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New Houston Controller Talks About the Challenges Facing City’s Budget

By: Joe Martin
Houston Business Journal Financial Reporter

February2016 --  The city of Houston will enter its 2017 fiscal year with a $140 million shortfall, largely tied to a decline in sales tax revenue and increased pension costs, and because of that the city could make significant cuts to its budget.

The decrease in sales tax revenue is almost directly tied to the falling oil prices, Chris Brown, controller for the city of Houston told the Houston Business Journal. It spans business-to-business taxes, as well as retail sale taxes. In December, the city saw a 7.5 percent decrease in sales tax, according to Brown.

All of this adds up to a fiscal dilemma that will require significant changes to correct. The city needs to put a hiring freeze in place with budget cuts for all departments. And while he didn't say they were definite, Brown did allude to the idea that job cuts are likely.

"We don't like to talk about layoffs, but when you have $140 million shortfall — this was very similar when I first came into the office, we had an identical amount, $140 million shortfall. We had to layoff 600 or 700 employees," Brown said. "I hate to see anyone get laid off, but I think that's on the table."

Around 70 percent of the city's general fund goes toward personnel costs, and while there are other options to cut down on expenses, to reach the target number — around $80 million to $100 million — job cuts are the most likely solution. It would come in the form of budget cuts for nearly every department, and it would be up to each director to reach their budgets, Brown said. To do that, it's likely that layoffs would occur.

There is also the issue of the city's pension problem. Costs have continued to increase, however city revenues have not increased at the same pace. Right now, actions can be taken to keep the pension problem in control, Brown said. That includes looking at retirement eligibility options — about 5 percent of the city's workforce is currently eligible to retire — and in the long-term, potentially trying to move the pension program to a defined contribution plan, where both the employer and employee make contributions, or a hybrid between that and the existing plan, which is a defined contribution plan.

"We have to make sure we do our best to not only make those benefits, but we're able to pay the benefits," Brown said. "That's the problem we're running into. The agreements we made, unfortunately, at this point it's too expensive to service those plans."