Standard & Poor's Ratings Service recently boosted its outlook  on Houston's general obligation debt rating from "stable" to "positive" while Fitch Ratings continued to rate the city's outlook as "stable".

Both agencies praised the city's healthy, diversifying economy  and city voters' preference for Proposition 1 over Proposition 2. (See story below)

"This is great news for the city," City Controller Annise Parker said. She noted, however, that both agencies raised cautionary flags about Propositions 1 and 2.

Both agencies praised city government handling of pension reform while S&P lauded the city for its management of health-care costs and a "potentially fiscally crippling revenue cap" as well as settlement of the EMT lawsuit.
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"The operating and capital needs brought about by population growth will continue to be a challenge, especially in light of the ad valorem tax revenue limitation recently approved by voters."
                                                                   -  Fitch Rating Service      
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S&P noted that Prop 1 (which will limit city property tax revenue growth to a combination of population and inflationary growth) removes the 1982 charter-imposed 50 cent per $100 assessed value property tax cap for city maintenance and operations,   which has "handcuffed the city during economic downturns."

S&P had this to say about less popular Prop 2 ( which would have limited all city revenue, including enterprise funds, based on the same formula): "If Houston needs to operate under both propositions, it is more likely that the rating would be affirmed, and possibly lowered, if the city were to experience financial hardship because of Proposition 2."

Fitch affirmed the city's 'AA' rating on its $1.6 billion in general obligation bonds and $33.5 million in certificates of obligation outstanding.

According to Fitch, "The operating and capital needs brought about by population growth will continue to be a challenge, especially in light of the ad valorem tax revenue limitation recently approved by voters."

"Although the measure [Prop 1] won't be effective until fiscal 2006, the potential exists for future service delivery and capital financing to be negatively impacted by this initiative.  The current rating and Rating Outlook presumes no legal challenge to the new limitation" from Proposition 2 supporters.

Although a majority of voters approved both Propositions 1 and 2, the city Legal Department has determined that the city is only required to abide by the provisions of the less restrictive revenue cap in Proposition 1, which won a larger majority of votes.

Proposition 2 supporters, however, may take the city to court to force implementation of both.

Voters' overwhelming approval of Proposition 3 gives the City Controllers' Office a green light to maximize its auditing resources to save taxpayer dollars.

"The City Controller's Office can now use all of its auditing tools to help ensure that the public's money is spent wisely," City Controller Annise Parker said.

Parker joins city controllers in other large cities who already have the authority to conduct independent performance audits, the most comprehensive kind of financial review, without seeking mayoral or council approval.

The Controller's Office Audit Division will perform these expanded duties with the same 11 employees and no increase in the $300,000 budget for any necessary outside auditing services.

The office is already conducting a performance review of the city's after school program at the mayor's request.  In anticipation of Proposition 3's passage, the Controller’s Office scheduled performance audits of the 311 system and the Fire Department's Life Safety Division.