2026 Budget - DRAFT

Katie Adams

Hello Directors,

Please see attached the first draft proposal of expenses prepared for the 2026 budget. Staff continues to fine tune revenue projections and will plan to add to this discussion when those numbers are finalized. We anticipate posting revenue and associated Net Income projections next week.

Thank you,

Katie Adams

Director of Finance & Administration

2026-budget-expenses-draft.pdf

2MB

Katie Adams

Hello Directors,

Please see attached updated revenue projections and associated net income projections for 2026. These numbers are intended to be conservative to reflect anticipated market conditions for the upcoming year.

Thank you,

Katie Adams

Director of Finance & Administration

2026-revenue-update.pdf

72kB

Ashley Huddleston

General Position

I deeply value the work staff has put into building this budget, and I want to be clear that my comments are meant to support us in aligning resources with our mission and long-term health. Operating expenses must be aligned to revenues and realistic portfolio performance. With so much of our revenue dependent on contingent or cash flow–sensitive sources (developer fees, ground leases, partnership distributions), we cannot responsibly expand discretionary expenses.

Approving a deficit under these circumstances, especially with uncertainty around potential legal costs, would be fiscally irresponsible. We are not economists and cannot predict when the tides will shift or when building activity will begin again. That uncertainty requires us to play defense and conserve cash. While it may appear that we have strong reserves, it is far too risky to run a deficit in the current market.

Our portfolio performance is not aligned with broader market dynamics; we are falling behind rather dramatically. Every discretionary increase that expands the deficit must be thoroughly justified, tied to measurable performance, and reviewed for necessity. I cannot approve a deficit until we see tangible movement upward in revenue and portfolio performance.

If by Q2 of next year we are trending in the right direction, or if we sustain a positive trajectory over a defined number of months, then a reforecast could be considered. Until then, expenses must remain lean and tied directly to operations.

Line Item Comments

Travel & Conference Expenses – $114,089

Provide a detailed breakdown of airfare, meals, lodging, and registration assumptions.
What is the per-employee T&E allocation, and is it proportionate to organizational needs?
Given portfolio underperformance, expanded travel should be delayed unless directly tied to revenue generation.

Software & Hardware (<$5,000) – $82,354

Clarify which costs are for employee licenses. Do all staff require full access?
Vendor rates should be renegotiated to reduce expense.

Subscriptions – $12,780

Identify which subscriptions are essential versus discretionary.
Consider consolidating platforms and renegotiating contracts to reduce costs.

Contracting and Consulting – $583,000

This figure is unusually high given we have a full staff. Please justify why such a large allocation is necessary.
What deliverables are consultants providing that cannot be managed internally?

Food and Refreshments – $12,000

Please provide transparency on typical costs, such as average expense for board meeting lunches. Without detail, this line item appears inflated relative to operational necessity.

Additional Notes

The current budget assumes conditions we cannot control (market recovery, cash flow from developments, etc.). That creates risk we should not add to by increasing discretionary spending.
Until portfolio income stabilizes and fee collection improves, I cannot support growth in areas that are not mission-critical.

Katie Adams

Director Huddleston,

I appreciate your comments, and look forward to the discussion at tomorrow’s meeting. I wanted to share some responses to your line item notes – please see below.

Travel & Conference Expenses – $114,089

All per diem and lodging rates are based on 2025 GSA rates for Washington, DC.

Staff assumptions:

Transportation and Parking: $30/month for 13 staff, totaling $4.7K annually

Airfare: 2 trips/year for 13 staff, assuming $600 per round trip, totaling $15.6K annually

Meals/Per Diems: 3 trips/year, 4 days each for 13 staff, totaling $14.3K annually

Hotels & Lodging: 2 trips/year, 4 days each for 13 staff, totaling $25.3K annually

Staff costs total: ~$60K annually

Board assumptions:

Transportation and Parking: $50/month for 7 Board, totaling $4.2K annually

Airfare: 1 trip/year for 4 Board, assuming $600 per round trip, totaling $2.4K annually

Meals/Per Diems: 1 trip/year, 4 days for 4 Board, totaling $1.4K annually

Hotels & Lodging: 1 trip/year, 4 days each for 4 Board, totaling $6.8K annually

Board costs total: ~$15K annually

Conference registration fees assume attendance at 4 local conferences totaling ~$20K with an additional $6K for other conference registration costs. These costs include both staff and Board attendance.

Software & Hardware (<$5,000) – $82,354

We’ve reached out to vendors to determine estimated cost changes for the coming year where possible, and have assessed lowest cost options (annual billing, reduced functionality) throughout 2025. We always limit licenses to staff who need access, rather than providing full team access to all tools.

Major costs in this line include:

$27K for Lobby CRE, an asset and portfolio management platform

$19K for Microsoft tools, including managed backups necessary for business continuity

$12K for Board Agenda Management software, to support Strategic’s contemplated Open Data Policy and to meet new requirements in the Texas Open Meetings Act

Subscriptions – $12,780

A significant portion of this line item ($10K) has been allocated to cover access to market analytics and market comp data, identified as a board priority. We are working towards finalizing costs of these tools which may result in savings in this line.

Contracting and Consulting – $583,000

Major costs in this line include the following:

$84k in construction monitoring costs, identified as a priority by Real Estate Committee for the 2025 budget. These costs will continue into 2026, as we are working towards shifting those costs to partnerships but maintain ongoing needs and obligations to existing projects. Funds allocated here support the Board priority to improve Strategic HFC oversight of projects currently under construction.

$50K in compliance consulting costs to monitor and maintain TDHCA compliance

$85K in funds set aside to begin the organization’s strategic plan process in 2026.

Additionally, we do not yet know precisely what the requirements are going to be for the new TDHCA rules around HB21, which may require additional out of pocket third party reports and/or audits. We have also left some unallocated funds for needs that may arise as the organization continues to formalize.

Food and Refreshments – $12,000

Board lunch costs typically hover around $450, representing $5.4K of this proposed budget line. Other costs include refreshments at hosted meetings or trainings, as well as office needs such as water deliveries, coffee, and light snacks. Staff and Board recognition also fall in this line.

I would also like to remind the full Board that the revenue shown in the budget is the result of additional discounting after a projection exercise to account for what we anticipate will be similar market conditions to 2025.

I hope this information provides additional insight. I’ll plan to address any remaining questions or comments at tomorrow’s meeting.

Thank you,

Katie Adams

Director of Finance & Administration