S&P Global Ratings revised its rating outlook for Houston's combined utility system revenue bonds to negative from stable on Tuesday due to the city's recent budget-balancing moves that could potentially narrow debt service coverage.
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The spending plan also moved trash collection to the system from the general fund and imposed a monthly fee on residents for the service that S&P noted will generate $24 million compared to projected $117 million in operating expenses, with the system also becoming responsible for about $16 million in annual debt service for solid waste-related debt.
"Combined with rising expenditures and an extensive capital plan funded by $8.7 billion of debt, pending the receipt of the city's rate study, we believe all-in debt service coverage will sharply narrow in budgeted 2027 and beyond," the rating agency said in a statement.
S&P affirmed its AA rating for the system's first-lien revenue bonds and AA-plus rating for the system's previous ordinance bonds.
A comprehensive rate study, expected to be completed early next year, will support long-term financial planning and funding for utility and solid waste services, according to Randy Macchi, the city's public works director.
"The city remains committed to sound financial management, responsible planning, and maintaining the strong credit quality that allows it to continue investing in critical infrastructure while serving the residents of Houston," he said in a statement.
Houston Controller Chris Hollins, the city's fiscal watchdog, said while he is disappointed in S&P's action, he is not surprised.
"We raised concerns with the administration about shifting significant costs onto the utility system while pulling more than $100 million annually from it to support the general fund," he said in a statement. "We have heard S&P's warning loud and clear and I look forward to seeing the administration's plan to return the combined utility system to stable territory."
The budget for the fiscal year that began July 1 led S&P to
Moody's Ratings
