A major fiscal crisis looms over the Bayou City.
In just a few short years, experts expect that the city of Houston will have to wrestle with a “structural budget deficit of up to $300 million.” To close a budget hole of that size, officials will likely have to use some combination of tax hikes, spending cuts, and public finance voodoo to hide and delay expenditures. But whatever the mix of methods, none of it will be pleasant and all of it will be contentious. Worse, any meaningful resolution has the potential to hurt Houstonians, both financially and from the loss of services.
So how did we get here?
Well first, the Houston City Council regularly spends more than the city brings in. That point was made recently by outgoing city Controller Chris Brown who said: “Since 2016, City Council has approved budgets with operating deficits between $160 million and $200 million.” It should surprise no one then that a government who refuses to keep spending in line with income is headed for disaster.
Second, the city’s spending schemes have been enabled by many bad habits, the worst of which is using one-time monies to fund ongoing expenses. Again, Brown admits to the problem, saying: “These imbalanced budgets have relied on non-recurring funding sources like drawing down on savings, deferred maintenance, selling assets, and a variety of other one-time funding sources to close their structural deficits.” Of course, this bad practice was only made worse by COVID-19.
In response to the pandemic, Congress unleashed a flood of pandemic-related aid on state and local governments throughout the U.S., and Houston was no exception. To date, it has received “more than $600 million in State & Local Fiscal Recovery Funds from President Biden’s American Rescue Plan Act.” This federal largesse has been instrumental in helping the city maintain its bloated budget and avoid making hard decisions. But those days are numbered. In 2025, the money spigot is expected to be turned off and reality come crashing in.
Lastly, and perhaps most importantly, this crisis has arisen because Texas doesn’t demand fiscal discipline from its cities in the way that it should. When the Texas Legislature writes its biennial budget every session, it must observe five different types of constitutional and statutory spending limits that govern how fast spending can grow. But municipal governments, like the city of Houston, don’t have to follow any of those same common-sense policies.
In the absence of any fiscal rule, cities budgets have become a mess, as evidenced by exaggerated spending trends, soaring property tax levies, and elevated debt levels. And unfortunately for taxpayers, these issues have been hurt, not helped, by pandemic aid.
All of this begs for a solution. Fortunately, it’s not hard to imagine one—let’s simply ask our local governments to adhere to the same spending limits that our state government already follows. Making that modest change today would go a long way toward remedying tomorrow’s fiscal crises.
Houston’s long pattern of budgetary excess, enabled by shifty practices and unbound by any reasonable limit, have led it to the edge of crisis. Now the question becomes: What is the city willing to do about it? Will it finally get control of its appetite for Other People’s Money and cut spending dramatically, or will it simply soak taxpayers for more, more, more?
We’ll know the answer soon enough.