January 13, 2021

“Highlights” from the City’s Audit

“Highlights” from the City’s Audit

The City of Houston is required by state law to file its annual audit (the Comprehensive Annual Financial Report or “CAFR”) within six months of the end of its fiscal year, which is June 30.  Every year the City takes full advantage of the time allotted to quietly release its audit over the holidays when the inevitable bad news will get little press coverage, a tactic particularly convenient in election years.

Consistent with this long-standing practice, the City posted its audit last week.  There is much to unpack in this 420-page report, but here are some of the “highlights”:

  • For the eighth time in the last decade, the City reported an operating deficit in its general fund.  This year the deficit was $180 million but would have been $384 million higher had the City not deferred some of its pension expense by “spreading” investment losses over the next five years.  To be fair, I am sure the pension funds have recovered to some degree from their levels on June 30; however, they will still be well below the targets.
  • The City’s pension expense (before deferrals) was $917 million, which is the third year in a row since the 2017 pension “reform” that the expense was higher than it was before the “reform.”
  • The City’s total pension debt (including the deferrals for investments not performing according to assumptions) increased by $847 million.
  • The City “found” $578 million in TIRZ assets that it claims had never been reported.  It, therefore, made an “adjustment” to add those assets to the books, which allowed the City to avoid the embarrassment of reporting its first ever general fund deficit in excess of $1 billion. (More to come on this.)
  • City total revenues were up by 1.5%, but its expenses increased by 3.8%.
  • The property tax levy was up by 6.1%.  (I’ll bet you thought it was limited to inflation and population growth by the City charter. )
  • HPD recorded the fewest number of arrests in over 20 years.
  • The amount of asphalt used by the City to fix potholes fell by 87% (11,507→1,526 tons).  I would assume this is some kind of error or change in the reporting method.
  • The City had 3,083 new water connections, the lowest number since 2011.
  • The City reported its first decline in population (a drop of roughly 5,000) since the 1980s.1  For the last four years, the City has grown at 0.3% annually, which is below the average for the U.S.

These “highlights” pretty well speak for themselves.  We have not solved the City’s pension problems.  The City still has an enormous structural deficit.  The City’s growth has stalled.

The City of Houston is at an inflection point.  We have seen what has happened to other great American cities when they ignored these kinds of trends.  Houston is not immune from becoming another Detroit.  Whether it does or not depends on us.

Note 1 – No, this is not the result of COVID fatalities.  As of June 30, 2020, the date of the report, the City had recorded 377 COVID-related fatalities.

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