Page 173 - CityofSouthlakeFY26AdoptedBudget

prepare for significant infrastructure maintenance and replacement as water and wastewater systems
age.
• Other Funds: Reserve levels are determined by future anticipated needs, such as capital construction,
equipment replacement, and debt service obligations.

Strategic Use of Reserves. The City does not view reserves as idle funds. They are carefully managed
to ensure readiness for high-impact projects, infrastructure renewal, or short-term revenue disruptions.
Maintaining these optimal balances allows Southlake to remain financially stable while continuing to
invest in facilities, technology, and service enhancements that benefit the community.

Forecast Results & Analysis Multi-year Operating Plan

Each year, the City of Southlake prepares a five-year financial forecast for its major operating funds,
including the General Fund, Utility Fund, Hotel Occupancy Tax Fund, and sales tax-supported funds.
These forecasts project the revenues and expenditures required to sustain current service levels, meet
debt obligations, and implement the City’s adopted Capital Improvement Program.

Purpose of the Forecast. The forecast is not a budget—it is a planning tool. By looking five years ahead,
the City can anticipate trends, evaluate policy options, and make informed decisions about service
levels, infrastructure needs, and tax rate management. The forecast also includes scenario testing to
measure the impact of potential changes in economic conditions or revenue streams.

Key Findings for FY 2026–FY 2030. The current forecast reflects a structurally balanced financial position
consistent with the City’s financial principles. However, it also signals that under certain conditions—such
as if expenditure growth consistently outpaces CPI-based targets without offsetting revenue growth—
service levels could be affected. While the City’s goal is to align expenditure growth with projected
CPI trends, the forecast shows that some cost drivers, such as compensation adjustments to maintain
competitiveness and inflationary impacts on goods and services, may exceed this benchmark in future
years. In these cases, staff will carefully document the need for any variance and ensure decisions
protect the City’s long-term financial health.

Recent Legislative Developments—Business Personal Property Exemption. During the 2025 Texas
Legislative Session, lawmakers passed House Bill 9, raising the exemption for business personal
property—from the previous threshold of $2,500 to $125,000. If approved by Texas voters in November,
the expanded exemption will take effect on January 1, 2026. This is expected to reduce property tax
burdens for businesses, potentially impacting local tax revenues starting in FY 2027. City staff will model
this effect in upcoming budget updates and consider impacts and any mitigation necessary.

Exclusions from the Forecast. The projections focus on maintaining current service levels and do not
include potential program enhancements or expansions, such as:
• New or expanded services.
• Technology improvements.
• Legislative mandates.
• Significant growth-related increases.
These items are evaluated separately during the annual budget process, allowing for focused
consideration of their strategic value and financial impact.

FY 2026 City of Southlake | Budget Book 173