NEWS RELEASE OFFICE OF CITY CONTROLLER CITY OF HOUSTON

FOR IMMEDIATE RELEASE

June 09, 1999

Contact: Sharon Adams, 713/247-3152; pager 713/727-4147
Lorie Arnett, 713/437-6163


In an effort to improve the City of Houston's overall financial position and bond rating, and to prepare the City for potential economic downturns or emergency expenditures, City Controller Syliva R. Garcia today proposed the formation of a "rainy day fund."

Other major cities, including New York and Washington, D.C., have rainy day funds. Forty-four of the 50 states also have some type of rainy day fund, and contingency or emergency funds exist in 47 of 50 staes. Bond rating agencies encourage use of such funds. According to Amy Doppelt of Fitch IBCA, "Fitch would view the establishment of a rainy day fund as a positive action for the City of Houston. It shows evidence of prudent fiscal management, and increases the City's financial flexibility."

Controller Garcia believes that a rainy day fund would be an important step in developing long-term fiscally prudent strategies for City governemnt. "The City needs to do what every well-run business does when times are good," she said. "And that is to prepare for when times are bad."

The idea of a rainy day fund is simple. In each year that revenues exceed expenditures, the difference is added to the fund. This could happen if revenues exceed the budget, rainy day funds could be withdrawn to make up the shortfall. If a catastrophe occurred, such as the City experienced with Tropical Storm Frances, funds could be withdrawn for emergency expenditures. During a normal year, the cash in the rainy day fund would be used to reduce the tax and revenue anticipation notes.

A rainy day fund cushions the City's finances in economic downturns. As such it differs significantlly from the portion of the City's general find balance that is available for appropriation for non-recurring items. Monies could be drawn from the rainy day fund only if certain specified conditions existed, while the City's excess funds over 7½% are available for appropriation in both good times and bad. Moreover, the National Conference of State Legislatures recommends that a rainy day fund have about 5% of expenditures; more than twice the amonut available under currenct City policies.

The Office of the Controller has already identified start-up monies for this "rainy day fund". The source is the unanticipated accumulation of interest earnings in Fund no. 405, the Street and Bridge Construciton Fund. These funds were transferred in 1997 from the accumulated, unexpended funds of the Water & Sewer System, to be used in FY98 for street overlay and other street reconstruction projects. Because of delays in getting these projects ounder contract, there is still approximately $32 million not yet appropriated in fund no. 405, including more than $6.3 million in interest since the creation of the fund. Since these interest earnings are unanticipated, they are not dedicated to street and bridge projects, and can be used for any lawful purpose.

During the past decade, general revenues of the City of Houston have gradually increased. Houston has not had a property tax increase since 1994, and revenues have exceeded budget every year since 1993. In 1987, City Council established a General fund balance goal of 5% of expenditures less debt service, and the City has exceeded that goal.

According to Controller Garcia, the time for a rainy day fund is perfect. "Now," she said, "when our fiscal affairs are strong, is the time to prepare for a "rainy day."