SEPT. 2004 ISSUE  
  New HPD "auditors"
  July financial report
  Hilton Hotel transfer
  Money Matters:
    Annual audit plan  

Controller's Office to train HPD "auditors"

The City Controller's Office will soon begin training police officers in HPD's new inspection division.  The training was prompted by a request from Chief Harold Hurtt,  who asked for help in establishing more internal controls in the wake of DNA  lab and evidence room scandals.

"We'll be teaching police officers to think like auditors," said City Controller Annise Parker. " By helping to ferret out waste and fraud within HPD, these specially trained officers will complement the work being done by my office. Chief Hurtt's request for assistance reflects a refreshing change in attitude at the police department."

In 1994 and 1997, Controller’s Office auditors attempted to conduct a thorough audit of internal controls and procedures in HPD's evidence room but were denied access to certain records and property. In 1994, for instance, HPD restricted access to property records authorized for transfer to surplus or salvage.

“Perhaps 280 boxes of evidence from 8,000 cases dating back to 1979 would not have remained undiscovered for a decade had the auditors been able to conduct the audit properly,” Parker said. “It makes me very angry to know that evidence affecting the guilt or innocence of defendants was gathering dust for 10 years.”

“The Controller’s Office maintains the only independent audit division in city government. It's there to uncover waste, fraud and mismanagement,”  Parker said. “We should always be allowed to perform this watchdog function. That's why I requested a ballot initiative for the Nov. 2 election.”

Proposition 3 would grant the city controller the right to conduct all types of internal audits, including operational and performance reviews of all city departments, agencies and programs. Houston is the only major city with an elected controller who does not have this authority.

 
    Controller's                  TV show

   Money Matters:
    2 and 8 a.m.
    2 and 8 p.m.
      Mondays,
   Municipal
   Channel.
      Guests:
   City Auditor
   Steve Schoonover
   and
   Lisa Anderson
   of Jefferson Wells
   International  

        
   CITY 
     MEETINGS
  City Council
   Public Session
    Tuesday 2 p.m.
         Call
   713-247-1840
   to get on the
   speakers' list.
   Business session
     Wednesday
         9 a.m.

      Need a
     speaker?   
       Controller
    Parker enjoys
    discussing city
    issues with civic
     groups and
    community
    organizations.
       Please call
    713-247-3098
    for scheduling
    information.

  
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Oct. 4 deadline
to register
to vote Nov. 2
                              Controller Annise Parker (c) discussed the importance of voting at Houston Community College-Central's "Project Vote Smart." She's pictured with event coordinator Prof. David Wilcox and student Kathryn Herod.

    Controller projects $31 million budget gap

The City Controller's Office projects a $31 million FY05 budget shortfall, much higher than the mayor's $4.6  million estimated gap.

The shortfall,  however, is measured against the actual budget and does not take into account that the fiscal year began with a $105 million fund balance as well as a $20 million rainy day fund.

"Thanks to improvements in sales tax revenues and departmental savings implemented by both former Mayor Brown and Mayor White, the FY04 gap was closed. With careful management, we can expect the same outcome for FY05," she said.

The July Monthly Financial and Operations Report (MFOR) reflects activity for the first month of  the new fiscal year.

The Controller's Office shortfall estimate is about $11 million more than the $20 million figure projected in the Controller’s Office Trends Report issued in May.

The Controller's Office projects total revenues of $1.429 billion. " We have lowered our projection for property taxes by $5.54 million to reflect the ½ penny cut in the property tax rate incorporated into the FY05 budget in June," Parker said. budget

Shortly after the budget passed, the administration indicated there would be enough property tax revenue  growth to offset the tax cut. The administration has since backed off from that, projecting property tax revenues will come in just $1.8 million higher than budget. 

The Controller's Office also differs significantly with the administration in three other revenue categories:

      METRO funding - The administration projects the city will receive $20 million in METRO funding in FY05. The Controller's Office estimates $10 million, about the same as FY04.
      Fines and forfeits - The administration estimates almost double the Controller's Office projection of $2.3 million.
      Transfers from other funds - The two estimates differ by $1.5 million. Parker said she has been requesting an explanation for these increases since June.  She said that with some clarification the Controller's Office might be able to bring its projections closer to administration numbers.

On the expenditure side, HPD is projected to be $5.4 million over budget. This is based on commitments to an additional cadet class, retention of some of the jailers who were to be laid off and the purchase of  taser guns. The Controller's Office is waiting to see a plan for funding these commitments.

"We do understand the administration anticipates dipping into the $105 million fund balance to bridge the $4.6 million gap. That's why their projected ending fund balance is lower than ours," Parker said.


    TV show spotlights annual audit plan

If you've ever wondered why certain city departments and programs are audited and others aren't, tune into this month's Money Matters, the show that makes sense of city finances.

City Auditor Steve Schoonover joins Controller Annise Parker for a look at the Controller's Office annual audit plan.  The FY05 audit plan includes comprehensive performance audits of the 311 system, the Neighborhood Protection Division, the Fire Department's Life Safety Division and the After School Achievement Program.  Each year the audit plan targets more than 20 departments, programs and procedures.

Lisa Anderson, managing partner of the Houston office of Jefferson Wells International (JWI), joins Schooner and Parker to discuss the city's business risk assessment,  the foundation for the annual audit plan. 

Money Matters  can be seen at 2 a.m., 8 a.m., 2 p.m. and 8 p.m. Mondays on the Municipal Channel (Warner Cable 16, Kingwood 14, TCI 16, Phonoscope 2 and TvMax 20.)


    Controller analyzes Hilton hotel transfer

City Council recently passed Mayor Bill White's municipal pension funding plan, which included a complicated transfer of the Hilton Americas from the city to the Houston Employee Municipal Pension Fund (HMEPS). When implemented later this year, the transfer will help reduce the city's pension liability by $300 million, the appraised value of the hotel. 

Located adjacent to the convention center, the Hilton was built with revenue bonds issued by the nonprofit Houston Convention Center Hotel Corp., chaired by former mayor Bob Lanier.

Controller Annise Parker presented Council the only written analysis of the transfer (couched in the broadest possible terms):

1.   The city gives up its lien on the hotel. 1.   HMEPS obtains a lien on the hotel.
2.    The city issues a note for $300 million to HMEPS secured by the hotel and a pledge of city taxes. 2.   HMEPS receives a note, secured by the hotel and pledge of city taxes.
3.   The city offers to pay annual interest on the notes of at least 8.5%, which will initially total about $26 million. 3.   HMEPS earns interest of 8.5% annually on the city note, or about $26 million/ year.
4.  The city is not obligated to pay anything on the principal until 2033, at which time the entire $300 million is due. 4.   HMEPS receives principal payment of $300 million in December 2033 or when the note is sold.
5.   The city can defer up to $150 million of the interest payments on the secured note. This debt becomes an unsecured note to HMEPS.
5.   Because of the deferral option, HMEPS may or may not receive interest payments from the city. Deferred interest payments become unsecured notes.
6.   These unsecured notes are “negotiable” and can be assigned, or sold to a third party, by HMEPS. Like the original note to HMEPS, these “assigned notes” are secured by city taxes.

6.    HMEPS, at its discretion, may sell these unsecured notes to a third party for cash. These notes are sold under the provisions of state law as pension obligation bonds and can be spread over a defined period.
7.   Once the notes are sold, the city can no longer defer payment. However, the payments must be made to the new bond holder, not HMEPS. 7.   HMEPS can raise about $26 million a year selling assigned notes to third parties.
Bottom line: The city does not have to pay HMEPS the $300 million principal until 2033. Bottom line: HMEPS reduces its unfunded pension liability by $300 million today.