City of Houston Office of the City Controller

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THE CITY ENTERS A NEW FISCAL YEAR

July 24, 2011 -- The City of Houston closed out one of the most challenging fiscal years in recent memory on June 30 -- and the next day began the new Fiscal Year 2012 with the knowledge that this would be another very challenging year budget-wise.

Concurrent with the City’s fiscal problems that emerged in 2010, the Houston Metropolitan Statistical Area entered the nationwide recession, later than most other large cities but our decline was rapid. That only exacerbated the City’s worsening fiscal outlook: property tax and sales tax account for about two-thirds of the City’s revenue. While sales tax is slowly recovering, it will probably be another two or three years until we see property tax collections at the level we saw in 2009.

Unlike the federal government, the City of Houston cannot run a deficit -- by law, the city’s revenues and expenses must balance each June 30. (The current crisis regarding raising the federal government’s debt ceiling is very worrisome to municipalities for a number of reasons: municipal borrowers could well see higher borrowing costs; and if the Treasury cannot make critical August payments, Medicaid, unemployment benefits, tuition grants, housing assistance, homeland security and infrastructure improvements will all simply not occur.)

As the City entered the second half of the Fiscal Year 2011, it was clear that what we’d been touting as quick fixes – consolidation of some services, management efficiency initiatives, debt restructuring, increased fees, more aggressive collection of overdue accounts and the sale of some City properties -- were not going to be enough.  In the end, the City laid off 745 employees, a sizeable portion of the workforce -- and this savings will actually be reflected in the FY 2012 budget.

For a time, there has been a palpable air of discouragement in the corridors of City Hall. “This is Houston,” you can almost hear some people saying. “We’re a dynamic, growing city with solid industry. How did this happen?”

Houston does not reside in a vacuum. In truth, it would have been impossible for Houston to not be impacted by a national recession of this magnitude.  Considering all, our area is emerging from the recession more quickly than almost any other large metro area outside of Texas. Active oil rigs have more than doubled since the low point in November 2009; the Houston Purchasing Managers’ Index (a measure of production) has nearly doubled since March 2009. Car and truck sales are way up. And property values remain relatively stable and have not plummeted like so many metro areas.

Officially, the U.S. recession has ended. We have certainly rounded the corner here in Houston. And while there is a loss here of public sector jobs, the private sector in Houston is hiring again -- about 23,000 new jobs this year, significant but not near the typical 65,000 new jobs annually pre-recession.

But we’re getting back.

And the City of Houston is getting back. I sense a “new way” of doing business here at the City -- with employees dedicated to their jobs and serving the citizens, employees more cognizant than ever of the importance of efficiency in the workplace is. Employees willing to pay a larger part of their benefit deductibles, willing to re-negotiate pensions and willing to forego raises.

So, as the Houston area moves toward a new era of vibrancy and growth, so, too, the City will re-dedicate itself to making this city one of the most desirable places to live, work and play. It is appropriate to re-commit at the beginning of a new Fiscal Year. While challenges await, so do opportunities. While our workforce is smaller, it remains effective.

I wasn’t surprised when the City’s budget became troubled -- it was only doing what the area’s economy was doing, an economy larger than the economies of two-thirds of the countries on earth, an area economy that affects every municipality in the eight-county region. While the City of Houston must continue its stringent belt-tightening in FY 2012, I believe FY 2012 will be a “turnaround” year and that subsequent years will see an increasingly healthy revenue stream to support the City’s service delivery.