Mayor Sylvester Turner will unveil a $6.2 billion budget proposal this week, the final spending plan of his tenure and one he predicts will have enough savings to cover his successor’s first budget gap.
The budget plan includes previously announced pay raises for all city workers, continues the mayor’s plans to address crime and illegal dumping, and adds another $11.3 million toward the city’s backlog of deferred maintenance. It also includes a stark increase in tax dollars for “Build Houston Forward,” the city’s streets and drainage program, jumping from $77 million this year to $123 million next fiscal year.
Perhaps most notably, though, it would sock away $401 million in savings, $220 million above the required reserve of 7.5 percent of the general fund’s expenditures. That, essentially, matches the latest estimate for what the city will have saved at the end of this fiscal year, and it marks the largest reserve in decades at City Hall.
“This represents the strongest fund balance in recent history for a proposed budget,” Turner wrote in his message accompanying the budget. “Additionally, the budget fully funds the Budget Stabilization Fund representing more than $20 million and does not include any deferrals, one-time land sales, or fund balance drawdown.”
Houston typically operates at a structural deficit with expenses growing faster than revenues, and it must close annual budget gaps with stop-gap measures. As in the last three years, this year’s spending plan would rely heavily on federal COVID-19 relief money to avoid that fate.
The Fiscal 2024 budget, which would take effect July 1, would use $160 million in funds from the American Rescue Plan Act. The city received more than $1 billion in aid from the federal government during the last three years, money that has helped it avoid “significant” service cuts and layoffs, Turner wrote.
The city’s financial outlook likely will be a hot topic during this year’s mayoral race. Previous forecasts have called for deficits of between $114 million and $268 million during the next mayor’s first term, as the city weans itself off federal assistance. The city has spent $344 million of the $607 million it received from the American Rescue Plan Act, as of March 31.
That would leave the city with roughly $263 million left before the adoption of this year’s budget, and about $103 million if the fiscal 2024 budget is adopted as drafted. Cities must obligate the relief money by the end of 2024 and spend it by the end of 2026.
As part of his message, Turner argued the strong fund balance would give his successor breathing room when crafting next year’s budget.
“As we look ahead, strong financial management will need to continue,” Turner wrote. “The city of Houston operates under one of the country’s most restrictive property revenue caps — in addition to complying with the State of Texas revenue cap, and the pressure of inflation. Despite those challenges, the financial health of the city is much stronger than existed on January 1, 2016. Any gap that may exist in FY2025 can be full covered by the fund balance.”
Turner was referring to Houston’s voter-approved revenue cap, which limits yearly growth in property tax receipts to a combination of population and inflation growth or 4.5 percent, whichever is lower. The city has cut its tax rate eight of the last nine years to comply with that restriction, foregoing about $1.5 billion in revenue since Fiscal Year 2015 through last year. In that time, it has saved the median homeowner roughly $946.
You can see more details and video from the press conference on Tuesday here. You know my opinion of the idiotic budget cap already, so I won’t belabor that except to say the next opportunity to have a referendum to amend or repeal it will likely be 2026. Hope the next Mayor can hold out till then. I expect we’ll hear a lot about the city’s current and future financial position as the campaign progresses. There will be budget hearings in the coming weeks, and vote on the budget by Council in June.