Houston will phase in drainage funding under deal with litigants

Bloomberg News

Houston Mayor John Whitmire announced an agreement on Wednesday to ease the financial sting of a successful lawsuit forcing the city to spend at least $100 million in property tax revenue annually for drainage and roads.

City officials had feared the final verdict reached this year in the litigation, which was filed in 2019, could push Houston's structural budget deficit to $320 million.

"Today, this will take a giant step forward in addressing our shortfall, and in future years, putting hundreds of millions of dollars into repairing our infrastructure," the mayor told the city council.

The lawsuit challenged the city's ability to adjust a slice of property tax revenue voters dedicated to a drainage and street renewal fund to comply with a voter-approved tax cap. 

Under the agreement with the plaintiffs, Houston's current 57% allocation of the 11.8 cents of property taxes dedicated to the fund will increase to 67% in fiscal 2026, 77% in fiscal 2027, and 100% beginning in fiscal 2028, according to Chris Newport, Whitmire's chief of staff. 

Reaction from the city council, which will have to vote on components of the agreement, was positive. 

"I'm very excited that we are working towards making sure that we have the dollars to do the work for the people of the city of Houston," Mayor Pro Tem Martha Castex-Tatum said. "I don't think it's a secret, or no one does not know that the city of Houston has aging infrastructure."

Whitmire, who released findings from an Ernst & Young efficiency study earlier this year and has taken steps to curb spending, is expected to unveil his fiscal 2026 budget for the nation's fourth-largest city soon.

Houston's projected ending budget balance has fallen from nearly $349 million in December to $228 million in February, according to city Controller Chris Hollins' latest monthly financial report.

Shrinking budget reserves were a major factor cited by Fitch Ratings and S&P Global Ratings when they revised their outlooks on Houston's AA ratings to negative from stable last year. The city has a stable outlook on its Aa3 rating from Moody's Ratings.

Houston could get a financial boost under a Texas bill filed this month that would allocate 30% of excess Harris County Toll Road Authority revenue to reimburse the city for the costs of providing public safety and emergency services.