City budget outlook

Last year was a lousy budget year for the city of Houston. This year will be better, if only because it really can’t be much worse, but that doesn’t mean it’s going to be good.

Kelly Dowe, the mayor’s finance director, has not yet estimated how big the problem is, but outside a City Council committee meeting this week he listed $47 million in increased expenses or decreased revenue that the city may have to make up for in the budget for the year that begins July 1.

Because sales tax revenue has been increasing in recent months and property tax revenue could be higher in the coming year, it is far from clear how big a budget hole might exist. It also is unclear whether increased employee health care costs and other expenses will add to the challenges. The squeeze, however, could divert money and attention away from some of the priorities Parker outlined in her inaugural address last week, such as assistance to small businesses, incentives to city departments to spend locally, and alleviating homelessness.

Most of the money Dowe identified is in increased pension costs. In fiscal year 2013 the city will owe its municipal employees’ pension fund $10 million more than it does this year. Its annual police pension bill will increase by $27 million. And it patched last year’s budget with a one-time windfall of $10 million by spinning off its convention department.

There’s only so much the city can do about those expenses right now, and most of those things involve can-kicking. There are some long term things that can be done, but I wouldn’t hold my breath for anything that requires legislative approval. On the revenue side, there are some long-term things we can do, though I don’t see much evidence we’re thinking that much about them. Let me take this opportunity again to exhort the Financial Management Task Force to think about growth strategies. However outlandish and unlikely they may be, they’re no more so than some of the austerity ideas being tossed around.

I suspect there are a couple of other one-time revenue items that can be deployed this year as well. Surely we didn’t sell off all the property we talked about selling last year, did we? And while it’s not much of a plan, there’s always hope, and by “hope” I mean increased sales tax revenues, which have been steadily improving at the state level. How does this translate to Houston? I sent the question to CM Stephen Costello’s office, as he is the Budget and Fiscal Affairs Chair, and got this response:

In FY2012 adopted budget, 29% of the city’s revenues are derived from sales tax ($518,912,000 in sales tax $1,762,966,000 in total revenue). In the November 2011 MFOR (the most recent financial report we have), the Controller projects sales tax revenue for FY2012 to be $519,794,000 and the Finance Department projects it to be $521,912,000. You are right, sales tax is trending upwards (positive growth over past four months) and we can only hope numbers will continue to improve, but I have no independent knowledge of specific or definite increases.

The Controller’s office uses Barton Smith’s latest growth estimate, discounted by his stated margin of error. I believe the Finance Department also incorporates Barton Smith’s estimate, but Finance Department projections are always higher.

The sunny view of this is that there’s a fair amount of room to be pleasantly surprised in the next few months and beyond. An increase of $10 million over what is now projected is less than 0.2% more, so it’s not a particularly wide margin. Obviously, this can work both ways, but at least the arrow is pointing in the right direction. Like I said, a little hope that things won’t be as bad, and may even be better, than we currently think.

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