RandomGuy
05-04-2010, 12:28 PM
Houston's budget troubles get noticed on the other side of "the pond" by the Economist.
The coming shortfall in America’s fourth-largest city
Apr 29th 2010 | HOUSTON | From The Economist print edition
DURING last year’s mayoral campaign Annise Parker, then Houston’s controller, offered an austere view of the city’s finances. She would say, for example, that she thought Houston should have more police officers, but that there was no money in the budget for them. At the time voters appreciated her refusal to sugar-coat the facts, and elected her accordingly.
Sceptics had warned that Texas would be last into the recession but last out. It now seems that the state, and Houston, are in recovery along with the nation as a whole. Still, both city and state face rising unemployment, strained social services, and looming budget shortfalls. Texas’s unemployment rate is 8.2%, according to the Texas Workforce Commission, and has been idling there for some months. Houston scraped up an additional 14,800 jobs in March, although its unemployment rate held steady at 8.5%.
Houston’s annual operating budget for fiscal 2010 was set at about $4 billion. That budget allowed for a very small increase in operating expenses. For the next fiscal year, which begins in July, the economic outlook has worsened. Sales-tax revenues are falling, as are projections for the property tax; and expenses are projected to rise, largely because of commitments to municipal pension funds and health benefits for the retired. The city controller, Ronald Green, forecasts a shortfall of slightly more than $100m for fiscal 2011. Ms Parker has had hard words for Bill White, her predecessor. As Mr White now is the state’s Democratic candidate for governor, Houston’s finances could become the subject of statewide debate.
Barton Smith, the director of the Institute for Regional Forecasting at the University of Houston, reckons that it is no wonder the city is on the back foot. Two years ago, oil was selling for almost $150 a barrel. No one anticipated that the price would fall below $40 (though it is now back above $80). “It’s a psychological phenomenon right now,” he says. For example, commercial-property values have fallen by nearly 50%, though the income from those properties is only down a fraction of that.
On this view, Houston is in for a couple of tough years as tax revenues catch up with the recovery. And residents are feeling the pinch. On April 21st Stephen Klineberg, a sociologist at Rice University, brought out the 2010 edition of his Houston Area Survey, an annual measure of the civic temperature. Over a third of respondents said the economy is their main concern. It used to be traffic.
Mr Smith argues that the fundamentals of the local economy are strong. Residential property values have held steady, for the most part, and the Institute for Regional Forecasting predicts substantial population growth in the Houston area over the years to come. But John Diamond of Rice University takes a more negative view. He points out that the city has issued pension-obligation bonds that it will struggle to repay, as well as making promises about health benefits for the old that threaten to explode the rest of the budget. Ms Parker recently announced increases to premiums to pay for them, but Mr Diamond considers those merely symbolic.
Of course, Houston’s situation could be worse. For next year, it does have some surplus funds. In her April 8th state-of-the-city address Ms Parker said that she would be willing to draw these down to a “prudent” level. Whatever that is, a gap will remain. Some cuts have already taken effect; most of the city’s public libraries, for example, will be closed on Saturdays. Further cuts may be severe. “Everything is on the table, and we will all be asked to sacrifice,” Ms Parker said. Her budget, due in mid-May, will provide the gruesome details.
The coming shortfall in America’s fourth-largest city
Apr 29th 2010 | HOUSTON | From The Economist print edition
DURING last year’s mayoral campaign Annise Parker, then Houston’s controller, offered an austere view of the city’s finances. She would say, for example, that she thought Houston should have more police officers, but that there was no money in the budget for them. At the time voters appreciated her refusal to sugar-coat the facts, and elected her accordingly.
Sceptics had warned that Texas would be last into the recession but last out. It now seems that the state, and Houston, are in recovery along with the nation as a whole. Still, both city and state face rising unemployment, strained social services, and looming budget shortfalls. Texas’s unemployment rate is 8.2%, according to the Texas Workforce Commission, and has been idling there for some months. Houston scraped up an additional 14,800 jobs in March, although its unemployment rate held steady at 8.5%.
Houston’s annual operating budget for fiscal 2010 was set at about $4 billion. That budget allowed for a very small increase in operating expenses. For the next fiscal year, which begins in July, the economic outlook has worsened. Sales-tax revenues are falling, as are projections for the property tax; and expenses are projected to rise, largely because of commitments to municipal pension funds and health benefits for the retired. The city controller, Ronald Green, forecasts a shortfall of slightly more than $100m for fiscal 2011. Ms Parker has had hard words for Bill White, her predecessor. As Mr White now is the state’s Democratic candidate for governor, Houston’s finances could become the subject of statewide debate.
Barton Smith, the director of the Institute for Regional Forecasting at the University of Houston, reckons that it is no wonder the city is on the back foot. Two years ago, oil was selling for almost $150 a barrel. No one anticipated that the price would fall below $40 (though it is now back above $80). “It’s a psychological phenomenon right now,” he says. For example, commercial-property values have fallen by nearly 50%, though the income from those properties is only down a fraction of that.
On this view, Houston is in for a couple of tough years as tax revenues catch up with the recovery. And residents are feeling the pinch. On April 21st Stephen Klineberg, a sociologist at Rice University, brought out the 2010 edition of his Houston Area Survey, an annual measure of the civic temperature. Over a third of respondents said the economy is their main concern. It used to be traffic.
Mr Smith argues that the fundamentals of the local economy are strong. Residential property values have held steady, for the most part, and the Institute for Regional Forecasting predicts substantial population growth in the Houston area over the years to come. But John Diamond of Rice University takes a more negative view. He points out that the city has issued pension-obligation bonds that it will struggle to repay, as well as making promises about health benefits for the old that threaten to explode the rest of the budget. Ms Parker recently announced increases to premiums to pay for them, but Mr Diamond considers those merely symbolic.
Of course, Houston’s situation could be worse. For next year, it does have some surplus funds. In her April 8th state-of-the-city address Ms Parker said that she would be willing to draw these down to a “prudent” level. Whatever that is, a gap will remain. Some cuts have already taken effect; most of the city’s public libraries, for example, will be closed on Saturdays. Further cuts may be severe. “Everything is on the table, and we will all be asked to sacrifice,” Ms Parker said. Her budget, due in mid-May, will provide the gruesome details.