Katy ISD faces $15.7 million budget shortfall for 2026-27

Katy ISD entered budget season with a projected $15.7 million shortfall for 2026-27, a gap that could ripple into staffing, class sizes and student programs if trustees do not find a way to close it. Chief Financial Officer Chris Smith laid out the outlook at the board’s June 15 work study meeting at the Katy ISD Education Support Complex, 6301 S. Stadium Lane in Katy.

The forecast is smaller than the district’s amended 2025-26 shortfall of $19.3 million, and district officials said the current fiscal year is still expected to end in surplus. Even so, Smith warned trustees that the district’s growing general fund balance has to be managed carefully so money is actually being put to work for staff and students instead of sitting unused. Katy ISD’s 2025-26 official budget projected 97,161 students, a $1.15 billion operating budget and a $24,863,394 decrease in general-fund balance, with payroll accounting for 89% of the general fund.

Lower state funding and lower federal revenue were the main reasons total estimated revenues for FY 2026-27 are expected to fall by $3.6 million, despite gains in tax revenues. The district’s tax rate is expected to dip slightly from $1.1171 to $1.1141 per $100 valuation, but the full picture will not be clear until appraisal districts release certified property values in July.

Several major variables are still unsettled. Those include property tax compression, special education funding, the effect of education savings accounts, virtual school enrollment and out-of-district enrollment. The Texas Education Agency has said Tier One tax compression does not change the overall level of funding a district is entitled to, but it does affect how local property tax rates are compressed. The agency also issued special education funding updates on April 16 ahead of the 2026-27 school year.

The state’s education savings account program, created in Senate Bill 2, takes effect Sept. 1, 2025, and the Texas Comptroller announced proposed rules on Aug. 22, 2025. Katy ISD is also moving ahead with refunding $165 million to $175 million in callable bonds, a step Smith said should produce about 8% present value savings and several million dollars in cash savings.

Another budget update is expected in July before trustees adopt the budget and set the tax rate in August. District materials say Texas law requires budgets to be prepared by Aug. 20 and adopted by Aug. 31, making the next few weeks the key window for families watching for staffing changes, program cuts or other signs of how Katy ISD plans to absorb the shortfall.