Op-Ed: Are the City of Houston’s Finances in the ‘Greece’

HOUSTON, Texas — The City of Houston appears to be following the path of the nation of Greece in terms of financial ruin. News sources daily are keeping us appraised of the continuing Greek debt crisis. Greece has a debt of 170% of their Gross National Product.

To put things in perspective, metropolitan Houston’s Gross Domestic Product is more than twice the size of the entire Greek Gross National Product. What is the City of Houston’s debt situation? Does Houston also have a critical debt issue?

Nobel laureate Professor Hayek years ago wrote a book “The Road to Serfdom.” He once told me the “problem with a democracy is voters will often elect the politician who will promise them the most.” As a nation, state, and city, we are there now!!

On June 1, the City of Houston Finance Director Keely Dowe issued to the City of Houston Budget and Fiscal Affairs Committee the FY 2016 Budget Overview and General Fund Five Year Forecast. It is a comprehensive, interesting presentation. The entire Report can be accessed at the in the first attachment at the bottom of this article.

Page 30 of that report shows the following projected budget deficits: in 2017 $126 million; 2018 $149 million; 2019 $103 million; and 2020 $107 million. This represents a serious financial issue for Houstonians.

Houstonians will elect a mayor, controller, and city council members November 3rd and the runoff will be December 12th. The financial crisis will be a key issue.

What is new on July 2 this year Moody’s rated Houston’s outlook to negative because of growing pension costs and liabilities.  Moody’s has not downgraded Houston’s Aa2 rating, but the warning is clear. Houston’s debt is unsustainable. The report can be read on the Moody’s Rating 2015 (attached below).

To understand better how Houston go in this serious financial debt situation there are several factors. First, Houston has a strong mayor form of government. The City Council, the controller, the Finance Director all can suggest policy, but the mayor has the power to implement policy. Second, the voters have made a law to have a property tax cap based on inflation and population growth. Third the State Legislature has control of some city pensions versus local control. The Legislature will meet next in Sept, 2017. Fourth, Houston has an unfunded pension liability of about $3.4 billion. Fifth, by law Houston must have a current balanced budget. So expenses can be postponed to future years to have a current balanced budget.

Mayoral candidate Bill King is fully aware of the debt issue. He has specific plans how to reduce city expenses.  He notes under the current mayor city since 2009 expenses have risen $ 1 billion and this year alone 775 new employees have been hired. He notes only 8% of burglaries are being solved. He wants to bring in effective management to the police department. King wants to address the $3.4 billion debt which the city has borrowed from pension funds. He will change new employees from Defined Benefit to Defined Contribution and work to reduce the interest from 8.5% to 3 to 4%.  Bill Frazer, candidate for City Controller notes the position has been a stepping position for higher office. He is a professional CPA. He feels the job is for a CPA, not a career politician.

Five Year Forecast

Moody's Rating 2015


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