Proposed Houston budget puts off recurring fiscal fix

BY SourceMedia | MUNICIPAL | 05/15/24 10:02 AM EDT By Karen Pierog

Houston Mayor John Whitmire proposed a fiscal 2025 budget Tuesday that would draw down the city's general fund balance to fill a gap that has grown to $187 million, while he puts "everything on the table" to come up with a recurring solution heading into fiscal 2026.

Whitmire, who took office in January, said the $6.7 billion all-funds budget, which includes $3 billion in general fund spending and marks a $442 million increase over fiscal 2024, prioritizes public safety, including covering a proposed settlement with firefighters, and does not raise taxes or reduce services.

"We have a lot to do," he told reporters, noting his administration was still getting a handle on the city's financial situation. He said he would ask his colleagues to help use fiscal 2025 as a pathway to fiscal 2026.

Houston Finance Director Melissa Dubowski said 68% of the general fund budget for the fiscal year that begins July 1 is allocated to public safety, including a 3.5% pay hike for police and funding related to a proposed collective bargaining agreement with the firefighters union that has yet to be approved by a judge and the city council.

That deal calls for lump sum payments, raised through the issuance of $650 million of judgment bonds, for current and retired firefighters to cover overtime pay owed while they worked without a contract since the last one expired in 2016. It includes wage hikes through 2029, with total firefighter pay increasing by up to 34% over the life of the contract.

While the city was projecting a $160 million fiscal 2025 structural budget gap, funding for higher firefighter pay and debt service on the judgment bonds was the main driver that increased the shortfall to $187 million, according to a finance department budget overview.

Fitch Ratings has said the trajectory of Houston's AA general obligation rating could depend on retroactive contracts with firefighters. The nation's fourth largest city also has GO ratings of AA from S&P Global Ratings and Aa3 from Moody's Ratings.

Houston is currently engaged in contract negotiations with municipal workers, followed by police next year.

Federal American Rescue Plan Act money has helped the city boost its budget balance, which is estimated at $467.6 million at the end of fiscal 2024. Dubowski said tapping the balance to address the budget gap would reduce it to $280 million or 11.1% of expenditures.

She added a search for efficiencies and cost savings produced an initial $11.5 million spending reduction for the upcoming budget, adding that represented just the beginning.

Whitmire, a former Democratic state lawmaker, said along with efficiencies and collaboration with Harris County and other parties, "all options will be on the table" for fiscal 2026, including seeking additional resources from the state of Texas.

Houston Controller Chris Hollins said with city expenses rising and revenue decreasing, the situation is becoming critical.

"The city's historic fund balance gives us a brief window to right our financial ship, but time is running out," he said in a statement. "Like budgets before it, the proposed FY 2025 budget is balanced mainly through one-time funding. Correcting this structural imbalance is essential for ensuring Houston's long-term fiscal health and sustainability."

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