Houston Controller feels the heat from city’s fiscal woes

Houston faces a structural budget gap that could top $250 million over the next few years, while it also has plans to issue billions of dollars of debt for a firefighter settlement, a major airport project, and other purposes, according to its new financial watchdog. 

Chris Hollins, who was elected city controller in a December run-off election, likened the state of Houston’s finances to the proverbial frog in boiling water, unaware of the life-threatening rise in temperature. 

“When I walked in in early January, my immediate reaction was ‘hey y’all it’s f*****g hot in here,'” he told The Bond Buyer’s Texas Public Finance Conference Tuesday. 

While Mayor John Whitmire’s administration is projecting a $160 million gap in the fiscal 2025 budget, Hollins said the proposed settlement with the firefighters’ union — that calls for wage hikes over a new five-year contract and the issuance of $650 million of judgment bonds to cover back pay — will increase that deficit.

Tackling the problem will require increasing revenue or cutting spending or a combination of the two as one-time measures to balance the city’s budget, like federal COVID-19 relief dollars, have dried up, according to the controller.

“We can’t snap our fingers and get to $250 million in savings, but we can get $1 million, $10 million, $5 million at a time and that starts to add up,” he said. 

Hollins added that, contrary to Whitmire’s March warning, Houston is not “broke.”

“We have more than $400 million in our savings accounts, more than we’ve ever had in the history of Houston,” he said. “That fund balance gives us some time to get our house in order.”

Other challenges loom for the nation’s fourth largest city, including upcoming contract negotiations with city workers, followed by police next year.

“When (city workers) saw the generosity of the firefighter settlement, it begged the question for them ‘what is our raise going to be?,'” Hollins told The Bond Buyer following his speech. “There may be some baseline assumptions as we look forward to next year’s budget and the year following about how negotiations might turn out, but the price might have gone up.”

He said while his office is not taking a position on the fairness of the firefighter deal, which still must be approved by a Texas court and the city council, he is awaiting a comprehensive plan from the mayor on how the city will pay for new union contracts, as well as improved city services. 

“That hasn’t been laid out yet and Houston is waiting,” he said.

On the debt front, Hollins said several issuances are coming, including the judgment bond deal that is expected to total around $800 million with the inclusion of a commercial paper refunding. A water and sewer deal could top $800 million as Houston complies with a federal consent decree to improve its aging wastewater system.

This summer, the city expects to offer $150 million to $200 million of tax and revenue anticipation notes in competitive bidding and has a roughly $400 million deal for its convention center on tap for late this year or early next year, according to Hollins. 

Financing will commence for a $2.55 billion terminal project at George Bush Intercontinental Airport after Hollins said his office completed “a full diligence process” that allowed the city council to finally move it forward. 

Houston will issue around $300 million of general airport revenue bonds, while special facility revenue bonds, backed by lease payments from United Airlines, would total $975 million, he said.

Hollins also has his eye on improving Houston’s bond ratings.  

“Of course we want to increase our ratings, but the primary thing we need is for the ratings to be fair and consistent,” he said.

Fitch Ratings has said the trajectory of Houston’s AA general obligation rating could depend on retroactive contracts with firefighters. The city also has GO ratings of AA from S&P Global Ratings and Aa3 from Moody’s Ratings.