Noteware: Budget disconnect: City Leaders vs. their own budget experts

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A number of smart and caring Houstonians have watched in dismay as the City of Houston’s finances have deteriorated over the past twelve years. Only recently, however, have the City’s elected leaders and a few beat reporters begun to acknowledge the City’s worsening fiscal problems – almost begrudgingly. Even today, as the City’s finances spiral out of control, there is precious little public awareness or discussion, and no current or aspiring leaders are proposing real solutions.

In apparent recognition of the City’s unsustainable fiscal trajectory, Mayor Annise Parker and City Council in 2011 created the City’s Long Range Financial Management Task Force, “to review the City’s long term financial situation” including “the City’s unfunded liabilities, pension plans, benefit management, long-term indebtedness, and all other City financial obligations,” and to “develop recommendations for a long-term plan of action.”  The Task Force included members of the Administration, City Council, the City’s three labor unions, and the business community, among others.

The Task Force’s final report, presented on February 7, 2012, included the following conclusions (in bold print):

  • Since FY 2004, the City has been operating at a deficit before taking into account non-recurring sources, transfers from other funds, and use of the General Fund reserves
  • [A]ssuming no additional external sources of funds are identified, General Fund cash balance will be exhausted in FY2014
  • The City will need to develop and implement a plan to: (i) increase revenue; (ii) reduce operating expenditures, and/or (iii) identify external sources of funding to address the budget.

The meticulous report (and its startling assessments) received scant media attention, and few leaders commented publicly.

The City’s General Fund did not run out of cash as predicted in FY2014 (last year), but only because of record property tax revenues, transfers from the “rain tax” fund and the Combined Utility System, and asset sales. The Administration has yet to present the fiscal plan envisioned by the Task Force.

Meanwhile, top city leaders continued to paint a rosy, but misleading, picture, to the public. In a 2012 appearance on the Colbert Report, Mayor Parker agreed with the host when he stated her administration had been balancing the budget, even though the City continued to run annual deficits (as the Task Force predicted). In her State of the City speech before the Greater Houston Partnership on April 3, 2014, Mayor Parker asserted, “The State of our City is strong – and our strength is increasing every day. The problems have been identified, the opportunities magnified.” In August 2014, her predecessor, Bill White, wrote optimistically, if somewhat tautologically, to the same Greater Houston Partnership that with  “the booming economy and property tax values, with good financial management the City ought to be able to continue its long term record of sound financial management….”

In contrast, the City’s Director of Finance, Kelly Dowe, presented a much grimmer assessment to the City Council’s Budget and Fiscal Affairs Committee on July 29, 2014. In that presentation, Dowe projected ongoing deficits of hundreds of millions of dollars annually; discussed specific issues including staffing levels, benefit costs, pension obligations, debt service levels, and property tax revenues and “caps”; and offered the following assessment: “There is no one solution to bridging the funding gap.  The answer will be a combination of some or all of the following approaches: Cut programs or services; cut health benefit costs; pursue non-tax revenue options; secure voter approval to lift or modify cap on property tax revenue; control rising pension costs.”

I draw the following conclusions from these various presentations: 1) budget staffers understand the City’s operations are clearly not sustainable, and are trying to motivate action and positive change; but 2) Mayor Parker appears to be so invested in the positive narrative offered to the GHP, there is little to no commitment by leadership to address the looming fiscal calamity.

A version of this article appeared in the Houston Business Journal on January 13, 2015

Jim Noteware
About Jim Noteware 18 Articles
Jim Noteware is a Houston-based real estate developer, focusing on suburban master-planned and urban infill communities. He also specializes in the turnaround of distressed properties, portfolios and organizations. He has served two big-city mayors, in Houston and Washington, D.C., working to improve the performance of large troubled public agencies.