Houston CFO warns of massive budget shortfall after COVID-19 federal funds expire

In monthly city finance presentations this week, Comptroller Chris Brown warned that Houston could face a budget shortfall of up to $300 million by 2025.

“I would expect, especially in the years to come, especially in 2025 and [20]On the 26th, a projected structural imbalance — probably double what it was when I first took office,” Brown said at a meeting of Houston’s Budget and Fiscal Affairs Committee on Tuesday.

While noting that Houston was operating with a structural imbalance before the pandemic, Brown explained that the city’s use of the American Rescue Plan Act (ARPA) and funds from the Coronavirus Aid, Relief, and Economic Security Act (CARES ) to temporarily balance the books was contributing to the problem.

“All federal money is single source funding,” Brown explained. “Put simply, every time you add a recurring expense and fund it with this point source, you’re exacerbating the structurally unbalanced budget that we have.”

Brown said part of the deficit stemmed from spending programs passed by previous city governments, but added: ‘The reality is that there are a lot of decisions that this body has made that are on top of that recurring spending. .”

In response to a question of Councilman Mike Knox, Brown said the council voted to use $182 million in federal funds from ARPA and CARES to fill last year’s budget shortfall.

“If we hadn’t gotten that federal money, we would have had to lay off over 2,000 employees during COVID,” Brown said. “Now the problem is that we have increased our expenses; once that money runs out, I think we may have to lay off 3,000 employees.

Among recurring expenses covered by ARPA and CARES funds, the city council approved an 18% increase for firefighters to be phased in over three years using $115 million in federal dollars, but with no plan to continue the increase. salary in the fourth year.

Council members last week approved a contract with the Houston Police Union giving officers a 10.5% raise, but firefighter pay has been tied to litigation for several years.

Brown noted that it seemed likely the courts would rule in favor of the firefighters, after which the city might have to provide five years of back wages and pension expenses, a number he declined to estimate but said. it would be “substantial”.

Brown, first elected in 2015, said the city should instead use federal funds to pay for one-time expenses rather than recurring expenses.

James Quintero, policy director of the Government for the People project at the Texas Public Policy Foundation (TPPF), said The Texan“There are real concerns not just about how COVID funds are being spent, but what they might lead to.”

“We need to have a come to Jesus moment about how these funds are used,” Quintero said.

Calling the use of one-time funds for recurrent expenditure a “very bad budgetary practice”, Quintero said he encourages local governments to use third-party entities to conduct efficiency audits to help find improvements in management practices and budgeting.

Last year, TPPF also warned that federal COVID dollars came with some tied strings it would make it “almost impossible to shrink the government.”

At least one small town in Texas, Brady, ARPA funds rejected on these grounds.

Brown and the city’s chief financial officer, Tantri Emo, filed reports this week, but Emo, an appointed member of Mayor Sylvester Turner’s administration, put the city’s general fund balance at $21 million. more than that of Brown.

While presenting a different set of numbers and projections, Emo didn’t dispute that the city’s revenue was growing. Both Brown and Emo suggested the city should find additional sources of revenue to match the increased spending. Emo pointed to Houston’s revenue cap as a potential problem.

Approved by voters in 2004, Houston’s charter requires voter approval for property tax increases above the previous year’s property tax revenue plus 4.5 percent, or revenue more the combined rate of population growth and inflation, whichever is lower. Property taxes are 25% of city revenue, and the limitation does not apply to the remaining 75% of revenue from sales tax and other fees.

Knox noted that despite capping the property tax rate, “every year we get an increase in the tax money we get from individual property owners.”

During his presentation, Emo said the city is continuing with “budgeting for results,” as recommended by the controversial PFM Advisory Groupwho also advises the Harris County government on reforms and spending.

According to the city documents“whereas item-based budgeting shows how much the city spends on things”, an outcome-based budget will allocate funds based on expected outcomes or “desired outcomes”.

Although Brown championed an online financial transparency portal for voters to view city spending, Turner’s office canceled the plan last year.

Also on Wednesday, the city Women’s Commission officially recommended that the city adopt a 12-week paid leave policy for employees who had worked for the city for at least six months “after the birth, adoption or placement of an adoptive child, as well as other benefits that include support for pregnant women.”

from Houston Fiscal year (FA) 2022 totaled $5.1 billion, an increase of $228 million over the previous year. The city is currently in the planning phase for the fiscal year 2023 budget which begins July 1, 2022.

Council member Edward Pollard, also vice-chair of the Budget and Fiscal Affairs Committee, said: “If you look at it from the private sector… you have to work within your limits.

“But it looks like on the government side we are finding ways to patch things up together and keep moving forward into next year. But there will be a time when we have to make some really difficult and difficult decisions to ensure the financial stability of the city. »