A recent audit of Houston’s finances reveals ongoing challenges, with experts warning that without major structural reforms the city could face financial instability that affects essential services. That’s the key takeaway from a new working paper from the Center for Tax and Budget Policy at Rice University’s Baker Institute for Public Policy. The report was presented and discussed at an event March 27 co-hosted by the Greater Houston Partnership featuring former Houston Mayor Annise Parker, a Rice alumna.
Authors of the report, director of the Center for Tax and Budget Policy John W. Diamond and fellows Bill King and Joyce Beebe, explain that strategic investments and fiscal planning are key to ensuring the city’s long-term economic health.
“Houston’s fiscal outlook remains precarious, requiring urgent structural reforms to address long-term budget imbalances, manage pension liabilities and secure sustainable funding for critical infrastructure needs,” the report reads.
Revenue grew from the previous year, but so did expenses. Houston reported record revenues of $7.3 billion and a $1.3 billion surplus last year — much of that improvement was driven by business-like activities such as the airport and water systems. Yet the governmental fund continues to have an overall deficit of $4.9 billion.
The audit paints a mixed financial picture, Diamond said. “The city has made some recent improvements in its net fund balance, but the underlying structural deficit persists, particularly within the general fund,” he said.
Like other cities, Houston relies on grants from other governmental entities, such as the federal government, to fund various activities. Beginning in 2018, grant income began to rise dramatically with massive COVID-19 pandemic and hurricane relief infusions. While the city used these grant funds for many purposes, a significant portion was spent to cover recurring expenses.
“The rapid decline in grants over the last two years and the current national political climate suggest there is a significant risk of continued reductions over the next several years,” the report reads.
The need for massive infrastructure investments while having a stagnant population also presents significant financial risks in the years ahead — population has stagnated since 2017 and affects the city’s ability to grow its tax base, the authors explain. With fragile finances, the city must implement structural reforms to ensure long-term stability, including cost-cutting measures, revenue diversification (including reducing revenue diversions) and strategic infrastructure investments, they argue.
“Without decisive action, the city faces growing financial instability, which could hinder its ability to provide essential services and maintain a high quality of life for residents,” the report reads.
Read the entire report here.
Written by Avery Ruxer Franklin for Rice News.
