In-Depth

Houston Faces Worst Budget Crisis In Modern History

City officials warn of across-the-board layoffs in the face of a deficit likely to surpass $200 million.

Houston City Hall.

On Friday, some businesses in Houston will start to reopen, a move that could help jump start a local economy hit by a double punch of the COVID-19 crisis and the collapse of oil prices.

But it may come too late to help another victim: Houston’s city government.

Tax revenue has plummeted, the city is facing the worst budget crisis in living memory, and officials are warning to expect across-the-board cuts in city services. Last week, Mayor Sylvester Turner painted a dire picture of the next fiscal year, set to begin July 1.

"That budget deficit will be anywhere between $170 [million] to $200 million in terms of the deficit that we're trying to close,” Turner said. “It will be the worst budget deficit that the city has faced."

Even that may be understating the problem. Houston City Controller Chris Brown says the city was already facing a $100-million shortfall even before the coronavirus shut down the economy and the price of oil collapsed. Before the pandemic reached Texas, his office conducted a stress test to determine how bad the situation could get.

"We estimated that the worst-case scenario, if we saw a 2008-2009-type recession, we could see a budget gap in the future as large as $300 million," Brown said.

He added the city won't know how bad the situation is until May 6, when the March sales tax numbers are released. Nearly a third of the city's revenue comes from sales tax.

"We do know that March retail sales were down almost 9 percent nationwide,”Brown said. “During the Great Recession as a comparative, retail sales were only down 4 percent."

Mayor Pro-Tem Dave Martin, who heads the city council’s Budget and Fiscal Affairs Committee, said he's watching those numbers carefully.

"Sales tax is going to be a dramatic difference this year, because no one is consuming goods," Martin said. "So, we're going to have a significant loss of revenue, and that's not even looking at the loss of revenue from conventions that we're not having, hotel nights that we're not filling. So, it's one bad thing piled on top of another."

Municipal court fees, parking fees, and other revenue sources are all down as well. By law, Houston can't run a budget deficit. It faces painful choices in order to balance the books.

Police cadet classes will be deferred, and thousands of employees will be furloughed, Turner said.Mayor Pro-Tem Martin expects cuts to all city services, except existing police and firefighters.

"[I] hate to say this, but people that work in City Hall, in our office [will be furloughed],” Martin said. “People that work in libraries. People that work in parks. People that work in the animal shelter. You know, those are the unfortunate sides of things. We're going to have to cut city services. There's no ifs, ands, or buts about that."

The city received $404 million in federal aid through the CARES Act, but Martin said the city can't use that to replace lost revenue, only coronavirus expenses.

"This CARES Act was a perfect solution for New York City. It's a perfect solution for New Orleans," Martin said, "And the reason why I say that is because they had significant expenses that they had to incur to counter coronavirus. It's not a perfect solution for the city of Houston, because we were proactive, and we shut down the revenue-producing events in the city of Houston, to the detriment of what we're looking at now in the 2021 budget."

Cities are looking for more flexibility to use the relief money they've received so far. Senate Majority Leader Mitch McConnell was initially opposed to that. More recently, he appeared to signal he's open to a deal – if Democrats are willing to accept liability restrictions on businesses that reopen during the pandemic.

If there's a bright spot in local finances, it's on the county side. Unlike Houston, Harris County depends almost entirely on property taxes for its revenues. Those should remain stable through the end of the year. But next year could be a different story.

Budget Officer Bill Jackson said Harris County socked away funds to deal with two emergencies at once – one a natural disaster, one an economic crisis.

"So, we went into this year [the current fiscal year, which started March 1], it actually turned out to be a little bit around $300 million in those reserves for those reasons," said Jackson.

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Andrew Schneider

Andrew Schneider

Politics and Government Reporter

Andrew heads Houston Public Media’s coverage of national, state, and local elections. He also reports on major policy issues before the Texas Legislature and county and city governments across Greater Houston. Before taking up his current post, Andrew spent five years as Houston Public Media’s business reporter, covering the oil...

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