ending Tuesday’s workshop.

Those questions, along with the $6.2 million available for allocation and the reasons behind the overall decrease in the budget, are expected to become clearer as the council works through two full days of budget discussions Thursday and Friday.