Houston turns to efficiency study to help address fiscal woes

Bloomberg News

Houston officials unveiled a roadmap on Wednesday to help save millions of dollars for the upcoming fiscal 2026 budget through operational efficiencies, accountability, and spending controls.  

Mayor John Whitmire said acting on the findings in the Ernst & Young efficiency study commissioned last year will make the city more transparent, efficient, and focused on delivering results.

"If we can get better efficiencies, better delivery of services, I'm confident that then the public will recognize that we need their assistance," the mayor told the city council, referring to the potential for seeking additional revenue. 

Houston began fiscal 2025 on July 1 with a $7.3 billion all-funds budget that includes $3.03 billion in general fund spending. The city's general fund balance was tapped to help fill a structural budget gap.

Shrinking 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.

The city's finances were stained in the wake of last year's settlement with firefighters, which included a $650 million, bond-financed lump sum payment and a five-year collective bargaining agreement that increases pay by up to 34%. Houston is currently in contract negotiations with its police union. 

The outcome of a 2019 court case concerning property tax revenue voters dedicated to drainage and roads will force the nation's fourth-largest city to allocate at least $100 million annually to a fund dedicated to those purposes.   

A $100 million payment due June 30 would decrease fiscal 2025's projected $350 million fund balance to $250 million, while pushing the structural deficit to an "unsustainable" more than $300 million, Houston Controller Chris Hollins reported earlier this month.

Whitmire said it was "reasonable" to expect the efficiency study would lead to 5% to 15% in spending reductions heading into the next city budget.

"It's not like turning on a light switch," Whitmire told reporters after the council meeting. "It will be a process."

Houston Controller Chris Hollins said while the study highlights "real opportunities to cut waste and improve city services," their financial impact should be evaluated. To that end, he renewed his call for an emergency task force to address Houston's growing financial challenges.