A preview of today’s budget debate from the Houston Landing.
Four city council members are proposing a 5 percent increase in Houston’s property tax rate they say would enable the city to avoid $86 million in spending cuts and bring in enough revenue to cover $40 million in cleanup costs left by the May derecho and Hurricane Beryl.
The increase, pitched by At-Large Councilmembers Sally Alcorn and Leticia Plummer, District H Councilmember Mario Castillo and District I Councilmember Joaquin Martinez, is one of two proposed rates on next week’s council agenda.
Mayor John Whitmire is proposing to keep the tax rate at its current level of 51.9 cents per $100 of assessed value.
The rate being pushed by the four council members is 55.2 cents per $100 of assessed value.
The difference between the two proposals for the owner of a home valued at $300,000 with a standard 20 percent homestead exemption is about $78.
The proposals come less than a week after City Controller Chris Hollins warned officials to develop a plan to raise revenue or risk a downgrade in the city’s overall credit rating.
Hollins said Friday he recommended the city publicize a plan to create a structurally balanced budget.
“This means cutting costs, bringing in more revenue, or some combination of both,” Hollins said in a statement. “We also need to ensure that we are maintaining our reserves at levels comparable to those of other major cities. These reserves are critical when unexpected emergencies like Hurricane Beryl or the derecho storm impact Houston and the City has to quickly respond.”
See here for more on what Controller Hollins had to say. Before we go on, a brief reminder about the state of our city property taxes.
As a result of the city cap, Houston has had to cut its tax rate in nine of the last 10 years, from 63.88 cents per $100 of property value in 2014 to 51.92 cents in 2024. Altogether, the restriction has led to $2.2 billion in lost revenue over the past decade, and Houston’s current tax rate is lower than that of all major Texas cities except Austin, according to [city Finance Director Melissa] Dubowski.
So thanks to the stupid revenue cap, every year except one for the last decade we have cut the property tax rate, whether that made fiscal sense and we could afford to do so or not. As has been documented many times including very recently, all of this promiscuous tax cutting has cost the city over $2 billion in revenue. Call me crazy, but we would be in a much stronger financial position right now if the city had taken in that revenue instead. And even with all that, this modest increase would still leave the tax rate substantially lower than it was in 2014 when the cut-a-palooza began. Truly, I have no idea why this is so controversial.
But never mind, Ernst and Young will save us.
The council members’ proposal comes as city leaders fast approach an Oct. 28 deadline to raise the taxes. Proponents of an increase have cautioned potential impacts to city services, but critics say the city could stand to make more cuts before hiking taxes.
Alcorn said the issue at hand wasn’t a matter of either rooting out waste or raising the taxes.
“It’s not a matter of this or that,” Alcorn said. “It’s this and that.”
Alcorn said she understands and respects where the mayor’s coming from with cutting waste, but she also believes something needs to be done to bring in more revenue to the city.
“When you’re in the hole, you’ve got to stop digging,” Alcorn said Monday evening.
Financially, Houston is up against a $230 million deficit, Alcorn said. Expenses still left to pay include a $1.5 billion settlement Whitmire secured for Houston’s firefighters union after an eight-year contract stalemate. The city may also need to add $100 million a year to street and drainage projects should an appellate court reject the city’s appeal in a longstanding lawsuit.
Houston has historically been unable to raise its tax rate because of state and local revenue caps. But the disaster declarations for the May derecho and Hurricane Beryl unlocked a gap in those laws that allow the city to raise its taxes for disaster recovery purposes.
Finance director Melissa Dubowski told council members during a September Budget and Fiscal Affairs Committee meeting the city had incurred $211 million in damage from Beryl and the derecho. While the federal government is supposed to foot a majority of that bill, the city will be on the hook for around $53 million – $40 million of which will come from the city’s general fund.
The disasters and issues surrounding staffing shortages at the Houston Police Department signaled to Alcorn the tax hike needed to come forward.
A tax hike after extreme weather isn’t unprecedented.
City leaders have voted to raise its tax rate three times in the last decade after disasters – once following the Memorial Day flood in 2015, again after the Tax Day flood in 2016 and again after Tropical Storm Imelda in 2019, Alcorn said.
As Whitmire hammers on going after government waste, two studies are currently in the works to help weed it out – one audit by Houston-based consulting company Ernst & Young and another approved this past May that looks into Solid Waste’s operations.
The Ernst & Young study is supposed to be completed in the next week, Whitmire’s spokesperson Mary Benton said. She did not provide a timeline for the results of the Solid Waste study. The council on Wednesday will also vote to expand the Ernst study to look into the city’s Tax Increment Reinvestment Zones, or TIRZs.
Plummer worries about potential cuts in the Solid Waste, Parks and Recreation and Library departments, which are are all already struggling. Parks and Recreation’s budget alone for the year is more than $89 million, while the libraries’ budget hovers at more than $51 million.
But the reality of how any potential cuts to government services would play out is unclear, Alcorn said. Should the city keep its tax rate the same, $86 million in cuts would need to be made to the city’s budget. Where those cuts would happen haven’t been decided.
“I just don’t know how the City of Houston is going to be able to survive if we do not (raise taxes),” Plummer said Monday.
I’ll go on record now and say that we will get nowhere near the amount of cuts we would need to make the budget work from these audits. I’d be shocked if we got enough to just cover the cost of the derecho and Beryl. I’m sure there are some savings to be had, but once you take out HPD and HFD, which are not being audited and which couldn’t be cut even if we wanted to (and quite clearly we do not) and debt service, there’s just not that much left unless you want to start eliminating entire departments. And while it probably makes sense to combine things like parks and libraries with Harris County, there needs to be a proposal on the table to do that and it needs to make sense from the county’s perspective as well. If anything like that is in the works, I’m not aware of it.
I’m old enough to remember when “cutting waste, fraud, and abuse” was going to be Ronald Reagan’s golden ticket to balancing the federal budget. We know how that turned out. We’re way past the point of needing to recognize that the city has a revenue problem. This year gives us a unique opportunity to address it, at least for the short term. We’ve done this in the past. To not do it now is just irresponsible. There’s no other way to describe it.
UPDATE: A different path emerges.
The city of Houston likely will keep its existing property tax rate after receiving notice Wednesday that the state will deliver $50 million in disaster relief funds to southeast Texas communities affected by the May derecho and Hurricane Beryl.
The announcement by the governor’s office prompted a quartet of City Council members to withdraw their proposal to raise the city’s property tax rate 5 percent to avoid a pending deficit that is expected to be worsened by storm cleanup costs.
Mayor John Whitmire said he spoke with Texas Gov. Greg Abbott last week in Austin, resulting in a state contribution of $50 million for debris removal.
The governor’s announcement states the $50 million will be spread among several southeast Texas communities. Houston’s share was unknown Wednesday, a mayoral spokesperson said.
Assuming this is a fair distribution and not an HGAC-like screw job, this should be sufficient to at least cover the storm damages. Not sure why it took so long for this to happen, but better late than never.
I agree on the savings; most waste is in the police and fire departments. The only other department would be public works, which is how they reward all those who give money to campaigns. Millions of dollars of studies and engineering reports are sitting on shelves that were paid for and never utilized.
The money will come from a hefty trash fee, and Whitmire is considering taking back much of the Metro money. I’m not sure how we would do that, but he could do it as Bob Lanier did, forcing Metro to do all the work on the roads where Metro buses run. That frees up that money for other things.
Expect the cost of water to keep going up and up, much higher than it is worth. According to the city, the average water bill of 3000 gallons will go up 80% from 2024 to 2026.