Houston Finances From Bad To Worse

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In typical fashion, former Houston Controller Ron Green quietly released the city’s 2015 Comprehensive Annual Financial Report (CAFR) late New Year’s Eve, hoping to draw as little attention as possible.

Green’s own statements suggest he hoped to bury the report. He told the city council in November that the CAFR would be publicly available shortly thereafter. The now published report is even dated December 2nd, but Green delayed its release until well after Houston’s municipal runoff election, preventing Houstonians from casting their votes with an accurate portrait of the city’s finances.

The Government Accounting Standards Board (GASB) mandated this year that cities more accurately report their net pension liability, or the difference between their future liability and the funds the city has set aside to pay those benefits. As we recognized months ago, Green used accounting tricks to downplay the scary fiscal mess he, former Mayor Annise Parker, and the current city council left in their wake.

The GASB’s newly implemented accounting method shows Houston’s pension liability grew from $1.2 billion in FY14 to $5.6 billion in FY15.

Pension Change 1.1

James Quintero, Director of the Center for Local Governance at the Texas Public Policy Foundation, said of the new report, “The latest financial reports suggest that Houston’s pension problems are much bigger than previously acknowledged, and getting a handle on that could mean higher taxes, benefit reductions, or some combination of both.”

 The only way to increase property taxes in Houston is to modify the voter-imposed revenue cap. Mayor Turner has already signaled his intention is to carry forward Parker’s legacy of attacking the tax cap. For Houstonians, this signals the predictable big-government response to the all-too common problem of fiscal mismanagement by elected officials—unjustly shift the responsibility of government incompetence onto the backs of the taxpayers.

The FY15 CAFR shows roughly $160 million in total revenue increase over the last fiscal year with $100 million of that coming solely from property taxes. The problem is that while the city’s revenue increased by about 3%, its expenses increased by roughly 10%. The new administration needs to look in the mirror for a solution to its spending spree, instead of reaching into taxpayers’ wallets.

Simply put, even with the revenue cap, the city brings in more property tax revenue year after year because the cap allows for a population and inflation adjustment. Limiting tax growth requires that politicians and bureaucrats prioritize spending, something Parker’s administration proved unwilling to do.

Perhaps most shocking is the unprecedented evaporation of Houston’s assets. In one year’s time, the city’s total net position decreased from roughly $3.2 billion to $146 million.

Net Position 1.2

 

 

 

 

 

 

 

 

 

 

 

 

 

Although some council members gave undue credit to Parker on her way out by calling her “extremely fiscally conservative with the city’s dollars,” the city’s financials prove otherwise.

In his first few days in office as mayor, Turner has repeatedly mentioned the need for “shared sacrifice” to get out of this situation, but that sacrifice needs to start within Houston’s government. Turner may have his own mayoral agenda, but the city’s finances need to take precedence.

There will come a time when the city will no longer have assets to sell. If Houston’s most recent CAFR doesn’t serve as a sobering alarm for the need to cut the empty rhetoric and government waste, then nothing will. Houston provides yet another example that government will only be reformed by the continued engagement of its citizens.