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City deficit not as big as feared

This is a nice surprise.

BagOfMoney

A huge budget deficit looming at City Hall – which has spurred talk of layoffs, service cuts, new fees and higher taxes – has been cut in half, relieving some pressure to scramble together a budget patch but doing little for Houston’s long-term financial health.

The unexpected boost of good news came from city Finance Director Kelly Dowe, who told a City Council committee Tuesday that what recently had been an estimated $144 million gap for the budget year that starts next summer has shrunk to about $63 million.

“That’s no small amount of change,” Dowe said, “but definitely a better picture than $144 million.”

The improvement is thanks mainly to a change in the police pension board’s funding formula that means Houston no longer must pay $50 million into the pension in each of the next two years on top of the $123 million and then $133 million, respectively, the city already is scheduled to pay. Savings in city operations and the city’s health care costs leveling off also helped narrow the budget gap.

Dowe still projects deficits in each of the next four fiscal years, driven largely by a spike in the cost of servicing city debt, rising payments into all three city pension funds and a cap voters imposed a decade ago that limits the property tax revenues Houston can collect to the combined rates of inflation and population increase. Though these coming budget gaps have narrowed, the numbers remain sobering, reaching a projected $112 million deficit in the fiscal year that starts July 1, 2017.

[…]

Rice University political scientist Mark Jones said narrower budget gaps lessen the problem’s urgency and make items like changes to the revenue cap, which would require a public vote, less plausible.

“The strongest case for lifting the revenue cap would be this cataclysmic effect if those revenues were not available for core city services like police and fire,” he said. “As that number gets lower and lower, a doomsday scenario is a much tougher sell.”

Other observers said the new numbers better enable Parker to argue she is pushing the ideas because they are sound policy, not as part of a scramble to close a budget gap.

Needless to say, I agree with that view. Repealing the cap is still the right thing to do. The immediate deficit may be smaller now, but it’s still substantial, and it gets bigger a couple of years out. We can use all available resources to deal with it, or we can be forced to cut taxes and make more cuts than we otherwise would have in years where revenues grew faster than expected. That should be good news in a scenario like this, but only if we repeal the cap first. Let’s not lose sight of that.

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4 Comments

  1. Mainstream says:

    I would be interested to know why health care costs are levelling off at the City, and whether this is linked in some way to the Affordable Care Act.

    This past Monday the Harris County Republican Party Executive Committee overwhelmingly opposed increasing the revenue caps in the City Charter as some are proposing. I think the voters will reject any such Charter amendment proposal, and the turnout on the issue might affect other contests if on the Nov. 2015 ballot.

  2. Paul kubosh says:

    I agree. Voters will never repeal.

  3. Steven Houston says:

    The biggest reason for the deficit shrinking was that an ~ $60 million dollar payment to the police pension did not have to be made to keep their system funded at 80%. They had a banner year for returns after some mediocre years, netting the system 17.4%, employees in their DROP program only paid 7%. In addition, their board manipulated some actuarial numbers to allow the city to pay less in, the system still hugely underfunded by many hundreds of millions of dollars. This helps Parker in her final year as Mayor and defuses calls for pension reform for at least two more years. The move does nothing to bring employee benefits UP to competitive rates with other major cities nor does it restore major cuts made over ten years ago any more than it brings the fund up to where it should be.

    Mainstream, several things have happened in that regard and none of them are tied to the Affordable Care Act. Over the course of Parker’s reign in office, retirees health care costs were doubled and tripled (some paying even more than that) to the point where the city isn’t subsidizing retired workers as all other major cities do. Then, the employees have had various coverages cut to lower costs while having to engage in increasingly intrusive programs to “earn points” each year as part of a wellness program. Those that don’t earn enough points get to pay an additional premium each month which adds hundreds of dollars to their personal costs while increasing many co-pays. On the flip side, the program has helped catch various conditions earlier and after an initial financial hit, is now lowering costs by forcing employees to go to the doctor each year.

    Given the city’s propensity for paper shuffles and unwillingness to give up frills, I don’t think most measures to close the existing budget gap is going to be an easy sell. Unfettered access to ever increasing amounts of revenue have only emboldened city council and the mayor to spend more, their first way of dealing with any shortfall, perceived or real, is to strong arm employees to cut benefits or cook the books in a way that will come back soon enough. Let the politicians charge actual costs for garbage pick up instead of toying with the cap and that will solve the existing problem while forcing them to own up this time and take the political heat.

  4. Paul Kubosh says:

    Steven, nice post.