Noteware: Houston is #1 – Or Is It?

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Houston is a wonderful place to live and work. Some of us were born here; many of us moved here, attracted by opportunity and the welcoming culture. We chose to stay because of our success – individual success and collective success. That success has begun to win long-deserved national and international recognition. The economic and demographic growth and vitality of our region have become the envy of the country, as reflected by praise from numerous national pundits and publications.

Unfortunately, for those of us who live and work in the CITY of Houston, there is a growing awareness that everything is not quite right. Indeed, a careful examination of City of Houston finances reveals, astonishingly, that the City is broke. Not going broke – already broke. Even worse, few citizens comprehend the reality of the City’s fiscal condition or the magnitude of the problem. As a result of insufficient information from municipal leaders, most Houstonians confuse the prosperity of the region with the fiscal condition of the City, even though the difference is stark.

The underlying problem is simple: the City has lived beyond its means for over a decade. The City last truly balanced its budget in 2002. Since then, the City has run operating losses (under the accrual method of accounting, the excess of expenditures over revenues) every single year. The cumulative operating losses – new debt not approved by voters — now exceed $2.6 billion! Nearly every measure of the City’s fiscal health has declined significantly over this period, and the City is no longer paying all of its bills.

The City has a second problem that is almost as surprising as the first. Despite the prosperity of the region – or the Houston Metropolitan Statistical Area (MSA) – the city proper has not recovered from the recession. The city’s population growth since 2009 has lagged the region’s. Despite all the recent media accolades and celebrations of Houston as “Opportunity City,” and even the numerous construction cranes around the Galleria, downtown, and the Energy Corridor, many more people and jobs are accumulating outside the city’s limits than within.

The “market” is speaking, and people are voting with their feet, concluding that they can enjoy a better life for a lower cost outside the city limits. They are not behaving unreasonably, given that the quality of the city’s infrastructure (services such as education, public safety, and permit processing, as well as physical infrastructure such as roads, water systems, etc.) is declining, while the costs of providing city services (and the tax payments required to support them) are increasing. Many communities outside the City of Houston are simply offering a better deal!

In short, the City’s fiscal situation is not sustainable. The City has spent and borrowed itself into a hole over the last decade. While the area is booming, the City is not “growing” itself out of the hole—to the contrary! Liabilities (like the municipal pensions) continue to accrue. And the City’s credit card is reaching its limit.

Few citizens understand these realities, because the City’s leaders – happy to take credit for the area’s boom – have simply not been telling the truth about the condition of the city. In a series of articles over the coming weeks, I pledge to inform the public of the financial and economic realities our city is facing, with the goal of engaging citizens and the business community alike in crafting effective, businesslike solutions to the challenges and to restore the City of Houston to fiscal health and its rightful, long-term leadership position for the region.

A version of this article appeared in the Houston Business Journal on December 26, 2014

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.