Networking Luncheon

Transcription:

Mark Malveaux (00:08):

Good afternoon everyone. My name is Mark Malvo. I'm the managing partner of McCall Parks and Horton. We hope you enjoy this networking luncheon that we are sponsoring. I supposedly have a pretty easy job of introducing someone and when I was doing my research on him about five minutes ago, it was somewhat depressing and I think I'm going to need beverage afterwards because he's 37 years old and I have to say I'm about two decades older than him and I feel like a failure. I have not achieved what this young person has achieved and I think about what I was doing at 37 and many of us here who might have a longer vintage we're in public finance for a variety of reasons, but I think one main reason we are in public finance is that it is a perfect intersection between those of us who like finance but also love the public sector, and many of us who serve the public sector, I always say we see the best in our public servants.

(01:25):

Public servants always aren't not always looked at in the highest regard, but that's completely different from what we see in public finance. We see the best of public service, and this gets me to the introducing of our keynote speaker. He is the comptroller for the city of Houston in one of the largest cities in the country. Prior to that, he was the Harris County clerk. Prior to that, he worked in a variety of fields, worked at McKinsey Company, and education wise, it's just impeccable. Morehouse College, Yale Law School, Harvard Business School, and one of the things that I think has been most impressive about him and we in public finance should depreciated is that he's part of that intersection with public finance. As the Harris County clerk, he made sure that people were able to vote because at the end of the day, voting is a big part of what we do. We don't issue many of our types of debt without having a vote. And to have someone of his caliber speak to the conference is wonderful and I will, with not much further ado, I would love to introduce to you Chris Hollins.

Chris Hollins (02:52):

Good afternoon everybody. Mark, thank you so much for that warm introduction. I thought you were going to let me eat lunch before pushing me up here, but great to be with you all here today. I should actually pull out my remarks.

(03:12):

Again. For those of you who I haven't had the privilege of meeting, my name is Chris Hollins and I have the privilege of serving as Houston's elected city controller. As controller, It's my job to serve as Houston's financial watchdog to bring greater transparency to how city government is spending Houstonians hard earned tax dollars and to bring new ideas and best practices to city departments so that we can invest more in every Houstonian, every household, and every neighborhood. Before diving into my remarks, I'd like to start by thanking bond buyer for hosting this annual event and for inviting me to share a moment with you this afternoon. Each year professionals spending the industry from bond council to underwriters to issuers and other stakeholders from across the state and across the country have the opportunity to connect here and learn more about Texas's most pressing issues in public finance.

(04:04):

This convening shapes the credit narrative, it shapes the economic outlook and even the financial wellbeing of issuers across the state, and it helps forge relationships that will impact the public finance industry for years to come. And while this is my first of what I'm confident will be many Texas Bond buyer events, my team is full of industry veterans who are no strangers to many of you. And so I'd like to quickly acknowledge one of them who you just were exposed to just an hour ago, deputy controller and city Treasurer of Vernon Middleton Lewis Vernon, thank you so much for your hard work and your stellar performance on behalf of Houstonians.

(04:45):

Now, I was asked to join you today to share how my office plans to play an active role in enhancing Houstonian quality of life. Also to provide a quick update on the city's financial health and to talk about the credit environment for issues across the state of Texas. On the surface, all three of these sound like tall tasks, improving the lives of more than 2 million residents, helping to remedy a budget shortfall expected to top a quarter billion dollars in coming years, and ensuring that a state with nearly 30 million residents is set up for future prosperity, but we cannot shy away from complex problems or from the call to lead for context, I spent most of my career up to this point in the private sector. As Mark mentioned, I was a management consultant at McKinsey and Company where I focused on helping governments and social services organizations to better achieve their missions. Fast forward to 2020 and I was an entrepreneur and a small business owner. I took on what I thought would be a low key temporary assignment as Harris County Clerk, but it turned out that serving as the Chief elections officer in the third largest county in the country during the most important election of our lifetime in the middle of a global pandemic was in fact not low key.

(06:12):

My job was to administer an election that gave millions of Harris County residents the opportunity to vote safely and conveniently despite the existence of a rapidly spreading virus for which at the time there was no cure and no vaccine. And we rose to the occasion working to understand the true nature of the challenges that we were facing, seeking expert advice on best practice on how to solve them, creating detailed plans to ensure safety and voter access, and identifying great people to step into important roles. We created innovative services like Drive-through voting where any voter in Harris County could vote from the safety and convenience of their vehicles. 24 hour voting where doctors, nurses and first responders shift workers who were working essential jobs across the city, often getting off at midnight or two or three in the morning. We gave them an opportunity where they could vote at a time that was convenient for them and for their busy schedules.

(07:08):

We created online mail ballot tracking for our senior citizens, so in the same way you track your Amazon package to your house, you could now track your ballot to make sure that it made it to our office and that your vote was counted. We recruited and trained more than 11,000 volunteers from across the community, and we tripled the number of early voting centers across the Houston area, not only to allow for social distancing, but also to make it three times as likely that you can vote near your home, near your place of business or near your child's school. That took dedication and hard work, but we got the job done and we did it as a community. Folks from across the political spectrum, folks from different religious, racial and ethnic groups, different neighborhoods, nonprofits like the Houston Food Bank and major employers from legacy energy firms to sports teams like the Houston Rockets and Texans. By coming together, we ensured that nearly 1.7 million Houston area voters could cast ballots safely, and most importantly, despite partisan opposition, we made sure that every single vote counted. So what does that have to do with today? Thank you.

(08:21):

Why am I sharing this with you? It's important because the city of Houston is facing another challenge right now that's unprecedented in recent history, a budget deficit in the hundreds of millions of dollars at a time when the needs of our residents demand that we do more, not less. Many of you may have seen recent coverage of the city of Houston's strain financial health, but the problem we face isn't new for years. While the city as a whole has experienced the incredible growth and prosperity that I'm sure you've witnessed, the fiscal state of our city has been like the proverbial frog sitting in boiling water. The temperature has crept up. Little by little while most of our leaders have been either unaware or oblivious, but as a newcomer to City hall, when I walked in early January, my immediate reaction was, Hey y'all, it's fucking hot in here.

(09:16):

Now calling out the problem is only the first step, the magnitude of the challenge that we face, demand solutions, and my team has pledged to go above and beyond simply sounding the alarm and bringing real ideas to the table, ideas that we can work through alongside the mayor, city council, labor leaders, the business community, and others who have a stake in ensuring that we have a path charted to fiscal sustainability. I should note, and many of you know that our problem is in no way unique. Our friends in New York City are facing a structural deficit of nearly $8 billion in Los Angeles and Chicago. Their figures are roughly half a billion dollars. Each of our cities is committed to finding a way forward, and there's a lot that Houston can learn from our sister cities. It's the same line of attack that I took as county clerk during that time.

(10:15):

Texas's presidential primaries had taken place right before Covid lockdowns, but numerous other jurisdictions across the country were forced to hold their primaries and pandemic conditions. And so when I took office as Harris County clerk just four weeks to the day before our first pandemic election, which were the runoffs, I took it upon myself to learn what other jurisdictions had done. I talked to everyone who would take my call from Arizona to Florida to California to Wisconsin and simply asked them, what did you do? What went well? What didn't go so well? What would you change if you had it to do again? And we took those lessons, we applied them to Harris County and the rest was history. Major city should take that same approach to fiscal responsibility as we each work to advance our missions to serve the needs of millions of residents. Without breaking the bank, we can learn from one another's successes and we can learn to avoid the pitfalls that have impacted our peers.

(11:17):

For instance, Houston is proud of how we've addressed the unfunded pension liability, shrinking the gap by 75% through coordinated efforts with state government and our first responder unions. As we now embark on the landmark expansion of Houston's Bush Inter Intercontinental Airport, we can learn from New York's efforts to create unprecedented opportunity for small and diverse businesses in the way that it did in LaGuardia and the JFK expansions. Columbus, Ohio has been on the forefront of transparency efforts, and I aspire to get Houston to similar levels in my time as city controller. That's why I'm working to formalize the consortium of major city financial officers that will share best practices that will make financial and operational data available to one another for benchmarking and that will work together to strengthen the integrity of local government. We're all marching towards the same horizon, and it's about time that we recognize that we can go further together.

(12:15):

But for the moment, let's refocus on Houston. Our city's structural deficit has historically been balanced by the sale of assets or other one-time revenue sources. More recently, it's been plugged by federal covid money and by sales tax revenues that we recognize as being temporarily inflated by stimulus dollars. Now that funding is gone and tax revenues have flattened, but our costs continue to grow as our population expands and as the price tag associated with constructing and maintaining 16,000 lane miles and a 7,000 mile pipeline distribution system swells, for example. As a result of years of neglect in upgrading our infrastructure, a $2 billion consent decree looms overhead. And just last month, our mayor proposed a $650 million legal settlement with firefighters that's expected to be paid out of bond proceeds that we're going to price later this spring when the annual debt service and agreed upon salary increases for firefighters are combined with our current projected structural deficit.

(13:21):

We're looking at an annual shortfall now north of $250 million. It's going to be no small fee how we can close a quarter billion dollars gap without seriously impairing our operations as public safety remains a serious concern for so many residents. More than half our general fund budget goes to police and fire. Many of you know that another 16% of that general fund budget goes to debt service and solid waste. And parks are the only other categories that take up more than 3% of that general fund budget. These are essential city services. And so to achieve balance, our charge is not simple, but it is straightforward. We either have to increase revenues or decrease costs or some combination of the two. And in seeking opportunities to lower costs, we cannot risk Houstonian quality of life or the quality of city service delivery. And so for me, cuts that hamstring critical operations like trash pickup or a non-starter.

(14:23):

On the revenue side, too many of our Houstonians are still struggling to make ends meet, and so that requires us to be sensitive about what it means to ask them to pony up more tax dollars without first demonstrating that the city has been a responsible steward of their current investment. And so we have to look for opportunities to be more efficient in ways that don't impact operations. And doing so is tough. We can't snap our fingers and get to 250 million in savings, but we can get 1,000,010 million, $5 million at a time, and that starts to add up. Solutions like partnering with the county are essential, and so I'm so glad that Amy Perez has been working with our office to think about some of those opportunities. Creative financing options are also a potential part of the solution, so that's where you come in. Now I want to talk about some of the bond issuances coming up, and I know that Vernon touched on these earlier.

(15:23):

For our consent degree to meet some of our critical infrastructural needs, we're looking at an $800 million plus issuance for our combined utility system for firefighters in combination with commercial paper refunding. That general obligation bond also looks to be upwards of $800 million. We have two airport transactions, a garb that may exceed $300 million, and a special facility issuance for $975 million. You can also expect a trans deal tax revenue anticipation notes with a par amount of 150 to $200 million this summer due to depletion due to the depletion of our ARPA dollars. And that deal will be competitive, so it'll be ready to submit your bids. Finally, in either Q4 of this year or Q1 of next year, we're going to be issuing roughly $400 million on behalf of Houston first as we look to expand and modernize our convention center. Alright, we all good on bond issuance? Okay, great. Now where are my credit rating agencies in the room? So I'm talking to you despite what you may have heard, Houston is not broke.

(16:41):

When I spend time talking to Houstonians, many of them know what it feels like to not have a single dollar in the bank. And so when we talk about the city's financial struggles, they are shocked to learn that in fact we have more than $400 million in our savings account more than we've ever had before in history. That historic fund balance gives us some time to get our house in order. And at just over a hundred days in office, I assure you that we're not wasting any of that time. Through my office's recent, recently expanded performance audit function, we're preparing ourselves to grade the effectiveness of city government to identify where we fall in short and to lay out recommendations for improvement. We're studying how we can maximize taxpayer funds to enhance service delivery despite our financial situation. And just as I mentioned, major cities across the nation that share our challenges.

(17:34):

Other Texas localities are also struggling to do more with less. And while the scale and severity may vary, the issues we face in Houston are being debated in city and town halls across the state. Despite local leaders' efforts to deliver for Texans, state officials right here in Austin are actively putting more obstacles in our path. In talking with leaders from across the state, I've heard a similar sentiment over and over again and that's that the attack on local government has never been greater than it is today. In Texas, for instance, the state revenue cap passed in 2019 has made it harder to bring in property tax revenue that keeps up with inflation. Just last year, the legislature pushed through house Bill 2127, also known as the Death star Bill. In short, HB 2127 prohibits city and county governments from adopting local rules and ordinances that fit their unique needs and the desires of our residents.

(18:38):

Y'all might remember the monumental Samsung deal that our friend yesterday talked about. Well, this morning the Houston Chronicle reported that the state gave away 4.8 billion in tax breaks to Samsung, more than a million dollars for every job created by that deal. And to subsidize the massive loss taken by school districts in that area. Tens of millions of dollars were taken away from Houston area schools that are already underfunded. And of course, we have the attacks on the free market represented by Senate Bills 13 and 19. As many of you know, today's audience is a little lighter because some of your friends care too much about the environment or about gun safety. And while it may not hurt your business right now by having a smaller swimming pool to be in, that decreased competition drives up costs for taxpayers. And it makes the work that we do to dig our city out of a financial hole even harder.

(19:36):

Make no mistake, the twist and turns that we must now navigate are contrived, devised and caused by a select few individuals here in Austin, but as the needless uncertainty that comes along with these laws sets in Texas, issuers large and small are working hard to adjust to the evolving landscape. And as we continue to fight these battles at home and in the state capitol, I remain hopeful of what's to come in Houston. We're committed to protecting our intrigue as a top destination for Americans to build a future for themselves and for their families. That means continuing to fill our stadiums and entertainment venues. It means continuing to bring our infrastructure into the 21st century and it means continue to deliver as best we can from City Hall. We are up to the task. We know that many are counting on us and we know that we have no other choice but to deliver. And so I say to you today that our city's future is bright, and I know that together we can ensure that the state's lights burn bright too, and that can be with your choice of carbon-based or renewable energy. Again, thank you all and thank you for the opportunity to share with you today. God bless you.