The Austin school district ended the 2025-26 school year with a $105 million deficit, $10 million deeper than district leaders estimated just two months ago and more than five times the shortfall trustees expected in June 2025.

The latest figure, presented to trustees Thursday night by Chief Financial Officer Katrina Montgomery, is not yet audited. But it marks another significant revision to a deficit Austin ISD initially projected to be $19 million and underscores how quickly the district’s financial position deteriorated over the course of the year.

The revision comes after months of financial turmoil that prompted Austin ISD to cut $205 million from this year’s budget, including reductions that reached classrooms, transportation and hundreds of positions. Now, even with those cuts, the district expects to borrow $140 million this fall to cover operating expenses while it waits for property tax revenue and must find another $10 million to keep this year’s deficit from growing.

District leaders blamed much of the latest change to the timing of a $17 million real estate sale of the former Brooke Elementary property. The sale, once expected to count toward the 2025-26 fiscal year, is now expected to close in September and instead benefit this year’s budget. The district also identified an additional $7 million in savings that kept last year’s deficit from climbing even higher.

The shifting projections prompted trustees to scrutinize the assumptions made for the 2026-27 school year as they sought to avoid more financial “surprises.” They also challenged a separate development: the Texas Education Agency’s decision to lower Austin ISD’s financial rating, in part because of its staffing levels.

“We were having frank conversations about the unknown expenditures of June because it is always hard to tell when we are in the month where we are going to end up,” said Superintendent Matias Segura. “Coming out $7 million to the better is a good thing.”

Here’s what the latest numbers mean for Austin ISD:

How did a $19 million deficit become $105 million?

Austin ISD’s deficit grew dramatically over the course of the 2025-26 fiscal year. Trustees adopted the budget in June 2025 expecting a $19 million shortfall. By February, district leaders had raised that projection to $49 million, citing declining enrollment, lower attendance and property values, and increased spending on academic needs.

Then, in June, just weeks before the fiscal year ended, the projection nearly doubled again to $95 million. The latest estimate puts the final shortfall at $105 million.

Facing projections that the deficit could reach $181 million by the end of the 2026-27 fiscal year without intervention, trustees this summer approved $205 million in budget cuts. The reductions affected hundreds of positions, teacher planning time, bus routes and partnership programs, among other areas.

What does this mean for this year’s budget?

The delayed Brooke Elementary sale does provide some relief for the current budget. With the expected $17 million sale now falling into the 2026-27 fiscal year, district leaders project reserves will end this current school year at just over 13%, slightly higher than previously expected.

But those reserves remain low enough that the district expects to borrow $140 million in October to cover operating expenses, like payroll, while it waits for the bulk of its property tax revenue, typically received between November and January. District leaders expect to repay the short-term borrowing in January.

Despite the $205 million in cuts already approved, district leaders said they still need to find about $10 million more to cover newly added projected expenses in 2026-27 for police, custodial and transportation positions, transportation changes and portable classrooms for Bailey Middle School, which recently received most of the students from the recently shuttered Paredes Middle School.

Abbott questions Austin ISD’s spending

Austin ISD’s finances have also drawn scrutiny from Gov. Greg Abbott, who singled out the district this month while calling for an investigation into administrative spending at Texas school districts.

Abbott said Austin ISD’s enrollment declined 14% from 2015 to 2025 while administrative spending per student increased 75%. He has asked the state comptroller to review the finances of up to four school districts for potential administrative bloat, although the districts have not yet been named, and proposed requiring districts to spend at least 70% of their funds in the classroom.

Austin ISD has previously acknowledged its administrative staffing did not keep pace with declining enrollment.

Ahead of the 2025-26 school year, the district restructured its central office to reduce administrative costs relative to its declining student population and made additional reductions this summer. Segura said Thursday the district didn’t have a direct response to Abbott’s criticism but noted that more than three-fourths of Austin ISD’s general fund in its adopted 2026-27 budget already is directed to classroom-level spending.

“The data set that was used by the governor was over a 10-year period and certainly when you use that duration things can be presented a certain way,” Segura said.

Why did TEA lower Austin ISD’s financial rating?

Abbot’s proposed review would add another layer of scrutiny to a financial accountability system already administered by TEA. Through its annual Financial Integrity Rating System of Texas, or FIRST, the state evaluates districts on measures including administrative costs and changes in student-to-staff ratios.

Montogmery also told trustees that Austin ISD’s 2026 financial rating fell to a B after the district received consecutive “superior achievement” ratings for 21 years from the Texas Education Agency. The ratings are based on 2024-25 financial data.

The primary reason for the decline was the district’s staff-to-student ratio. The district received zero of 10 possible points on that measure.

Trustees questioned that measure, arguing the district increased staffing in response to meet requirements imposed during TEA’s recent oversight of the district’s special education services.

The state rating also looks backward: Because it relied on 2024-25 data, it doesn’t reflect the hundreds of positions Austin ISD eliminated through school consolidations and budget cuts this summer. Students, educators and community members testified for hours against some of those reductions, including cuts affecting librarians and school counselors.

“I am pretty sure our families don’t agree with TEA as far as the decline in staffing,” said Trustee Fernando de Urioste. “I don’t think they want that, but I understand that is what TEA is scoring us on for our rating. I just want to highlight that fact that we are being motivated to adjust the staffing.”

Trustee Kevin Foster offered another interpretation: a lower score on staffing could reflect the district’s decision to preserve jobs rather than cut employees at the same time enrollment declined. Foster said cutting jobs that quickly could create instability and potentially affect the district’s high bond rating, an independent measure of its ability to repay its debt.

“I look at our first rating and I don’t see ill intent but I do see a blunt instrument,” Foster said. “It is inhumane and we are already engaging in unavoidably damaging actions as we are in this moment of, at best, long-term contraction.”