Houston finance director to address structural budget gap

Tackling Houston's structural budget gap is at the top of Melissa Dubowski's to-do list as the city's finance director.

The nearly 10-year veteran of Houston government, who served as a deputy director overseeing debt and cash flow forecasts since 2019, was tapped for the top post by Mayor John Whitmire after he took office in January. 

City of Houston

Dubowski said the administration's fiscal 2025 budget, which comes out in mid-May, will take "some first steps" to address a structural gap of about $158 million. 

"There's not one silver bullet out there," she told The Bond Buyer. "It's going to have to be a combination of expenditure reductions, identifying new revenue sources, identifying efficiencies of how we can best utilize the funding we do have."

At the same time, the nation's fourth-largest city also has a strong budget balance, bolstered by an influx of federal stimulus funding, Dubowski added.

Houston ended fiscal 2023 on June 30 with a general fund balance of $550 million, up from $420.6 million in the prior fiscal year, according to its annual comprehensive financial report.

The outcome of contract negotiations to end a yearslong impasse with city firefighters will impact the upcoming budget, according to Dubowski. Shortly after taking office, Whitmire took action to move the dispute out of court and instead focus on a resolution. He withdrew the city's appeal of a Harris County District Court judge's December ruling ordering Houston to negotiate back pay and benefits starting from 2018 that was filed Dec. 29 by the prior administration.

Dubowski said talks are ongoing with the mayor's goal of reaching a deal by March.

Fitch Ratings, which rates Houston AA, has said an upgrade could occur with 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." A deal with firefighters that weakens that assessment could lead to a downgrade, it added.

Houston is also rated AA by S&P Global Ratings and Aa3 by Moody's Investors Service.

Public safety is the biggest expense for the Houston budget, with property and sales taxes accounting for its largest revenue sources. 

A 2004 proposition approved by Houston voters caps property tax collections, although a subsequent proposition that passed in 2006 allows additional funding for public safety. Dubowski said options like asking voters to repeal or modify the cap are "on the table."

On the infrastructure front, the Whitmire administration is evaluating a $2.6 billion financing for a major renovation of George Bush Intercontinental Airport's Terminal B, she said. Initial funding for the project was held up late last year by former Houston City Controller Chris Brown, who raised concerns about incomplete design plans and bond feasibility study.

Dubowski said city capital projects financed through commercial paper backed by a bank line of credit could be impacted by Texas laws prohibiting state and local government contracts with companies, including banks, that "boycott" or "discriminate" against the fossil fuel or firearm industries.

"As we see that pool of eligible banks shrinking, we anticipate that there could be increased costs … since there are fewer proposals that we're getting," she said.

Barclays was the latest bank to be banned, following UBS and Citigroup, which subsequently announced they were reducing or ending their municipal bond business nationwide. Five other big banks — Bank of America, JPMorgan Chase, Morgan Stanley, RBC Capital Markets, and Wells Fargo — remain under a Texas Attorney General review over their involvement with the Net Zero Alliance, which seeks a transition to net-zero greenhouse gas emissions by 2050. 

Houston had $646.4 million of commercial paper outstanding at the end of fiscal 2023.