KATY, Texas (Covering Katy News) — Katy ISD is projecting a $15.7 million budget shortfall for the 2026-27 fiscal year, but district officials say the district remains in solid financial condition and expects to finish the current year with a surplus.
The total operating budget for the upcoming school year has not yet been finalized. For perspective, Katy ISD's approved operating budget for the current 2025-26 school year is approximately $1.15 billion.
Chief Financial Officer Chris Smith presented the preliminary budget outlook during the Katy ISD Board of Trustees' June 15 work study meeting.
Although next year's preliminary budget shows a deficit, Smith said Katy ISD traditionally adopts a conservative budget that gives schools and departments flexibility during the year.
"We normally don't spend the entire budget," Smith said.
Several Unknowns Still Affect Katy ISD's Budget Outlook
Smith said several major questions remain unanswered and could change the district's final budget.
Among the biggest unknowns are final property values from local appraisal districts, state-mandated tax compression, education savings accounts, virtual school enrollment and changes to special education funding formulas approved by the Texas Legislature.
The district is expected to receive certified property values in July before trustees adopt the budget in August.
Smith said Katy ISD's total tax rate is anticipated to decrease slightly, from $1.1171 per $100 of assessed value to $1.1141 per $100 valuation.
Katy ISD to Lose About $469,000 in Federal Immigrant Education Funding
Part of the district's revenue decline stems from lower federal funding.
Earlier in the meeting, Executive Director of Federal Programs Nakia Coy told trustees that Katy ISD is expected to lose approximately $469,000 in Title III immigrant education funding because the district no longer meets federal growth requirements for newly arrived immigrant students. Read more here.
Coy said the district experienced a decline in that student population, making it ineligible for the funding during the upcoming school year.
The district's other federal grants support programs for students from low-income families, English learners, special education students, career and technical education programs, and students experiencing homelessness.
One-Time Payment Provides Financial Boost
Despite the projected deficit, Katy ISD recently received a one-time payment of approximately $34 million tied to its 2023 property value audit.
Smith said the money should have been received during the 2023-24 school year, but delays involving county appraisal districts, the Texas Comptroller's Office and the Texas Education Agency postponed the payment.
District administrators are proposing using part of the money to provide employees with two one-time 1% lump-sum payments, one in August and another around Christmas.
Smith said one-time payments are easier to manage financially than permanent salary increases when future revenue remains uncertain.
District Expects Current Fiscal Year to End With Surplus
Smith told trustees he expects Katy ISD to finish the current 2025-26 fiscal year with a surplus despite next year's projected shortfall.
He also said the district's financial reserves remain healthy and have grown alongside the district's enrollment and expenses over time.
Trustees are expected to receive another budget update in July before adopting the district's 2026-27 budget and setting the tax rate in August.