Why isn’t the City of Houston balancing its budget?

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We all “know” that the City of Houston must balance its budget every year under state law.  Correct?

Technically, that’s true, and under the cash method of accounting, the City of Houston has been fulfilling its obligations.

A closer look at the state of City of Houston finances by local businessman Jim Noteware, however, reveals that spending has been outstripping revenue collection for well over a decade:

Let’s put the city’s financial behavior in context. In my last column, I wrote that the city had not balanced its budget (under the accrual basis of accounting) since 2002. In other words, expenditures have exceeded revenues in the city each year since 2002, with the cumulative shortfall now exceeding $2.6 billion. This means that every year, the city covered the shortfall (by borrowing, drawing down reserves, and/or selling assets). Of course, once assets are sold or reserves are drawn, they cannot be used again. If the shortfall is covered through borrowing, the amount owed rises. After a decade or so, it’s not hard to reach nearly $3 billion – with far fewer assets to liquidate and far less capacity to continue borrowing.

The city has funded these deficits mostly by borrowing (along with some accounting sleight-of-hand, not to mention the sale of city properties and assets at distressed prices.) By the end of fiscal year 2013, the city had borrowed some $2.9 billion (mostly from the employees’ pension funds), including issuing $600 million in pension bonds to cover the cumulative shortfall.

Read the entire article here: Houston is broke and has been for a very long time – Jim Noteware, Houston Business Journal.

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Kevin Whited is co-founder and publisher of blogHOUSTON. Follow him on twitter: @PubliusTX