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Houston’s budget

The Chron asks if the city of Houston’s budget is balanced, then answers that question with a “Well, maybe”.

Does the city of Houston have a balanced budget?

Like so many things in politics, it depends on whom you ask.

For wealthy businessman Bill King or City Councilwoman Pam Holm, the answer is no, since Mayor Bill White’s administration is planning to spend about $50 million more from its general fund in fiscal 2010 than it will take in from taxes and other revenue streams.

To Bob Lemer, conservative tax accountant and longtime critic of City Hall, the answer is an emphatic no. Lemer said a 2008 audit of Houston’s finances over the past five years shows the city in the red to the tune of $1.5 billion if it were to do its books like a private company.

And if you see things like the mayor, Finance Director Michelle Mitchell and most City Council members do, the answer is a strong yes in the sense that the city is not spending money it does not have.

Who is right? All of them, each in their own particular way, said City Controller Annise Parker.

“We have used borrowed money to meet some of our current obligations, which is, I think, fiscally unwise,” Parker said. “But while Mr. King and Mr. Lemer are out waving the red flag, I just have the yellow flag of caution up.”

I think a lot of the criticism in this article is more about semantics than anything else. Suppose I earn $50,000 in a year. Over the course of a year, all of the money I earn is dedicated to three things: Taxes, retirement savings, and living expenses. At the end of the year, my budget is “balanced” because every penny I took in is accounted for in one of these three ways. Now I decide I want to buy a house, so over the course of the next four years I scrimp on living expenses and put a little less into retirement savings, and create a fourth category of expenditure called Down Payment, to which I dedicate $5000 a year. Then, in year five, I go back to my previous allocations, and I plunk down the $20K I’ve got in the Down Payment fund on that house I want. I’ve now spent $70,000 in Year Five, but I still took in $50,000. Am I in a deficit situation? If so, is that a bad thing?

I give that example because of the way the “problem” is described for Houston’s budget.

In the course of his administration, White said he consistently has made sure the city built up its “fund balance” — governmentspeak for reserve or savings — to pay for large expenses and to improve the city’s bond rating. The latter is a key factor in holding down the cost of borrowing.

At the end of this fiscal year on June 30, the city’s reserves are projected at $220 million. Under White’s proposed budget, fiscal 2010 will end with $171 million in unspent funds, meaning the city will have drawn down its reserves by $49 million.

White said the city built up the balance with the expectation of spending it on certain big expenditures, such as raising the pay of firefighters. That means the budget is balanced, he said, despite the fact that expenses will outpace revenues by the $49 million.

I say the situation here is analogous to the one I sketched out. Perhaps not exactly, if the extra expenses being incurred are not one-time (it’s not clear if that’s the case), but I think the question is a fair one. If you’ve saved in previous years in anticipation of a big expense in a future year, does that mean you’re in a deficit situation when you make that expenditure, and if so is that a bad thing?

That’s the crux of Council Member Holm’s complaint, and I have a hard time seeing it as anything but a bullet point in her City Controller campaign. Lemer’s issue is with bigger than that.

For Lemer, the author of a 2004 ballot proposal to limit city spending, the $49 million question is moot. He argues that the city racked up a cumulative deficit of $1.5 billion from 2004 until 2008.

“That is absolutely frightening,” he said. According to his research, the main driver of that has been borrowing to keep up with costs for the city’s pension debt.

But White said that when the city has borrowed to pay pension expenses, it has reduced other borrowing accordingly, so its overall debt levels have remained low relative to its assets.

“The ratio of debt is down from where it was in the early ’90s, and it is very competitive with other cities,” the mayor said.

Parker said the city’s spending has exceeded revenues by $1.5 billion from 2004 to 2008 because Houston has been on a building boom since the administration of Mayor Bob Lanier, borrowing to pay for new infrastructure that helps fuel growth.

“We have invested back in the city of Houston,” she said. “Our long-term debt has gone up sharply, but our infrastructure assets have gone up in valuation as well. We’re a growing city, and we’re trying to meet the needs of that growth.”

Well, I’d think that infrastructure investment would be a good thing to do, especially these days, but I’m not a longtime critic of City Hall, so what do I know? I suppose too much at once is bad, but that isn’t the argument Lemer is making, and as I can’t say I consider him to be a reliable source, we’ll just have to agree to disagree here. As for Bill King, I’m not exactly sure why his name is in this story, since there’s no quote from him that I can see. Maybe he’s required to be mentioned in stories about Houston’s governance, the way John Sharp was required to be mentioned in any story about potential statewide Democratic candidates. I can’t say I’d be surprised by that.

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One Comment

  1. The Chron is beginning to cover not just the budget but … the City finances … a bigger and vastly more complex story. King raised the question of balance and it came up again in Council action. But, that is the least of it.

    I think it is fair to say that White/Parker are leaving the city finances in better shape that they found them. But, a great deal of their success in managing the finances has been secrecy. That, and the actual marketability/price of City obligations, not the silly “credit rating” should, I believe, encourage a complete and public examination.

    I submit that the era of cheap land, cheap oil, and cheap credit are over. I think the City needs to get out of the financial paradigm it has had since the end of WWII, and find a new one better in keeping with genuine economic development rather than forced-draft “growth”.

    That really cannot be done with politicians exchanging charges over marginalia and pretending to manage that which is largely hidden from view and by no means under their control.

    We need simpler, clearer books. But, that will not sustain the politics of exaggerated claims based on tenous controls.