Annual Budget Process

City staff prepares a proposed annual budget with input from all departments and the City Council. The City Manager then presents the proposed budget to the Council. The City Council reviews the budget and holds public hearings so residents can provide input. The Council must also adopt a property tax rate to help fund the budget. Because the tax rate determines how much revenue the City collects, it is considered alongside the budget and requires its own public hearing before it can be adopted.

Government Funds

The Two Primary Funds

Cities use different funds to keep track of how money is collected and spent. These are more than just separate bank accounts – funds are legally distinct from each other and must be managed according to the rules that apply to that kind of fund.  The two primary funds are the General Fund and the Water, Sewer, and Sanitation Funds.

• General Fund – This is the City’s main operating fund. When people think of city money and city services, this us usually what they think of.  Taxes, inspection fees, traffic fines and other general revenues go into this fund, and it is used to pay for core services like police, fire, emergency medical services, streets, parks, and libraries.

• Water, Sewer, and Sanitation Fund (Enterprise Fund) – These services are operated like a nonprofit utility business. Customers’ bill payments go into this fund, and those revenues are used to cover the cost of providing water, sewer, and sanitation services. The City is expected to set rates so that these services pay for themselves over time. These funds are restricted to those purposes and cannot be used to pay for unrelated services.

Hotel Occupancy Tax and Tourism Fund

Hotel Occupancy Tax, often called HOT, comes from hotel room stays. It is a special tax on overnight lodging, and it can only be used in ways that directly promote tourism and the hotel and convention industry. HOT funds must also fit into one of the allowed categories under Texas Tax Code Chapter 351, such as visitor information centers, tourism advertising, promotion of the arts, historic preservation, and certain events or facilities that bring visitors to the community.

In simple terms, HOT is the revenue source, and tourism-related activities are the expense. These funds are not general-purpose dollars. They are not used for regular city operations, general economic development, local parks and recreation, or infrastructure projects unless the expense is directly tied to promoting tourism and fits an allowed use under state law.

Airport Fund

The airport fund is used to track the revenues and expenses associated with operating the City’s airport.

Revenue generated by the airport (such as hangar leases and fuel sales) goes into this fund. Those dollars are then used to cover the costs of operating, maintaining, and improving the airport.

Like an enterprise fund, these revenues are intended to support the airport itself and are not used to pay for unrelated City services.

Outlet Mall Fund

The City of Hillsboro entered a public/private partnership in 2023 to redevelop the Hillsboro Outlet Mall. Outlet Mall Fund revenues are generated from leased commercial spaces, and the expenses include the costs of maintenance and operations of the facilities and preparations for redevelopment.

Economic Development Fund

The Economic Development Fund is supported by a dedicated local sales tax for industrial development, along with any revenue generated through economic development activities.

These funds are used to support projects that promote industrial development, job creation, and long-term economic growth in the community.

Oversight of these funds is provided by the Hillsboro Economic Development Corporation (HEDC), not City Council.

Overview of Funds

The Budget Document

The budget document includes the adopted tax rate, an overview of the City’s priorities for the year, and detailed financial information organized by fund. Within each fund, revenues (money coming in) and expenditures (money going out) are shown separately.

It is important to look at both the revenue and expense sides to fully understand how a program or activity is funded. For example, an event like Churrofest may show an expense, but it may also have offsetting revenue from sponsorships, vendor fees, or other sources. Looking at only one side may not provide a complete picture.

Budget Amendments

It is normal and expected for the City to amend the budget at least once during the fiscal year. The original budget is based on estimates, and amendments allow the City to adjust as actual conditions change.

Amendments may be driven by changes in revenue, changes in expenses, or both. For example, revenues may come in higher or lower than expected, or an unplanned expense may arise that requires reallocating funds.

Any changes to the budget must be reviewed and approved by the City Council.

Purchasing Process and Authority

Once the budget document is adopted by Council, staff has the authority to spend within those parameters. Individual purchases still get reviewed by Council for accountability purposes.

Generally, the more expensive something is, the more complicated the process is for spending those monies. While departments have the authority to spend money within their budget, city manager approval is still required for individuals expenditures over $300.