This story is about the rough financial future that the city of Houston faces as we go through the coronavirus shutdown, but it’s not just Houston that is in this position.
Mayor Sylvester Turner
As Mayor Sylvester Turner’s administration continues efforts to slow the spread of COVID-19 in Houston, another dire challenge looms for City Hall: its budget.
The economic downturn caused by the pandemic and plummeting oil prices has thrown an already cash-strapped spending plan into more arduous territory, raising the specter of the first furloughs or layoffs of city employees since 2011.
Controller Chris Brown, who recently finished a recession stress test for the city’s coffers, has said he thinks the situation is likely to rival the recession that began in 2008, approaching the test’s worst-case scenario: a budget deficit in excess of $300 million.
He told council members Tuesday they should begin dusting off the recession playbook.
“Unfortunately, they had to do some furloughs and cut some expenses and things like that, because you can’t control the revenue right now,” said Brown, the city’s independently-elected financial watchdog. “These are tough decisions that are going to have to be made, I think.”
Turner said budgeting is always difficult under a revenue cap, but the city in the past has forged its way through challenging deficits and will do so again.
The mayor would not say whether he thinks layoffs will be necessary, but he sees other actions that can help cut the deficit. Turner plans to use some of the city’s current fund balance, which is projected between $187 and $203 million. The rainy day fund, he pointed out, will also have $15 million when it comes time to adopt the budget.
Some job vacancies have already gone unfilled, he said.
“We always assume there is going to be a budget shortfall with the revenue cap,” Turner said, referring to Houston’s voter-imposed ceiling on increased property tax revenue. “There’s always some elephant in the room. The elephant here now is the coronavirus and the impact on your sales taxes.”
The city’s two largest streams of money are property and sales taxes. All eyes are on the latter, which are expected to take an unprecedented hit as most businesses have been ordered to close and the region’s residents have been told to stay home in a bid to slow the virus’ spread.
It’s not just sales tax revenue, which will hammer the state budget as well. No one’s flying into or out of the airports, no one is staying in hotels or renting cars or booking conventions. All of those things affect the enterprise fund, which is a part of the city’s budget that is largely not subject to the revenue cap. And as noted, it’s not just Houston. Every city, in Texas and elsewhere, will be facing this. Part of the solution here, very simply, needs to be a federal relief package for local and state governments, all of which would otherwise have to lay people off and drastically cut back on services, all of which would just further exacerbate the recessionary effects we are now feeling. Just as we expect business activity to more or less return to normal once everyone can leave their homes again, we should expect local tax revenues to more or less return to normal. All of that assumes that the business are still there to return to, which is why we needed the first stimulus bill, to prevent them all from suffocating in the meantime. We all want to return to normal, but we have to do everything we can to preserve what was normal until we can get back to it. That’s what the federal government can do, and what it needs to do.
But we should also recognize that forcing cities and counties and states to observe “balanced budget” requirements at a time like this is not only ridiculous, it’s self-mutilating. Mandating an artificial deadline for when one number must be shown to equal or exceed another is beyond stupid and pointless, and that’s even more so if we not-unreasonably assume that the feds will eventually come in with a check to make up for the sales taxes that did not happen. The single best thing Greg Abbott could do with his emergency powers once we’re at or near a point where we can begin to think about easing up on the stay-at-home rules is to declare that all “balanced budget” requirements are suspended for the next two budget cycles, along with the revenue cap that was passed in the last Lege. That won’t be carte blanche for cities and counties to start spending like crazy – they’ll still have to get their budgets to “balance” later on – it will just be a recognition that this was something entirely beyond their control, and they deserve a chance to recover from it. It won’t happen, of course – I’m sure Greg Abbott and the entire army of financial ghouls he has behind him are salivating at the prospect of forcing their local nemeses to slash their budgets – but it should. I will never stop beating this drum.
Greg Abbott and the entire army of financial ghouls he has behind him have been socking away money in Texas’ not-a-rainy-day-fund, but-in-actuality-a rainy-day-fund. Texas has a cushion to weather the loss of income from sales taxes and the loss of income from depressed oil prices. Municipalities could have used the same strategy in years past, had they chosen to do so. There’s a revenue cap, but no mandate that I know of that every last penny that is collected must be spent right then.
Texas made hard choices then so it has options now, unlike states like Illinois. Kuff, I think you have a decent point about letting municipalities go in debt temporarily to even things out, but I think you overestimate those same municipalities’ desire and commitment to austerity in the future in order to pay off that temporary debt. All government seems to have an appetite to gorge on whatever resources it gets. One of my big disappointments about Trump is that, he too, promised to rein in spending, but turned out to be just as profligate in that regard as all of his predecessors, and now this….virus.
We’ve all seen this. Have extra, unspent money in the budget? Buy a bunch of stuff at the last minute, to make sure your department’s budget isn’t cut the following year. You’re expecting local government to find the fiduciary responsibility to the taxpayers it never knew it had in it. I like your optimism, but I’m skeptical. Maybe I’d be OK with cities taking on debt if there was some kind of hard and fast law, like the revenue cap, that forced that debt to be repaid within x amount of years, no exceptions.
Bill,
When you say that Trump “turned out to be just as profligate in that regard as all of his predecessors”, I think you really meant to say he hit it out of the park….right?
Which one of his predecessors racked up $1 trillion in annual deficit?
Shrub Bush and Obama.
https://www.thebalance.com/national-debt-under-obama-3306293
The economic effect of this pandemic are going to be felt for years. Unemployment is at 30%, compared to 25% at the peak of the Great Depression. Even if the US begins improving in the next two weeks, or next month, or the next six months, the economy is global and recovery is going to be a long process.
We may need to rethink Medicare for all. If unemployment remains high, and a lot of people are without employer subsidized health insurance, we are now learning that we are in this together. Your health condition can soon be our health condition, meaning that making sure you get treated is helping all of us.
Since firefighters are still being paid at 2011 rates, their budget has been cut over the last few years, their pension was used to bail out the city’s responsibilities to the other pensions, when it comes to cuts and layoffs I guess the fire department has given enough, so everyone can feel good about that.
Turner plans to use some of the city’s current fund balance, which is projected between $187 and $203 million. The rainy day fund, he pointed out, will also have $15 million when it comes time to adopt the budget.
The City has some additional money, just not enough to cover what they will lose, neither will the state.
President Obama entered office in early 2009 in the teeth of the Great Recession. Not surprisingly, the deficit exploded from $459 billion in calendar 2008 to over $1.4 trillion in calendar 2009. As the economy recovered the deficits shrank to a low of $442 billion in 2015 and was $585 billion his last year in office.
President Trump on the other hand was handed an economy that was growing. In 2017, his first year in office the deficit grew to $666 billion, was $984 billion last year and is projected to be over $1 trillion in 2020 at $1.02 trillion. This would be a 74% increase in just four years and going forward the Federal deficit could escalate to $1.7 trillion in 2030.
Obama inherited the economy, but had the deficit going down, Trump turned the faucet back on, like a drunk sailor.
https://www.forbes.com/sites/chuckjones/2020/02/01/trumps-deficits-are-racing-past-obamas/#1533e2184819