City Controller Annise Parker urged City Council last week to act quickly to correct a projected $17.2 million budget shortfall but advised against dipping too deeply into the $88 million general fund balance lest the city upset rating agencies.

“A healthy fund balance is important and utilizing more than a minor portion for a shortfall is not in the best interest of the city’s long-term fiscal health,” she said. “We also may need spending controls. The longer we wait, the harder it will be to make adjustments without impacting services.”

Despite a revenue review, the City Controllers’ Office projects only $387,000 more in revenues than last month’s monthly financial report (MFOR). This MFOR, which reflects activity for December, shows a $6.5 million drop in the shortfall projection.

Almost all of the decline is due to decreases in expenditures rather than revenue increases. For example, the Police Department budget is back in balance because taser guns will be purchased with $5.4 million in bond funds instead of general fund dollars. Although the review yielded higher projections for property taxes, sales taxes and electric franchise fees, it reduced estimates for ambulance fees and municipal court fines.

Rating agencies

Parker said the most convincing argument against drawing down the $88 million undesignated fund balance may come from the city’s rating agencies.

Last November Standard and Poor’s cited the city’s “strong general fund reserves” as one reason for upgrading the outlook for the city’s general obligation debt rating. Likewise, Fitch’s ‘AA’ rating was based in part on the city’s general fund reserves and liquidity.

Tapping the fund balance

Under city ordinance, it’s possible to tap the undesignated fund balance for budgetary relief when it contains more than 5% of the adopted budget minus debt service. She noted, however, that the same city ordinance seems to indicate it’s more prudent to avoid using the undesignated fund balance until it exceeds 7.5% of the adopted budget minus debt service.

The $88 million fund balance equals 6.83% of the Controller’s Office projection for expenditures minus debt – hence, it does not meet the 7.5% test. The 5% test would make almost $24 million of the fund balance available to spend.

The Government Finance Officers Association takes a slightly different approach, recommending an unreserved general fund balance of 5%-15% of revenues, or one to two months operating expenses. At the end of FY04, the city had slightly more than one month’s operating expenses.

Tight city budgets spur creative fund-raising. One of the most creative places these days is the Parks and Recreation Department, where "cost-effective" often means aggressive grant applications and maximizing public-private partnerships.

A good example is the new city dog park on Maxey Road. Seed money came from a city birthday party chaired by City Controller Annise Parker (then a council member), long a dog park proponent.

Houston warmed up to "Quality of Life" issues much later than many cities. Amenities like thriving waterfronts, plentifiul parks, historic districts, dog parks and skateparks have long attracted top companies and graduates to cities like Boston and Austin. The city and county are rushing to catch up as multi-use parks, dog parks and neighborhood skateparks pop up at a record pace.

Ask teenagers what the city still needs, and they'll tell you — skateparks, especially a big, central facility  like the ones in so many other cities. It's hard to walk around downtown Houston after work without running into kids on skateboards. Where are they supposed to go to enjoy the sport that reportedly has just passed Little League baseball as the third most popular sport (behind basketball and soccer) played by teenagers?

A new public-private partnership is trying to solve the problem. The Parks Department and PUSH (Public Use Skateparks for Houston, www.pushhouston.com) are working to raise about $750,000 for a central skatepark. 

The new skatepark project has been endorsed by the Houston Parks Board, which accepts tax-deductible donations for the skatepark www.hpbinc.org/donation.htm). PUSH is also aggressively seeking funds from the private sector.

The Parks Department has pledges of $116,000 from the Downtown Management District and the Convention and Entertainment Facilities Department but is waiting for a site study before applying for grants and corporate donations. The pledges were solicited by City Controller Parker during her last term as council member. She had originally hoped a skatepark would be included in the redesign of Root Park near the convention center.

PUSH meets at 7 p.m. the third Thursday at Fonde Recreational Center, 110 Sabine St (at Memorial), near the proposed skatepark site.