Politics
Texas Senate Bill 12 Adjusts Municipal Revenue Caps for Waco Budget Planning
Waco city officials will recalculate next year's operating budget after the new state limits on local sales tax retention take effect in September.
How we reported this
Texas Senate Bill 12 changes how cities keep a portion of sales tax collections above a set threshold. The measure applies to municipalities with populations above 100,000, which includes Waco in McLennan County. City finance staff have begun reviewing revenue projections for the fiscal year that starts October 1.
Statewide Context for Current Budget Cycle
The Texas Legislature approved the bill during the 2025 regular session after reviewing Comptroller data on local tax growth rates. Lawmakers set the retention cap at 1.5 percent above the prior three-year average. The change responds to rapid sales tax increases recorded in several metro areas between 2022 and 2024. Waco recorded sales tax collections of roughly $48 million in the most recent full fiscal year, according to city financial statements.
Local advocates note that the formula will reduce the amount Waco can hold in its general fund by an estimated share of future growth. The legislation states that excess amounts must be transferred to a state infrastructure account. Policy analysts say the shift affects discretionary spending categories such as parks maintenance and public safety overtime.
Direct Effects on Household Costs and Services
Waco residents who pay property taxes through McLennan County appraisals will see no immediate change to their individual bills. The cap applies only to city sales tax retention, not to property tax rates set by the city council. However, budget staff have indicated that any shortfall in retained revenue could lead to adjustments in fee schedules for utilities or recreation programs.
The government says the policy will direct additional resources to state highway projects that serve the Waco area, including segments of Interstate 35. City engineers have already listed several local connectors that could qualify for the new state account. Residents who commute daily on those routes may notice construction timelines if the funds are released on schedule.
What happens next depends on the August revenue report from the Comptroller. City council members are scheduled to receive updated projections at their July 21 work session. The legislation requires the first transfer calculation by September 30.