Texas Cities’ Financial Outlook

Introduction

The Government Finance Officers Association (GFOA) lists adopting and maintaining a structurally balanced budget as one of its best practices: “GFOA recommends that governments adopt rigorous policies, for all operating funds, aimed at achieving and maintaining a structurally balanced budget. The policy should include parameters for achieving and maintaining structural balance where recurring revenues are equal to recurring expenditures in the adopted budget.”^[1] GFOA notes that deviating from budget balance at times and thus using reserve funds to close a budget gap is acceptable, but that fiscal policies should push the budget back to balance so that recurring revenues and recurring expenditures are equal and projected to grow together. Alternatively, governments should avoid a fiscal structure built on using one-time revenue sources or reserve funds to routinely achieve a balanced budget.

Over the last two decades, several Texas cities have seen rapid expansions of their economies and populations. These developments can drive financial prosperity; however, they can also put pressure on local governments’ ability to provide public services and balance budgets. This is particularly true when local governments are burdened with legacy issues, such as underfunded pensions and health benefits for employees, that make it nearly impossible to maintain the current level of services. While this can be difficult, it is a much better problem to have than the financial issues related to a declining population.

Many issues contribute to the financial risks facing a city. Pension and other post-employment benefits are often the most important issues across major Texas cities and for states in general. However, different cities may also have unique challenges, as is the case for Texas cities, such as Houston, San Antonio, Austin, Fort Worth, and Dallas. Thus, for each section focused on an individual major Texas city, this report follows the following structure: 

• Provides an overview of the city’s general financial positions and its pension obligations.
• Discusses the city’s key budget and financial policies, its recent budget history, major components of its recent budgets, and the magnitude of the projected sustainability of the structural budget, if the data is available.
• Addresses several important issues that will impact each city’s budgets and quality of life moving forward by reviewing the city’s use of tax increment reinvestment zones (TIRZs), the provision of utility services (such as water and electric services), drainage management, and deferred street maintenance.

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Note

^[1] Government Finance Officers Association (GFOA), “Best Practices: Achieving a Structurally Balanced Budget,” February 2012, https://www.gfoa.org/materials/achieving-a-structurally-balanced-budget.

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