Houston dodged a blow to its fiscal 2025 budget when Texas officials Wednesday freed up state funds to assist pay town’s share of costs to remove debris created by two fierce storms this 12 months.
The situation underscored fiscal problems the nation’s fourth-largest city faces from natural disasters that would compound its growing structural budget gap, which has led to depleted reserves and negative rating outlooks.
Mayor John Whitmire, whose administration is working on a budget fix, said he informed Gov. Greg Abbott of town’s must give you its share of clean-up costs from May’s derecho windstorm, which was followed by Hurricane Beryl in July.
A snapped utility pole in the course of a Houston street after July’s Hurricane Beryl. The discharge of state funds to assist clean up debris helps town with its budget quandaries.
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“The model that I took to Austin (was) that we needed to collaborate, that we were broke and we owed (the Federal Emergency Management Agency) money,” Whitmire told town council at its Wednesday meeting, adding the results of his effort marks “only the start of the (city’s) collaboration with the state, the county, and other jurisdictions.”
While state officials said the $50 million will flow to southeast Texas communities, Houston is working with the Texas Division of Emergency Management and expects most if not all of its costs for debris removal to be covered, in keeping with Whitmire’s spokeswoman.
FEMA is anticipated to reimburse 75% of the estimated $210.6 million in storm-related costs, leaving Houston to give you an estimated nearly $40 million from its general fund, in keeping with a September disaster overview from town’s finance department.
The state’s announcement stopped an attempt by some Houston City Council members to push for a better maintenance and operations property tax rate to avoid cuts to the fiscal 2025 general fund budget. As an alternative, the council will vote on keeping the present $0.55160 rate on each $100 of taxable value when it meets Wednesday.
Council Member Sallie Alcorn, who chairs the budget and financial affairs committee and who signed on to the proposal for a better tax rate, said while town explores shared services, cost cuts, and other measures to take care of a $230 million deficit next fiscal 12 months, it must also have a look at the revenue side of the equation with a purpose to be fiscally responsible.
“We are going to need assistance from the taxpayers in some unspecified time in the future when the timing is true,” she said.
Along with future weather-related disasters, Houston, which is subject to state-wide and native caps on its annual property tax revenue, must take care of other spending pressures.
In July, it sold $612 million of general obligation judgment bonds to fund a lump sum payment for current and retired firefighters to cover additional time pay from fiscal 2018 through 2024, under a court-approved settlement. That deal also included a five-year collective bargaining agreement that reinforces firefighter pay. Contract negotiations with the police union are expected next 12 months.
Houston Controller Chris Hollins has warned the budget could face a success between $110 million and $120 million should town lose its latest appeal in a lawsuit brought by taxpayers over how much property tax revenue is allocated to the drainage fund.
The municipal market buy side will get to listen to from city and other officials when Hollins hosts town’s ninth annual investor conference on Oct. 22.
Federal American Rescue Plan Act money has helped Houston boost its general fund balance, which was estimated at $467.6 million at the top of fiscal 2024 and was projected to fall to about $280 million in fiscal 2025. The town council in June approved a $7.3 billion all-funds fiscal 2025 budget, which incorporates about $3 billion of general fund spending.
Shrinking reserves were a significant component cited by Fitch Rankings and S&P Global Rankings after they revised their outlooks on Houston’s AA rankings to negative from stable earlier this 12 months. The town has a stable outlook on its Aa3 rating from Moody’s Rankings.
S&P’s mid-year outlook report for local governments nationally warned of the potential emergence of budget gaps because the last of federal stimulus money is spent.
“At this point, even when there may be some vulnerability for some places with having a (fiscal) cliff after that federal money runs out, we do not see it in most places as having a credit impact on the type of general credit quality,” Jane Ridley, S&P’s local government sector leader, said at a Volcker Alliance special briefing in September.
The rating agency’s report also said that without additional authorization, FEMA funding could fall short, “a notable concern given a summer storm season that is anticipated to be heavier than normal.”
Other Texas cities are also facing financial pressures.
The Dallas City Council approved a $1.9 billion fiscal 2025 general fund budget last month that features an initial contribution increase to its Police and Fire Pension System under a plan to ramp up funding to actuarially determined levels over five years to comply with a state law aimed toward keeping the retirement system solvent.
Houston Mayor John Whitmire said his appeal to Texas Gov. Greg Abbott to assist town pay for its share of costs from storms led to the state freeing up money for debris removal.
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The town has submitted the plan to the Texas Pension Review Board while litigation filed by the pension system stays energetic, in keeping with a Dallas spokesperson. The system, which adopted its own plan that ramps up contributions over three years, is searching for clarity from the court on which entity is permitted to submit a plan.
Dallas, which is rated AA-minus by S&P and AA by Fitch Rankings, could face downgrades if its current pension funding troubles will not be addressed, analysts on the two agencies warned ahead of an April city bond sale.
The most recent five-year financial forecast for Austin, which in August adopted a $1.4 billion general fund budget, projects a deficit that grows from $13.2 million in fiscal 2025 to just about $60 million in fiscal 2029 under the present maximum property tax rate town council could approve within the absence of a better rate passed by voters.
In September, Moody’s Rankings cut its Aa2 rating on about $727 million of Pflugerville’s outstanding GO debt to Aa3 and revised the outlook to stable from negative, citing “town’s exceptionally high leverage, coupled with declining reserves.”
Available fund balance as a percentage of revenue decreased to 18.5% of revenue in fiscal 2023 resulting from cash-funded capital outlay, Moody’s said. “The town’s leverage is exceptionally high and growing, with a long-term liabilities ratio of greater than 750% of fiscal 2023 revenue.”
There was no immediate comment from town of about 64,500 northeast of Austin.