A property tax rate increase and reductions to some exemptions could be part of Arlington's final push to close an unexpected $25 million shortfall projected for 2026.
Arlington has eliminated vacant positions, cut funding to departments and programs, identified city facilities to shutter and suggested changes to city fees as the city council guided the developing proposal to cut expenses.
City Manager Trey Yelverton said at a council work session Tuesday that it’s now time to look at ways to close the remaining $2.3 million gap in next year’s budget. But that number includes funding the city would have to pull from reserve funds, an option Yelverton said the city has rarely used before.
And, he said, the city is “preparing, should we not make it all the way across the finish line," to implement furloughs and RIF (reduction in force).
Yelverton said the real budget deficit is closer to $6.3 million counting that reserve fund.
Raising taxes as last resort
Yelverton said, and council members echoed, that most of the $25 million was closed through cutting positions and reduced funding to departments and programs.
Now the council will need to make a decision on property taxes.
Rebecca Boxall, the council member for District 5, said the choice should really be for the city’s residents.
“That just comes down to a choice between, ‘Do you want to pay for these services or do you have fewer services?’ ” Boxall said during the work session. “That's the way I look at it. Because that's what it's going to translate into."
Arlington homeowners saw tax rates fall every year from 2016 to 2024. Tax bills this year reflected the first increase in that time, bringing the rate back up to the 2023 level.
Prior to this year, the city’s last property tax rate increase was in 2004. The rate was set that year at nearly 65 cents per $100 of property value. The 2025 rate, same as two years ago, is just under 60 cents per $100.
Yelverton told the council that raising taxes by an average of $6 per resident could provide for nearly $4 million. Adjustments to homestead, over 65 and disabled exemptions could account for millions more but it, too, would see tax bills increase.
Property tax instability is a major reason for the budget gap Arlington is expecting. Yelverton said an unprecedented number of successful assessment protests have had immediate effects, but changes to the schedule for appraisals will have long-lasting impacts on the budget.
The Tarrant Appraisal District decided to conduct new appraisals every two years, a move several city council members have said is the primary blame for such extreme money trouble.
The gap in appraisals means actual property value increases won’t be reflected in municipal tax income, making it more difficult for many cities to keep up with growth, inflation and increased demand, Yelverton and council members have said.
Most council members voiced approval, or at least an open mind, for potentially raising taxes.
District 8 council member Barbara Odom-Wesley told Yelverton Tuesday that she’s not opposed to putting some of the financial burden on property owners.
“It looks like our employees for the city are taking the brunt of the blow,” Odom-Wesley told him. “And I think it's only fair that our constituents and all of the rest of us share in taking that on.”
Odom-Wesley said that if the city had to raise taxes, they would have the ability to lower the rate again later.
She, Boxall and other council members who voiced potential support for tax increases emphasized that it would be a last resort, and likely not the full solution.
Examining exemptions
A 1% reduction to the homestead exemption for Arlington residents could give the city an additional $1.3 million next year. Nearly 63% of all property tax accounts in Arlington receive the homestead exemption.
In 2025, Arlington forfeited around $26 million from the homestead exemption.
Homeowners who qualify currently get a 20% exemption on their tax bills, one of the highest in the state, according to Yelverton.
Nearby cities like Fort Worth, Grapevine and Southlake also offer a 20% homestead exemption, Yelverton said. Directly to the south, Mansfield homeowners have a 16% exemption. Qualifying Grand Prairie homeowners get 17.5% taken off their taxable value.
Some exemptions can’t be adjusted by the city.
The tax ceiling for homeowners older than 65 is set by the state and can’t be adjusted by the city, nor can exemptions for veterans.
Homestead and disabled exemptions can be adjusted, though, as can the additional homestead exemption for older than 65.
The senior homestead exemption saved qualifying residents around $9 million this year, according to city data. Nearly a quarter of all property tax accounts receive the exemption. Every $5,000 of exemption accounts for around $751,000 in lost or gained tax revenue.
Yelverton said even small adjustments to these exemptions could provide millions more to the city’s coffers.
But changes impacting property taxes aren’t the only tactics the council can elect to use.
Other options
Yelverton told council members the city has come up with three other options he called “closing the gap fail safe” measures. The city could forego a 3% raise for employees, change fringe benefits and use the reserve fund to finance 40 positions for one more year.
Those 40 positions would be eliminated at the end of that year.
Council member Andrew Piel, who represents District 4, said he would like to find a way to make cuts across all three options to soften the landing.
“I like all three in some combination that allows us to minimize the negative impact of any one category and that possibly preserves the opportunity should the economic situation improve to restore midyear,” Piel said.
Yelverton said taking $4 million from the reserve fund would allow the city to give 40 employees notice that their job would not exist in 365 days.
The city manager called it a “humane” way to look at possible employee termination by giving employees opportunities to transfer to other positions that won’t be eliminated or find another job.
That funding would be a one-time expense, and the council would not be able to use it to continue supporting those positions the next year.
Canceling or reducing the $3 million raise would be another option for keeping employees with the city, Yelverton said.
The council could also look at splitting that 3% raise, offering a 1.5% raise at the start of the year and scheduling the other 1.5% of the raise to come mid-year. That second half of the pay increase would be contingent on the city’s tax incomes next year.
Some council members expressed concerns that withholding that raise completely would hurt Arlington’s competitiveness in the job market, as could altering benefits.
The changes to benefits could include adjusting employee and retiree contributions to health insurance plans, suspending a program that allows employees to sell back paid time off, like vacation and sick leave and reducing the city’s 401k match.
2026 sales taxes could help
The Arlington Entertainment District already draws visitors from across the country for sports, concerts and other events, bringing outside dollars to the treasury through sales taxes.
Arlington could see a significant boost in that revenue next year, with the World Cup and IndyCar Grand Prix expected to attract untold numbers of tourists – and their money.
The FIFA World Cup is projected to bring more than $6 billion in economic impact to North Texas, meaning cities like Arlington could see a windfall of taxes from sales, liquor and hotel occupancy.
The city will host nine matches, the most of any city, and host 39-day fan festival organizers predict will draw swaths of international fans who don’t have tickets for events but want to be near the action.
Deputy City Manager Jennifer Wichmann has said on multiple occasions that the World Cup will be a massive event unlike anything the city has undertaken before.
The IndyCar race, while not as big, could make Arlington a destination for a fanbase that’s never considered a trip to the city before. The impact won’t be as large as the World Cup but could offer a springtime boost to city funds in 2026.
The city council is expected to see a formal proposed budget Aug. 5, with the final vote on approval slated for Sept. 16.
Town halls will be held Aug. 15 at the South District Police Station and Aug. 21 in the city council chambers at Arlington City Hall. The council is expected to discuss the budget at a special meeting Aug. 12, then at regular meetings Aug. 26 and Sept. 2.
Options to close funding gap
City Manager Trey Yelverton presented four possible solutions for the city’s remaining gap in next year’s budget:
- Forego 3% raise, cutting $6.9 million.
- Fringe benefit modifications, cutting $5.4 million.
- Use reserve funds to finance 40 positions for 1 year, providing $4 million in a one-time expenditure.
- Raise property tax rate by 1 cent per $100 valuation, providing $4.3 million.
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