Budget plan uses one-time fixes
Turner’s proposal to close $160M gap includes land sale, debt refinancing
Mayor Sylvester Turner on Friday proposed targeted layoffs and cuts, one-time fixes and deferred payments to close a $160 million budget gap for the fiscal year that starts July 1, in a bid to avoid major cuts in services for Houston residents.
The mayor, who has accelerated the budget process by a month in hopes of demonstrating his firm hand to credit ratings agencies, acknowledged his plan is not perfect, but said that using a few oneoff gimmicks to balance the books is better than laying off 1,200 or more city employees. Turner’s proposal cuts 54 vacant positions and includes roughly 40 layoffs.
Turner proposes to close the gap using $94 million in one-time fixes, $56 million in permanent changes — mainly cuts — and pulling $10 million from reserves.
“I wish we were not facing a budgetary shortfall of $160 million, but we are, and we have to balance it, and so what are the op-
tions?” Turner said. “I think laying off 1,235 people would directly impact everybody in this city, every community, every neighborhood in this city, and I think that is totally unacceptable.”
Turner acknowledged balancing the books for another year does not correct Houston’s ongoing budget problems, driven by rising pension and debt costs, and, more recently, voter-imposed limits on property tax collections and slumping sales taxes undercut by the weak oil market. Moody’s and S&P cited all of these factors in downgrading the city’s credit rating one notch last month.
Talks have begun with the city’s pension groups, he said, with the aim of presenting a reform plan to the Legislature before it convenes next January. Without meaningful reform, Turner said, no number of onetime fixes will prevent widespread layoffs next year.
“Those are the realities,” Turner said. “If we don’t resolve some of the bigger issues, you can’t expect the same machinations that were used to balance this budget to be used in (fiscal year) 2018.”
‘Hands are tied’
The proposed $2.3 billion general fund budget, which pays for most basic city services with revenues from taxes and fees, represents only the second budget cut for Houston in two decades. The first came after the 2008 nationwide financial crisis.
Turner’s proposal would spend $82 million less than was budgeted in the current fiscal year, despite an additional $27 million for employee raises and an increase of $29 million in pension payments, an amount that still falls short of the amount needed to fully fund the pensions over time. Turner also stressed his proposal funds five police cadet classes, up from four in the current budget. The plan also would keep 9.3 percent of the budget in reserve, above the minimum standard of 7.5 percent.
Turner’s proposal includes $26 million in cuts to city departments, nine of which will see their budgets decrease, including the offices of the mayor and city council members. The mayor’s plan would cut district council members’ cherished project funds from $1 million to $250,000, saving $8.25 million.
There are several one-time fixes, including refinancing city debt to save an estimated $32 million, and selling city land to generate $12.5 million in revenue. He also has proposed using $24 million in building permit fees to pay down debt on the Houston Permitting Center, which the general fund will pay back over time, and the deferral of a $12.5 million payment for police pensions in exchange for granting the pension fund an equivalent stake in the police headquarters at 1200 Travis at 8 percent annual interest.
“It’s horrible fiscal policy and I think he realizes that, but his hands are tied this year,” Councilman Dave Martin, vice chair of the council’s budget committee, said of the one-time fixes. “He came in six months through the budget year, so he has to do some of things like this. Moving forward, I hope we never see another onetime reduction, like the sale of land. That’s not the proper way to balance a budget.”
‘Shared sacrifice’
Turner wants to reduce a transfer of property tax revenues into the ReBuild Houston street and drainage repair program by $13.5 million, and has asked the city’s wealthier tax increment reinvestment zones to contribute $19.6 million more to the general fund.
“At the very worst, a project may be delayed, let’s say, from 2017 to 2018,” Turner said.
The TIRZes are being asked to contribute equitably to city services, Turner said. Property tax revenues within a TIRZ are frozen at a base level when the zone is created; any amount collected above that level, known as the increment, is invested back into the area to spur development. The cash Turner has requested is necessary, he said, because the zones continue to fund services at the same level as when they were created rather than at pricier 2016 levels.
John Breeding runs the Uptown TIRZ, which will be asked to increase its general fund contributions by $5.2 million a year. Breeding said his group’s plans to build dedicated bus lanes on Post Oak should proceed on schedule, but he said minor street work and pedestrian improvements, as well as a trail along the West Loop in the Houston Arboretum and improvements in the eastern part of Memorial Park may be delayed.
“What we’re going through now is adjusting to a time where revenue we had hoped for we’re not going to have, so we have to move projects around. It’s something, quite honestly, that we do on a fairly frequent basis,” Breeding said. “I absolutely endorse the mayor’s concept of shared sacrifice. It is reasonable for us to participate and help address some of these issues.”
Debate on TIRZes
State Sen. Paul Bettencourt, a Houston Republican, said some of his conservative peers may take issue with the extent to which Turner’s decision works against the revenue cap by moving TIRZ dollars – which are exempt from the cap – into the general fund. But he said he views Turner’s approach as the opening of a needed debate on TIRZes.
“What the mayor is doing is recognizing the obvious, which is that the TIRZs have all the cash and the city doesn’t,” Bettencourt said. “Now, what we’re going to do about that from here is what we need to have a serious public policy discussion about.”
Bob Harvey, CEO of the Greater Houston Partnership, the region’s dominant business group, praised Turner’s efforts.
“We support the mayor’s commitment to bring forward a plan to address the city’s unfunded pension liability by the end of the year,” Harvey said. “Such reform would allow the city to avoid the use of one-time revenues to balance future budgets, avoid another credit rating downgrade, and set the general fund on a longterm structurally balanced path.”