City finance leaders across the country are starting to look ahead to 2026 with careful eyes and measured steps. According to a recent article from Governing, many city financial officers are feeling less sure about what the next budget year will bring. The mood has shifted from steady confidence to quiet concern.

For several years, cities had a cushion. Federal relief funds helped cover gaps, keep services running, and soften financial shocks. That cushion is slowly being pulled away. As it fades, cities are left standing on their own again, facing rising costs and tighter revenue.

Costs Are Climbing

Picture a city budget as a balancing scale. On one side sit expenses. That side is getting heavier.

Finance officers expect higher prices for everyday needs, from supplies to large infrastructure projects. Tariffs are expected to add pressure, making materials and equipment more expensive. Labor costs also continue to rise as cities compete to keep skilled employees.

These changes add weight to budgets that already feel stretched.

Revenue Is Tightening

On the other side of the scale sits revenue, and that side is not keeping up.

Income tax revenue is expected to slow or decline in many places. Sales tax growth is uneven. The American Rescue Plan Act funds that helped many cities stay afloat are scheduled to end late next year. Once those funds are gone, cities must rely more heavily on their core revenue streams.

This leaves finance teams with fewer options and little room for error.

A Few Steady Lights Ahead

While the outlook carries caution, it is not all dark clouds.

Property tax revenue continues to show some steady movement in many communities. This offers a reliable base, even if it does not solve every challenge. Another concern that worried many city leaders did not come true. The tax exempt status of municipal bonds remains intact, preserving an important tool for long term financing.

These points give cities something solid to stand on while they plan ahead.

A Practical View from the Field

Yolanda Watkins Bailey, a SmartFusion sales representative, summed up the situation clearly. She noted that a summer 2025 survey showed many finance officers expect tariffs to push costs higher. Confidence about meeting next year’s financial needs has dropped. Revenue sources are tightening as relief funds near their end, while income tax revenue weakens. Still, property taxes show some steady movement, and cities avoided major bond tax changes that once caused concern.

Her view reflects what many local leaders are seeing on the ground. Pressure is building, yet careful planning still offers a path forward.

Planning with Care

As cities approach 2026, financial officers are choosing caution over risk. Spending decisions are being reviewed line by line. Long range planning matters more than ever. Clear data, steady systems, and disciplined financial practices help leaders see the full picture before making hard choices.

The road ahead calls for patience, clarity, and responsibility. Cities that prepare early and keep a close watch on their finances will be better positioned to serve their communities through the next budget cycle.