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Thinking long term about the city’s finances

If you didn’t have to worry about practicality or implementation issues, what ideas would you have about improving the city’s long term financial health? That in a nutshell is the mission of the Long-Range Financial Management Task Force that was created last year when the budget was adopted, and they’re starting to generate those ideas. I fear they may be missing something, however.

Unconstrained by the political reality that makes some of the more audacious suggestions highly unlikely, a 16-member task force has brainstormed 229 ways to save or raise hundreds of millions of dollars for Houston city government.

The city does not even have the power to implement many of the ideas on its own. The draft list, however, may foretell debates to come if the mayor and City Council seek to act on its more politically sensitive ideas.

For example, dozens of items offer ways to reduce future pension benefits, including ending pensions altogether and borrowing money to cover the current $5 billion in future pension bills for which the city has not set aside money. The list also includes changing from traditional guaranteed pensions to 401(k)-type savings plans, reducing survivor benefits, requiring employees to contribute more and raising the retirement age.

[…]

Raising taxes likely also would meet stiff resistance. The mayor and council closed a $100 million budget gap in June without even discussing a tax increase. But two members of the task force put a property tax increase of 1 cent per $100 of assessed value on the list, which would raise an additional $13 million a year for the city. To implement a suggestion of a one-cent sales tax increase, which would raise more than $500 million a year, the city would need state authorization. To avoid political infighting on the task force, members could submit ideas anonymously with a slip of paper in a cardboard suggestion box at all meetings.

There’s a bunch of presentations on the Financial Management Task Force webpage, if you’re into that sort of thing. I will defer for now on discussing the merits or demerits of any particular idea. I will just note that the ideas all seem to fall into one of three broad categories: Sticking it to city employees, privatizing various functions (where the definition of “privatizing” also includes “handing stuff off to Harris County”), and raising taxes or fees. What’s oddly missing from this is any discussion of policies that would encourage growth within the city. I say this is odd because nearly every candidate I’ve ever interviewed for city office has touted the idea of promoting growth in Houston as something he or she wants to do, though they generally don’t have much in the way of specifics. Seems to me this task force is the perfect opportunity to blue-sky a bunch of schemes for growing the city and its tax base. I don’t know if the lack of such ideas (which admittedly may just not have been mentioned by the story) are because there aren’t enough politicians on the task force or if the recent relentless national focus on debt and deficit has stunted everyone’s imagination on this subject. I think it’s critical that we pay more attention to this, because as Peter Brown points out in a letter to the editor, while the greater Houston area had dramatic growth over the past decade, the city itself has not. This has a number of consequences, including some you might not think about, and it really deserves more attention. There’s still a lot of underutilized space in the city. I urge the Task Force to spend some time thinking about how we can change that for the better.

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12 Comments

  1. Fernando says:

    Unincorporated Harris County is growing 6 times faster than inside the city limits of Houston for a reason. I believe it’s because there’s no impermeable surface (rain) tax, a less complicated permit process, less crime, better schools, and less taxation in general.

    I now place a lot more emphasis on the importance of a school district than I used to. I recently had a daughter in HISD but she, nor I could stand it–and she was attending an advance school! We just took her out.

    HISD needs a LOT of help. Think about it, when was the last time you heard of a middle or upper middle (MUM) class family move into Houston and make an informed decision to place their child into HISD? Oh the statistics and titles sound good (recognized, accredited, advance placement, etc.), but in reality HISD needs a LOT of help.

    MUM income families are better off living outside of the Houston city limits and sending their child to a better school district; otherwise, they move into Houston and spend on a private school.

    My prediction is that MUMs with school age children will continue to avoid living inside Beltway 8; thus, affecting the future growth of Houston.

  2. MB says:

    “…there aren’t enough politicians on the task force…”

    I’d suggest there are too many politicians involved and not enough actual experts in the areas of urban planning that are able to strategize growth initiatives in an effective and forward-thinking manner.

    The current slate of CMs (minus a few notables), the Mayor, Andy Icken and crew give tax incentives (thereby waiving future revenues) to multi-billion dollar corporations (Walmart/Kroger) to build in highly lucrative areas of the city (the Heights). That projected loss of revenue impacts area residents by shifting deficits to our pockets.

    PW&E (Marlene Gafrick) fiddles with parking ordinances that essentially serve to undermine small businesses by requiring them to acquire more land to create parking lots – this is bad for small, local business growth (ironically, it doesn’t hurt national chains that are flush with cash). The new, on the table policy puts money in the pocket of developers who own parcels of land by allowing them to do the minimum: raze it, put a parking lot on it, lease it and generate revenue (while suburbanizing the neighborhoods and decreasing transit usage).

    There is NO ONE at the City that has the credentials (other than perhaps the vastly underutilized Laura Spanjian) to actually plan for Houston’s sustainable growth.

  3. Houstonian says:

    I agree with some of the statements from all of you, but let’s not forget that unincorporated areas have MUDs. Nobody I’m aware of things that’s a bargain. HISD likely has a larger % of students from families less focused on education. That’s going to produce challenges, although I’ve heard complaints for decades that HISD is top heavy with administrators.

  4. Jules says:

    Why is there a deficit? Where is all the money going? The City is taking in all that drainage fee money and using it to pay down current debt. Why hasn’t this freed up other money?

    Why is the City using tax dollars to finance infrastructure for Walmart and Kroger at extremely high interest rates (Kroger 5.17% and Walmart know one really knows but one option has the City paying 10% interest)? Where is the logic in that?

    From this article, discussing last year’s budget: http://www.chron.com/news/houston-texas/article/City-budget-woes-not-over-yet-2459603.php

    “They reduced spending by $100 million with no tax increase and without laying off any police or firefighters. However, they also relied on accounting maneuvers and collecting several years’ rent on convention facilities.”

    What kind of “accounting maneuvers” will they attempt this budget cycle? What’s going to happen when revenues go down when they start paying off these ill-conceived 380’s? Remember, HEB got one for doing absolutely nothing.

    I bet that gap is going to be a lot more that $47M before it’s all over.

  5. Joseph Houston says:

    I don’t see the county taking over basic city functions without being paid. Given the political squabbles based on party (the county is largely GOP, the city Democrat) alone, I expect any proposals made by the city to pass only if the county makes a “profit” on that service.

    In terms of employee benefits, I see a continuation of the race to the bottom by city officials, recent city contracts lowering how many days off future employees get (even the police), reduced pensions (the biggest cuts were to police and those not employed by the fire department) including forcing people to stay until 62 for a truncated benefit but employees paying more, and such.

    That the city continues to buy $2.5 million bike trails, more for failed golf courses, shell out millions in corporate welfare to retailers, and expand council to the tune of several million dollars (contrary to the US Census numbers by the way), is just the kind of thing that should frighten away potential employees and those looking to move into the city limits alike. I agree with Kuff that looking for ways to improve city finances should definitely include bringing in new business but not the shuffling around of existing companies taking advantage of tax breaks rather than truly expanding sales.

  6. Jules says:

    All good comments.

    My suggestion is: audit, audit, audit and zero-based budgeting.

    And the parking thing is idiotic – there should be a MAXIMUM amount of parking per square footage at bars, not a MINIMUM. People should use public transportation to go to and from bars.

  7. robert kane says:

    When I showed the city’s financials to people that know about that kind of stuff (I’m no expert), they laughed and referred to it as Enron Accounting…. I hate to sound redundant but we believe the city will have no other option but to file bankruptcy by 2021

  8. Joseph Houston says:

    Robert, if the city declares bankruptcy, it will be up to a federal court judge to determine the prioritization of debtors. Currently, there is no provision to subordinate pension debt to bond debt so there exists a very real possibility that if the city declared Chapter 9, it would be relieved of obligation to pay bonds, or at very least the interest on them. That alone would save more than enough to cover all other liabilities expected though it might take years for the city to be able to adequately raise funds for capital improvements. Given the city’s propensity to continue making frills a priority on a regular basis, I think the employees would have a better than even shot to suggest such purchases were calculated to put additional pressure on finances when the city could least handle it.

  9. […] 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 […]

  10. Jules says:

    Joseph Houston – you are right about the council expansion – that was wrong. We should have stopped that. They waited for the census numbers to come out and the census numbers weren’t enough and they did it anyway.

  11. […] seen the ideas generated by the Long Term Financial Management Task Force, which I thought lacked a certain amount […]

  12. […] I’ve been carping about not enough talk about growth as a long-term financial management strategy for the city, I am […]