Revenue options needed to help pay for Houston firefighter deal: controller

Houston would be able to accommodate the cost of a proposed settlement with its firefighters in the near term, but will need a revenue boost to prevent a structural budget gap from growing, City Controller Chris Hollins said Tuesday.

Hollins, who took office in January, said he will have to certify if funds are available to cover debt service on $650 million of judgment bonds the city would issue to cover firefighter back pay, as well as wage hikes over a new five-year contract. He estimated those costs at as much as $80 million in fiscal 2025, while Houston has a structural budget deficit of $160 million to $200 million.

"Given the shortfall we're already facing, any deal that comes across my desk has to be looked at from the perspective of how the city will pay for it," he told reporters, adding a hard look at revenue options is needed because large-scale spending cuts and layoffs "will not get the job done."

Hollins said a projected $400 million fund balance would enable the city to cover the deal in the near term, but he warned firefighter wage hikes, estimated to cost $36 million in fiscal 2025, could exceed $140 million in the contract's final year. He pegged annual debt service on the 25- to 30-year judgment bonds at "upwards of $40 million" with a total debt payment of as much as $1.3 billion when factoring in interest costs.

Meanwhile, other expenses are on the horizon as contract negotiations with city workers are due this year and the police contract expires next year, according to the controller.

The settlement with the Houston Professional Fire Fighters Association, announced by Mayor John Whitmire earlier this month, was aimed at ending an eight-year-long impasse that landed the union and the city in court. 

The deal requires approvals by the Texas Attorney General, Harris County District Court, and the Houston City Council, in addition to the city controller's certification.

Fitch Ratings has said the trajectory of Houston's AA rating could depend on retroactive contracts with firefighters. 

A rating upgrade could occur from a contract "that results in sustainable public safety spending relative to its resource base and a reduction of carrying costs materially below 20% of governmental spending, leading to a strengthened expenditure framework assessment," Fitch said in a September report. A deal with firefighters that weakens that assessment could lead to a downgrade. 

The nation's fourth largest city has general obligation ratings of AA from S&P Global Ratings and Aa3 from Moody's Ratings.