Fiscal Cliff Threatens Houston's Finances

 

Under the Budget Control Act passed last year, massive spending cuts go into effect automatically at the start of 2013. Hundreds of billions of dollars worth of tax cuts are set to expire at the same time. The Congressional Budget Office says this would push the U.S. back into recession.

Elena Farah is a senior fellow at the University of Houston’s Hobby Center for Public Policy. She says going over the fiscal cliff would not only stunt business investment in Houston. It would also hurt the city’s finances.

“Pensions funds rely on fairly high market returns to generate investment revenue. Currently the city is assuming 8.5% on its pension funds, and 8% to 8.5% is typical. But if the economy is slow, then the real historical returns are likely to be less than that, which means an increase in addition to the unfunded liability.”

Farah says a federal government failure to avert the fiscal cliff would send a dangerous message to state and local governments wrestling with budget crises of their own.

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