The city could end up $19.1 million short next year if City Council passes the mayor's FY06 budget intact, the City Controller's Office predicts.

According to the annual Trends report,  the $19.1 million spread between the administration's and the controller's figures  involves mostly property tax revenue predictions.

"Our goal is to be conservative, but reasonable," City Controller Annise Parker explained. " Is our methodology better than theirs, or vice versa? There's no right answer."

What’s important, she said, is that the Controller’s Office, the mayor’s office and council work together to make the best possible decisions for taxpayers.

"We don’t want to underestimate our revenues because that could lead to unnecessary cuts in services. If we overestimate, the city could experience windfall surpluses.  My goal is to help in the budget decision-making process by providing council with a broader picture of city finances," she said.

Each year, the Controller’s Office compiles its own analysis of the major income categories. For FY06, the office projects overall general fund revenues will grow by $37.2 million, or 2.58% over FY05. 

Controller uses lowest HCAD figures

The Controller's Office projects that property tax revenues will grow by $12.6 million, or 1.89%. This is $9.7 million less than the administration projects. The Controller's Office calculation was based on the low end of the range of taxable values provided by the Harris County Appraisal District (HCAD).

Parker said the administration chose to use a brand new methodology that resulted in a tax base $1.15 billion higher than the tax base the Controller's Office used.

"We chose to use the low end of the range supplied by HCAD because it's in line with recent growth trends," Parker said.

The number assumes no change in the 65-cent tax rate, an increase in the senior exemption and takes into account payments the city will have to make to the various TIRZs (Tax Increment Reinvestment Zones). The TIRZ estimate came from the Planning Department.   The Controller's Office also allowed $36.4 million for delinquent collections.

The controller said her office projects an overall 6.05% sales tax increase over FY05 for a total of $680.4 million.

"Because the administration controls spending, we do not make projections about expenditures, although we show the trend graphs for council’s information," the controller explained.

The undesignated fund balance has remained relatively stable, but consists primarily of non-cash items. This does not include the $20 million in cash in the Rainy Day Fund.  Parker said she would like to see any FY06 surplus go into the Rainy Day Fund and the overall cash reserves.

"I believe it was always council’s intention that the $20 million should be a starting point," she said.

Pension funding dilemma

Parker told council she shares their concerns about the amount of pension obligation bonds the administration plans to issue next year.

"Although I'm concerned about using debt to finance annual expenses, I understand it is unavoidable given the fiscal responsibilities the city envisions for FY06," she said.

Even with the pension obligation bonds, the city’s pension contribution will be less than the actuarially determined contribution, continuing a trend that began in FY03.

This funding deficiency will likely result in an increase in the unfunded liability. The same holds true for the Houston Police Officers Pension System (HPOPS) and firefighters pension systems. A preliminary draft actuarial valuation for HPOPS predicts the unfunded liability will rise annually to $1.46 billion in FY 2014 if current trends continue.

A July 2004 actuarial valuation of the firefighter fund indicates the unfunded liability has grown to about $272 million. Additional increases in employee contributions and benefit decreases likely will be needed.

"Without a long-term plan, we can expect the unfunded liabilities to continue to increase, placing substantial additional financial burdens on the city," Parker concluded.

City Controller Annise Parker is the only elected city official to submit a lower FY06 departmental budget.

The FY06 Controller's Office budget now totals $6.053 million (adjusted higher for health benefits changes). The controller presented an FY06 budget that was 2% less than the projected $6,142,453 FY05 budget.  The department budget has decreased about $587,000 (9%) since FY01.

"Although not asked to do so, we are voluntarily complying with the 2% reduction imposed on city operating departments," Parker said.  Budgeted positions total 78, four less than FY05.  This assumes a 5% vacancy rate, for a net of 73.9 funded full-time equivalents, two less than last year.

"This budget proposal continues my commitment to improved efficiency and a lower cost of government. We are reducing the cost of operations while meeting new responsibilities, including implementation of Proposition 3,"  she said.

Proposition 3 gives the Controller’s Office independent authority to conduct performance reviews. Because of the 85% voter mandate, the Controller's Office Audit Division will spend $40,000 more next year for a total of $360,000 on outside audit assistance on performance reviews. Performance reviews of the Houston Emergency Center, 311 and the Fire Department’s Life Safety Division are already underway.

So far in FY05, the Controller's Office has issued 37 audit reports, a significant increase over the 20 audits completed by this time in FY04. The Audit Division performed 14 of the audits; 23 were handled by outside firms.

"We plan to continue a balanced audit approach that includes using our in-house auditors and the assistance of outside firms when special expertise is required," Parker said.

Auditors following up on a performance review conducted five years ago report significant improvement in management and operation of the city Legal Department.

“The original review included 50 recommendations for improvement. As of today, nearly 70% of those recommendations have been fully or partially implemented, or addressed through alternative solutions,” said City Controller Annise Parker. “The improvements are exactly what we hope to find when we revisit an audit.”

The performance review issued in August 2000 concluded that, although the department was hard-working, well-managed and generally efficient, there were significant opportunities for improvement in communication, compensation, responsiveness, productivity and technology.

The department also was cited for exhibiting a “naysayer” attitude rather than facilitating the objectives of city council and the mayor. Since the original review, the department has initiated new training programs, teaching attorneys to offer positive alternatives when proposals must be rejected for legal reasons. Staff meetings and client satisfaction surveys are opening and improving lines of communication.

Through streamlining operations, the department has been able to reduce duplication of effort, speed up the review process and improve responsiveness. Technology also has significantly improved.

Unfortunately, staff turnover and compensation are still problems. The department wholeheartedly agrees with the auditors’ conclusion that city lawyers and legal assistants are significantly undercompensated. Additional funding has been requested in every budget submission since the original review. However, due to fiscal constraints, those requests have been denied.