Houston, We Have a Problem

It’s an election year in Houston and this year that means a race for Mayor, as incumbent Annise Parker is term-limited.  There are quite a few announced candidates already and supposedly more to come, so it will be a crowded race.  And it is easy and trite in all elections–national, state, and local–to say that “this will be a defining election”, but in this case for Houston, that characterization is appropriate.  Why?  Because for all the good news about the city, the finances are in big trouble.

We’ve heard a lot about the three city pension plans and their present unsustainable condition, and it’s true that the picture is pretty grim.  To summarize briefly, the actuary reports as of June 2013 reflect a combined unfunded liability of $3.2 billion.  Add to this deficit general obligation bonds totaling $600 million, the proceeds of which were contributed to the plans, and you arrive at total pension-related debt of well over $4 billion.  And this growing liability has produced a huge increase in the annual contributions to the plans, almost tripling since 2000 to $290 million in 2014!

There are bills currently pending before the Legislature that would begin to address these pension problems, primarily by returning them to local control.  It is difficult to know their fate, but I am not optimistic during the remaining time left in this session.  Let’s hope for the best.

What has not been as widely discussed outside City Hall is the overall financial condition of the city.  Recently, I stumbled upon a summary of the February 2012 Long Range Outlook prepared by the city finance department and it was very revealing.  For example, since FY 2004, the city has been operating at a deficit before use of reserves and non-recurring sources and the baseline forecast was for a five-year cumulative deficit of $504 million and a $2.7 billion deficit by 2031, unless there are events such as no property tax growth, slow economic growth, or fully funding the pension plans, all of which are entirely possible or, in the case of the pensions, necessary.  The bottom line: the operating deficit is growing annually, it is being debt-financed to a large extent, and the forecast was for either significant tax increases or substantial reductions in the percentage of revenue available to fund current services.  And it’s pretty clear from service levels that this trend is holding.

What does all of this mean?  Well, for me it means that the next Mayor should have as his number one objective, even if it means the commitment to be a one-term Mayor, to attack these financial issues, he should be able to demonstrate the capabilities and leadership skills on a local and state basis to successfully do so, and he should have a detailed grasp of the issues with a definitive plan laid out during the campaign.  This is urgent stuff.  We have no time for hacks.