City of Houston
PRELIMINARY BUDGET SUMMARY
GENERAL FUND

FISCAL YEAR 2017
July 1, 2016 - June 30, 2017
MAYOR SYLVESTER TURNER
APRIL 15, 2016

 TABLE OF CONTENTS

Mayor’s Letter ………………………………………………………………………

2

Forward Looking Statement ………………………………………………………

4

Organization Chart …………………………….…………………………………..

5

Basis of Budgeting and Accounting ……………………………………………...

6

Houston Demographics & Economic Conditions ……………………………….

8

Budgetary Challenges ……………………………………………………………..

16

City Initiatives: Stabilizing the Budget in a New Downturn…………………….

19

Closing the FY2017 Gap …………..……………………………………………...

21

FY2017 Preliminary General Fund Summary …………………………………..

26

FY2017 General Fund Revenues ……………..…………………………………

28

FY2017 General Fund Expenditures ………….…………………………………

29

Next Steps – FY2018 at a Glance …………………………………………….…

30

 CITY OF HOUSTON

Sylvester Turner
Mayor
P.O. Box 1562
Houston, Texas 77251-1562
Telephone – Dial 311
www.houstontx.gov

To: Citizens, Honorable Members of City Council and the Honorable City Controller
I am pleased to present the preliminary General Fund budget for the fiscal year which begins
July 1, 2016, and ends June 30, 2017 (FY2017). I am not anticipating significant changes, but I
stress that these figures are subject to revision given the fact that I am presenting them nearly a
month before the formal budget document is to be released. We are able to provide this
preliminary budget well ahead of the normal schedule because of the focus my administration
has put on our finances since I was elected.
Cost increases, voter imposed revenue limitations, a broken appraisal system and the economic
downturn combined to create a $160 million budget shortfall - the largest fiscal challenge the
City has faced since before the Great Recession. At $2.3 billion, this budget totals about $82
million less expenditures than the current FY2016 appropriation. This is especially significant
when juxtaposed against the $60 million of contractual and mandated cost increases we are
forced to cover in FY2017. By bringing all parties to the table to engage in shared sacrifice, we
closed the gap, reduced spending and started building the foundation for change that will address
the City’s structural budget problems. Each City department, the employee unions, the Tax
Increment Reinvestment Zones, City Council and various other parties have worked together to
identify cost savings and efficiencies while also preserving a healthy fund balance, minimizing
employee layoffs and maintaining the critical City services our residents rely on and deserve.
This budget includes the elimination of 54 vacant positions and 30 to 40 layoffs, the majority of
which we hope to accomplish through attrition. I made a decision that there would be no
significant reductions to park and library operations because they have been hit hard in the past.
These departments provide critical services to our most vulnerable populations, especially during
hard economic times. It makes no sense to cut them further.
Although there have been cost reductions identified within the police and fire departments, there
will be no layoffs of police officers or fire fighters. In fact, we are including funding for an
additional police cadet class, for a total of five classes, and looking at ways to streamline
operations to get more officers back on the street. The new Turnaround Houston program to help
the hard to employ will continue in FY17 and we are putting together an expanded summer jobs
program for our youth. I hope Houston’s major employers will join in.
This budget was balanced using both recurring and non-recurring initiatives. If non-recurring
items had been taken off the table, there would have been drastic cuts in City services and
another 1,235 City employees would have lost their jobs. I was not prepared to do that to the
residents of this great City or our municipal workforce.
Council Members: Brenda Stardig Jerry Davis Ellen R. Cohen Dwight A. Boykins Dave Martin Steve Le Greg Travis Karla Cisneros
Robert Gallegos Mike Laster Larry V. Green Mike Knox David W. Robinson Michael Kubosh Amanda Edwards Jack Christie
Controller:

Chris Brown

 The recurring initiatives mark the start of institutionalizing a new way of running City
government. We have streamlined operations, eliminated redundancies and forced greater
efficiencies for recurring annual savings of $36.2 million. The TIRZs have agreed to contribute
an additional $19.6 million to the General Fund for FY2017 and an equal or larger amount in
subsequent years. Yet to come is a new approach for our pension liabilities. Productive
discussions are underway with stakeholders and I am committed to having an agreement ready to
take to the legislature by the end of this year.
In the past, there has been a desire to tinker with the mayor’s budget proposal. I strongly urge
that not be the case this year. Even one small change will upset the delicate balance we’ve
achieved as a result of shared sacrifice and put the City at risk for a credit rating downgrade.
This budget allows us to plan for the additional fiscal challenges the City will encounter in FY18
while also improving public safety, increasing employment opportunities and meeting the critical
needs of the less fortunate in our city. I am asking City Council members not to do anything to
change the course we have carefully mapped out.
I look forward to your support.
Sincerely,

Sylvester Turner
Mayor

 Forward Looking Statements
The statements contained in this document that are not purely historical are forward looking
statements, including statements regarding the City’s expectations, intentions, or strategies regarding
the future. Readers and viewers should not place undue reliance on forward looking statements. All
forward looking statements in this document and made verbally in conjunction with the release of this
document are based on information available to the City on the date hereof, and the City assumes no
obligation to update any such forward looking statements.
The forward looking statements herein are necessarily based on various assumptions and estimates
and are inherently subject to various risks and uncertainties, including risks and uncertainties relating
to the possible invalidity of the underlying assumptions and estimates and possible changes or
development in social, economic, business, industry, market, legal and regulatory circumstances and
conditions and actions taken or omitted to be taken by third parties, including customers, suppliers,
business partners and competitors, and legislative, judicial and other governmental authorities and
officials. Assumptions related to the foregoing involve judgments with respect to, among other things,
future economic, competitive, and market conditions and future business decisions, all of which are
difficult or impossible to predict accurately and many of which are beyond the control of the City. Any
of such assumptions could be inaccurate and, therefore, there can be no assurance that the forward
looking statements included in this document and made verbally in conjunction with the release of this
document would prove to be accurate and may be materially different.
Additionally, pension-related projections or forecasts, including projections of the amount of the UAAL
and net pension liability and the amounts of actuarially calculated contributions by the City, constitute
“forward-looking” information that reflects the judgment of the City, the boards of the Pension
Systems and the actuaries as to the amount of assets that will be required to be accumulated for the
payment of future benefits to both active and retired employees. Such judgments are based upon a
variety of assumptions concerning future events and circumstances, any one or more of which could
prove to be inaccurate and are subject to change in the future. The assumptions underlying the
projections are material to the development of the projections, and variations in the assumptions may
produce substantially different results.
Amounts shown in this document are preliminary amounts and may be subject to change. The
FY2017 Proposed Budget is to be released on May 10, 2016.

FY2017 Preliminary General Fund Budget Summary

4

       

?nu-FY2017 Preliminary General Fund Budget Summary

Organization Chart

Citizens

City
Council

Administration
and
Regulatory Affairs

Fire

Houston
Emergency
Center

Library

Parks
and
Recreation

City
Controller

Mayor

Aviation

Fleet
Management

Convention and
Entertainment
Facilities

City
Secretary

General
Services

Houston
Health Department

Houston
Information
Technology Services

Municipal
Courts
Department

Planning
and
Development

Police

Finance

Housing and
Community
Development

Human
Resources

Legal

Neighborhoods

Office of
Business
Opportunity

Public Works
and
Engineering

FY2017 Preliminary General Fund Budget Summary

Solid Waste
Management

5

 Basis of Budgeting and Accounting
In general, the basis of budgeting and the basis of accounting used in the preparation of the City’s
annual financial report are the same for all governmental funds (general fund, special revenue fund,
debt service fund, and capital projects). Revenues and expenditures are budgeted consistent with
the City’s financial statements, which are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) for all governmental funds.
Governmental funds are accounted for on a modified accrual basis. This means that revenues are
recognized in the accounting period in which they become available and measurable. Expenditures
are recognized in the accounting period in which the fund liability is incurred, with the exception of
long-term liabilities. Significant receivables (revenues) and liabilities (expenditures) are recorded in
the prior year’s budget up to sixty days after fiscal year end if they represent earned income or
expenditures as of June 30, the last day of the fiscal year. This includes the cost of employees’ time
as well as supplies, services, and equipment delivered by June 30.
For enterprise funds, the budgeting and accounting basis are the same except for depreciation and
non-current expenses. Enterprise funds are accounted for on a full accrual basis, where revenues
and expenses are recorded when they are earned/incurred. Enterprise funds focus on expenses
related to maintenance and operations, equipment purchases, and exclude depreciation and other
allocations related to income determination. Revenues received and expenses paid for goods and
services delivered by June 30 are credited or charged to the current fiscal year’s budget.
Encumbrance accounting is used to reserve funds committed to vendors for supplies, services and
equipment throughout the year in all funds. However, encumbrances for items not delivered by June
30 are canceled and re-established against the new fiscal year budget for all operating budgets.
Encumbrances do not establish expenditures/expenses or liabilities.
Appropriations and
encumbrances for capital project funds are maintained in effect until they are liquidated.

Reserves
The City’s fund balance level has been a critical component of the City’s financial management
program. Reserves exist in two forms:
o Those specifically created by ordinance, and
o Those maintained as unappropriated or unassigned ending fund balance.
Most of the City’s budgetary reserves take the form of ending fund balances and are consequently the
result of financial activity as presented in the City’s financial statements.

FY2017 Preliminary General Fund Budget Summary

6

 General Fund Reserves
The following table shows the ending unassigned fund balance as well as the actual year-end
maintenance and operating costs for preceding fiscal years, the estimated year-end costs for the
current fiscal year and the estimated year-end costs for the subsequent fiscal year.

Historical Data FY1997 – FY2017
General Fund Available Fund Balances
($ thousands)

Fiscal year
FY1997
FY1998
FY1999
FY2000
FY2001
FY2002
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
FY2014
FY2015 Actual
FY2016 Estimate
FY2017 Estimate

Unassigned
Fund Balance
84,105
106,856
80,409
66,590
79,432
80,335
88,659
120,042
175,832
234,535
253,514
236,275
165,383
129,040
171,677
202,842
222,620
287,842
196,394
186,712

M&O
Expenditures

% of Fund
Balance

903,228
956,893
1,030,235
1,064,160
1,105,408
1,206,160
1,235,994
1,279,879
1,368,746
1,459,076
1,567,484
1,668,700
1,676,367
1,680,038
1,590,044
1,705,450
1,821,588
1,964,412
2,026,749
2,013,465

9.31%
11.17%
7.80%
6.26%
7.19%
6.66%
7.17%
9.38%
12.85%
16.07%
16.17%
14.16%
9.87%
7.68%
10.80%
11.89%
12.22%
14.65%
9.69%
9.27%

Previous City financial policies adopted by Ordinance 2003-474 required that fund balance as a
percentage of expenditures less debt service be 5% or greater, however it was the City’s desire to
maintain ending fund balance equal to 7.5% of expenditures less debt service.
The City’s financial policies were revised and strengthened with adoption of Ordinance 2014-1078.
Under the new policies, the City is now required to maintain an ending fund balance equal to at least
7.5% of General Fund expenditures (excluding debt service and transfers for pay-as-you-go capital
projects). This went into effect starting FY2016.

FY2017 Preliminary General Fund Budget Summary

7

 Houston Demographics and Economic Conditions
The City of Houston was founded on August 30, 1836, by brothers
Augustus Chapman Allen and John Kirby Allen, and named after
General Sam Houston. The City of Houston’s simple 19th century city
seal – the noble locomotive (heralding Houston’s spirit of progress)
and the humble plow (symbol of the agricultural empire of Texas from
which Houston would draw her wealth) – clearly speaks to the roots of
Houston’s economy and to the visionary leadership of its citizens.
According to the United States Census Bureau, Houston has a total
area over 600 square miles comprising of 579.4 square miles of land and 22.3 square miles of water.
Houston is the fourth most populous city in the nation with an estimated 2014 population of 2,239,558
(3,502 people per square mile), just behind New York, Los Angeles and Chicago; and is the largest
city in the southern U.S. and Texas.
With 6,656,947 inhabitants in 2015, the nine-county Houston-The Woodlands-Sugar Land
Metropolitan Statistical Area (MSA) is the nation’s fifth most populous metro area. The entire MSA
covers more than 10,000 square miles and includes all or part of the Austin, Brazoria, Chambers, Fort
Bend, Galveston, Harris, Liberty, Montgomery, and Waller counties. Houston is the center city of one
of the most dynamic urban centers in the United States.
2014 City Population
New York
Los Angeles
Chicago
Houston
8,491,079
3,928,864
2,722,389
2,239,558
2015 Metro Area Population
New York, Newark, Jersey City, NY-NJ-PA
Los Angeles, Long Beach, Anaheim, CA
Chicago, Naperville, Elgin, IL-IN-WI
Dallas, Fort Worth, Arlington, TX
Houston, The Woodlands, Sugar Land, TX
Washington D.C., Arlington, Alexandria, VA-MD-WV
Philadelphia, Camden, Wilmington, PA-NJ-DE-MD

Philadelphia
1,560,297
20,182,305
13,340,068
9,551,031
7,102,796
6,656,947
6,097,684
6,069,875

Population growth continues in the city and the metropolitan area: the Houston metro area added
159,083 residents from July 2014 to July 2015, according to U.S. Census data that show the area
gaining more population than any other metro area in the nation. Every Houston-area county
experienced population growth in 2015, and Harris County led the nation’s counties in population
growth, adding 90,451 residents (among counties with 250,000 people or more, Fort Bend showed
the fastest percentage growth with a 4.3% population increase in one year).
Houston also stands among the nation’s most diverse cities, drawing newcomers from around the
U.S. and across the world – foreign-born residents accounted for two of every five newcomers to the
region in the past five years.

FY2017 Preliminary General Fund Budget Summary

8

 According to the U.S. Census Bureau, as of
2010, Houston’s population breakdown by
race and ethnicity was as follows: Hispanic or
Latino origin 43.8%; White (not Hispanic)
25.6%; African-American 23.7%; Asian 6.0%;
American Indian and Alaska Native 0.7%;
Native Hawaiian and Pacific Islander 0.1%;
and persons of two or more races 3.3%.
Additionally, 49.8% of Houston’s population is
female; 25.9% of all persons are under 18
years of age and 9.0% are over 65 years;
28.3% of all persons are foreign born; and
46.3% of all households speak a language
other than English.
While the economy has started to slow, population growth is still likely to continue, albeit at a reduced
pace. The region records an annual “natural increase” in population of about 60,000, as births
outpace deaths, and this means that even a 50% drop in the number of residents moving to Houston
would yield annual population growth of nearly 90,000. The Greater Houston Partnership notes that
population growth has been steady over the past 15 years, with the region’s population increasing
from 3.7 million to 6.6 million and showing few effects from upswings and downturns in oil prices.
ECONOMIC OUTLOOK
For the fifth time in 35 years, Houston faces economic uncertainty brought on by falling oil prices.
Rigs are idled and the City’s sales tax revenue has fallen. The Houston Purchasing Managers Index
for March 2016 registered 45.9, up from February’s 44.5 mark but below the 50-point level required to
indicate economic expansion (the index has now signaled economic contraction in Houston for 15
straight months). And construction has slowed as new capacity generates office and multi-family
supply that could outstrip demand.
The region’s economy remained relatively strong through and following the Great Recession; as
indicated in the chart below, Houston never saw the dramatic employment dropoff experienced by
much of the U.S. from late 2008 into early 2010. Since that time, the Houston MSA has seen job
growth sufficient to keep local employment growth at a pace near that of the nation’s employment
expansion. However, with the impact of lower oil and gas prices on the upstream energy sector,
Houston’s employment growth has slowed and is being outpaced by increases in U.S. employment.

FY2017 Preliminary General Fund Budget Summary

9

 3,200

145,000

3,000

US Pre-recession High
Jan 2008: 138,432K

140,000

Jan 2016
143,314K

135,000

125,000

2,800
2,600
2,400

130,000

2,200

US Recession Low
Feb 2010 129,733K

Mar-05
Jul-05
Nov-05
Mar-06
Jul-06
Nov-06
Mar-07
Jul-07
Nov-07
Mar-08
Jul-08
Nov-08
Mar-09
Jul-09
Nov-09
Mar-10
Jul-10
Nov-10
Mar-11
Jul-11
Nov-11
Mar-12
Jul-12
Nov-12
Mar-13
Jul-13
Nov-13
Mar-14
Jul-14
Nov-14
Mar-15
Jul-15
Nov-15

US Employment ('000s)

150,000

USA

2,000

Houston Employment '(000s)

Total nonfarm employment
United States vs. Houston MSA
Mar 2005 – Feb 2016

Houston

Source: US Census Bureau

Nationally, the slow but steady job growth has moved the nation beyond its pre-recession high of
138.4 million jobs in January 2008. As of March 2016, some six years after the recession low of 129.7
million jobs in February 2010, the U.S. has recovered 14 million jobs with an estimated 143.8 million
jobs, easily surpassing the pre-recession highs.
United States
Total employment versus unemployment rate
Jan 2008 - Mar 2016
12.0%

Unemployment rate 10.0%
Oct 2009

10.0%

145.0

Total employed 140.4K
Dec 2014

140.0

8.0%
6.0%

135.0
130.0

4.0%

Unemployment rate 4.9%
Feb 2008

125.0
Jan-08

2.0%

Total employed 129.7K
Feb 2010

Jan-09

Jan-10

Jan-11

% Unemplolyed

Total employed (millioms)

150.0

Jan-12

Jan-13

Jan-14

Jan-15

Jan-16

0.0%

Source: US Census Bureau

Houston’s story is quite different: Houston lost only 156,400 jobs from December 2008 to January
2011. The area’s recovery was also much more rapid than at the national level, as Houston regained
its pre-recession jobs level by December 2011, only 23 months after the low point of the recession.
As of December 2014, Houston had gained 326,200 jobs since December 2011. While Houston
recovered at a faster pace than the country as a whole, much of that growth was attributable to
expansion in energy exploration due to higher oil prices. The lingering downturn in prices has
dramatically slowed employment growth in Houston, although the impact is being slightly offset by
active construction projects started during the recent building boom and new projects in downstream
energy refining that are now more economical with lower energy prices.

FY2017 Preliminary General Fund Budget Summary

10

 Houston MSA
Total employment versus unemployment rate
Jan 2008 - Feb 2016
Unemployment rate 8.8%
Jun 2011

Total employed ('000s)

3,000

Total employment Dec 2014
3,006.1
Jan 2016
2,973.5

2,900

9.0%
8.0%
7.0%
6.0%

2,800

5.0%

2,700

4.0%

2,600
2,500

10.0%

Unemployment rate, 3.9%
Apr 2008

Total employment 2,679.9
Dec 2011
Total employment 2,501
Jan 2010

3.0%

% Unemplolyed

3,100

2.0%
1.0%

2,400
0.0%
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16

Source: US Census Bureau

While initial Texas Workforce Commission data indicated the area created 23,200 jobs in 2015,
revisions released in March 2016 reduced the 2015 job-creation total to 15,200, a dramatic drop-off
from the 117,800 jobs created in 2014 (the region’s third-best year on record for job growth). Job
losses tended to occur in sectors more closely tied to the upstream energy industry; the overall gain
was driven by an increase of 65,000 jobs in sectors including accommodations and food services;
arts and entertainment; construction; finance and insurance; government and health care.
As job growth slows (weighed down by a market in which the nation is showing its lowest count of
working oil rigs in more than half a century), there are still reasons for optimism. Looking ahead, area
economists cite several reasons to believe that Houston will successfully weather this newest storm.
For one, oil downturns are typically linked to a national recession; this is not the case at present, and
continued strength in the U.S. and global economies helps Houston (demand for consumer goods
drives demand for plastics and chemicals, and many Houston companies are impacted by business
trends occurring far from this metro area).
Additionally, Houston’s well-documented economic diversification of the past few decades means that
as people are laid off from jobs at struggling upstream energy firms, many are able to transfer their
skills in areas like finance, human resources, or the law to other employers in sectors like
downstream energy, health care or education. Meanwhile, some $50 billion in construction and
expansion at refineries and chemical plants to the east of Houston represents one of the largest
investments ever in manufacturing capacity along the Gulf Coast. Furthermore, the planned
expansion of the Panama Canal will open new doors for area manufacturers wishing to ship to, or
bring components in from, Asia.

FY2017 Preliminary General Fund Budget Summary

11

 ENERGY
Houston remains the internationally recognized global energy capital, and as such can suffer material
economic impacts when oil prices slump. After achieving a high of nearly $106 in June of 2014, oil
tumbled to $31.68/barrel in January 2016, a price point not seen since March 2009. This is having an
impact on job growth in Houston, as Houston holds a substantial portion of the nation’s jobs in oil and
gas extraction. Partially offsetting this impact are the nine refineries in Houston that process more
than 2.3 million barrels of crude oil per day (approximately half of the state’s total production). Lower
oil and gas prices translate to lower costs for the inputs that refiners and many other manufacturers in
the Houston area use, which can translate into higher profits and more employment related to refining
and manufacturing.
As of April, the Energy Information Administration (EIA) is forecasting West Texas Intermediate (WTI)
will approach an average of $35/barrel in 2016 and a further appreciation in 2017 prices to more than
$40/barrel. Based on this forecast, local economists say Houston should remain relatively strong in
the near term, although a price rebound will be needed at some point to compensate for lost jobs and
related economic activity as construction at refineries and chemical plants along the Texas Gulf Coast
slows in the next year or two. Should oil prices hold to current projections and remain around
$40/barrel, or even increase slightly through the remainder of 2016, Houston is likely to navigate this
most recent economic challenge in relative health. Given the volatility of oil prices and projections
though, the City would do well to prepare for prices below these levels.
West Texas Intermediate (WTI) vs Henry Hub Natural Gas
Jan 2005 - Feb 2016
160.0

WTI Spot Price (FOB) $

140.0

WTI price $105.8

120.0

Jun 2014

100.0

WTI price $47.2
Jan 2015

80.0

14.0
12.0
10.0
8.0

60.0

6.0

40.0

4.0

20.0

Jan-05
Jun-05
Nov-05
Apr-06
Sep-06
Feb-07
Jul-07
Dec-07
May-08
Oct-08
Mar-09
Aug-09
Jan-10
Jun-10
Nov-10
Apr-11
Sep-11
Feb-12
Jul-12
Dec-12
May-13
Oct-13
Mar-14
Aug-14
Jan-15
Jun-15
Nov-15

-

WTI price $31.68
Jan 2016

WTI price

2.0

Henry Hub Natural Gas Spot Price
$ per Million Btu

16.0

-

Natural Gas Spot price

Source: US Energy Information Administration

FY2017 Preliminary General Fund Budget Summary

12

 HOUSTON MSA AT A GLANCE

* Not Seasonally Adjusted
Sources: Greater Houston Partnership, US Bureau of Economic Analysis, US Bureau of Labor Statistics, Harris County Appraisal District

FY2017 Preliminary General Fund Budget Summary

13

 CONSTRUCTION AND REAL ESTATE
The City of Houston issued approximately 16,000 single and multi-family residential permits in 2015,
17% less than in the previous year. The slowdown continues: total building permits in January and
February 2016 were down approximately 30% from prior-year totals. The $7.8 billion 12-month total
value for Houston building permits as of February 2016 was down from the $8.9 billion in the 12months ending in February 2015, which the Greater Houston Partnership cites as Houston’s historic
peak for permit activity. With expansion and construction in various industries, the 2015 nonresidential construction permits dropped by nearly 22% compared to prior year. Projections are for a
surplus of multi-family and office space capacity after initiation of numerous projects in 2014 and
2015.

Source: City of Houston

Single Family Housing
The five-year trend represented in the chart below illustrates the vitality of the Houston housing
market during the recent employment boom. Sales in 2015 dropped slightly from 2014’s record
performance, but total dollar volume held virtually constant as the average sales price increased from
$270,182 to $280,290. The report from the Houston Association of Realtors (covering March 2016)
highlights positive sales in mid-range homes and increasing inventory as evidence that the Houston
real estate market “demonstrated more sustainable conditions.” The report shows 2016 home sales
running 1% ahead of the 2015 year-to-date pace, with single-family inventory levels climbing from a
2.8-month supply to 3.6 months. It also notes that Houston’s inventory remains less than the national
supply of 4.4 months’ inventory, and points to continued population growth as a mitigating factor
against the potential negative effects of energy industry layoffs.
SUMMARY OF HOUSTON RESIDENTIAL SALES ACTIVITY
2015
Total Sales
Total dollar volume

2014

2013

2012

2011

88,764

91,439

88,069

74,116

63,606

$23,559,111,514

$23,553,542,859

$20,891,392,084

$16,040,186,637

$13,012,903,352

Single-family sales

73,724

75,535

73,232

62,374

53,592

Average sales price

$280,290

$270,182

$248,591

$225,330

$213,723

Median sales price

$212,000

$199,000

$180,000

$164,500

$155,000

Source: Har.com

FY2017 Preliminary General Fund Budget Summary

14

 COST OF LIVING AND INFLATION
A significant reason for Houston’s sustained growth is its lower cost of living. Houston prices, as
measured by the Consumer Price Index (CPI), dropped by 0.2% in 2015 compared to the national
increase of 0.1%. Houston’s overall average CPI for 2015 was 213.1 versus 237.0 nationally, the
result of which, is that Houston residents have a cost of living that is approximately 10% less than the
national average.

Average annual change

Consumer Price Index
Houston vs. United States
2000 - 2015
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%

2000

2001

2002

2003

2004

2005

2006

2007

United States

2008

2009

2010

2011

2012

2013

2014

2015

Houston

Source: US Bureau of Labor and Statistics

The cost of consumer goods and services, as measured by the Consumer Price Index for All Urban
Consumers (CPI-U) for Houston, trended higher than the national average for 2013 and 2014 as
evidenced in the chart above, before turning downward in 2015. With oil and gas prices on the decline
through the latter half of 2014 and much of 2015, Houston’s Consumer Price Index responded with a
slight decrease. However, indications through early 2016 are that inflation is returning to the area, as
increasing housing costs and a slight rise in food prices offset cheaper motor fuel and household
energy. U.S. Bureau of Labor Statistics data show consumer prices in the metro area rising 2% from
February 2015 to February 2016, which the Greater Houston Partnership notes is the largest annual
increase since late 2014.
Sources:
• Harris County Appraisal District
• The Greater Houston Partnership (Special Thanks to Patrick Jankowski)
• Houston Association of Realtors
• University of Houston Center for Public Policy
• National Association of Realtors Quarterly Report
• City of Houston
• US Bureau of Labor Statistics
• US Census Bureau
• US Bureau of Economic Analysis
• Federal Reserve Bank of Dallas – Houston Branch
• US Government Energy Information Administration
• University of Houston Institute for Regional Forecasting, C.T. Bauer College of Business (Special
Thanks to Dr. Bill Gilmer)

FY2017 Preliminary General Fund Budget Summary

15

 Budgetary Challenges
The City is required by state law to adopt a balanced budget. When the City’s current expenditures
exceed current revenues, that deficit is commonly referred to as the “gap” or “shortfall.” These are
typically the result of lower revenues than projected and/or increasing expenditures. Each year, the
City presents the five-year financial forecast to provide a preliminary estimate of what the upcoming
fiscal year will look like. It becomes the basis for the City to take necessary actions to close potential
or projected funding gaps in order to balance the following year’s budget.
Having weathered the Great Recession of 2008 and now contending with the effects of low oil prices,
Houston faces continued budget challenges. Combined with a voter-imposed limitation on property
tax revenues and rising pension obligations, the volatile economy presents difficulties as the City
serves a still-growing population. This problem manifests in the gap.
As seen in Exhibit 1 below, every City budget since FY2010 has projected a funding gap to be
balanced with reserves; looking at the adopted surplus/shortfalls in the past seven years, projected
fund balance utilization in balancing the budget ranges from approximately $3,000 to $86 million. This
is in part the result of conservative budgeting. In four of the past seven years, the City ended the year
with surplus funds that were returned to fund balance as the “mini-boom” generated revenues in
excess of cautious projections. With the increasing property values during those four years, the City
finally reached the Proposition 1 ad valorem tax revenue cap in FY2015.
The major issue the City is currently facing is the structural balance between revenue and spending.
While the City’s adopted budget is always balanced, current revenues may not be sufficient to support
current expenditures. This shortfall generates a projected structural imbalance that is corrected
through the use of financial reserves. As suggested earlier, although the City’s past seven budgets
have all projected a funding gap, the City’s conservative budgeting approach combined with a strong
economy has yielded to year-end surpluses in four of the six years from FY2010 to FY2015, with
FY2016 anticipated to show a shortfall. Work is in progress to achieve recurring structural balance in
the City’s budget and stop the dependency on drawing down fund balance; this will offer increased
protection from economic volatility and will align with the City’s financial policies
The forecasted FY2017 funding gap is the largest seen so far this decade, as FY2016 sales taxes
and property taxes are projected to finish the year well below budgeted levels. Sales tax receipts are
slumping, while property tax receipts are impacted by successful protests of property tax appraisals
as well as the property tax revenue cap. However, a number of strategic initiatives are being put in
place or are anticipated to address this situation, and it is anticipated that fund balance drawdown will
be kept at $10 million.

FY2017 Preliminary General Fund Budget Summary

16

 Exhibit 1 – Budgetary Shortfalls
($ in thousands)
Expenditures

Revenues

FY2010
FY2011
FY2012
FY2013
FY2014
FY2015
FY2016
FY2017 2

Forecast 1

Adopted

Actual/
Estimates

1,948,349
1,925,035
1,821,922
1,861,551
1,987,762
2,120,698
2,288,820
2,264,557

1,883,305
1,841,776
1,827,995
1,922,868
2,037,289
2,210,910
2,305,376
2,296,621

1,847,353
1,840,055
1,857,342
1,990,456
2,081,459
2,291,146
2,281,753
N/A

Forecast 1

Adopted

Actual/
Estimates

2,002,354
1,977,877
1,912,309
1,873,840
2,041,539
2,201,764
2,430,569
2,424,220

1,933,996
1,895,691
1,827,998
1,947,897
2,071,197
2,259,370
2,391,253
2,306,621

1,916,387
1,900,876
1,810,551
1,945,653
2,065,401
2,228,912
2,372,749
N/A

Surplus/(Shortfalls)
Actual/
Forecast 1
Estimates
Adopted
(54,005)
(52,842)
(90,387)
(12,289)
(53,777)
(81,066)
(141,749)
(159,663)

(50,691)
(53,915)
(3)
(25,029)
(33,908)
(48,460)
(85,877)
(10,000)

(69,034)
(60,821)
46,791
44,803
16,058
62,234
(90,996)
N/A

Note:
1. Forecasts amount is based on prior years' five-year forecasts presented to City Council.
2. FY2017 forecast amount is revised from prior year's presentation to reflect the drop in sales tax revenues.
3. These figures do not include full funding of pension obligations.

Exhibit 2 – Total Revenues and Expenditures (both recurring and non-recurring)

* Please note that the expenditures shown in Exhibit 2 do not include full funding of the unfunded liabilities.

Exhibit 2 above shows the City’s response to revenue drops from FY2009 to FY2011, and as
projected from FY2016 to FY2017. At the outset of this decade, the City responded with belttightening steps including layoffs in FY2011 and FY2012. As revenues began to rebound,
expenditures followed suit as the City’s population continued to grow. Though various (largely onetime/non-recurring) measures have kept the City’s budget in balance each year, FY2017 will see new
expenditure reductions to accommodate a significant slowdown in revenue growth.

FY2017 Preliminary General Fund Budget Summary

17

 While Exhibit 2 reflects all revenues and expenditures (including non-recurring items), the chart below
demonstrates that matching recurring revenues and recurring expenditures remains a challenge. As
seen in Exhibit 3, beginning in FY2009, following the economic downturn in 2008, the recurring
revenues growth was lower than expenditures growth (note that this chart shows only recurring
revenues and expenditures, and does not include one-time income or outlays). The City changed
course and adjusted expenditures downward to compensate. But the problem presented itself again
in FY2016, and the chart below indicates a potential trend toward greater structural imbalance, as
recurring expenditures start to move upward and away from relatively flat recurring revenues. To
achieve financial stability and comply with the City’s financial policies, this imbalance must be
addressed.
Exhibit 3 – Recurring Revenues and Expenditures

FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017
Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Actual Estimate Estimate
Recurring Revenues
$ 1,451
1,562
1,665
1,777
1,837
1,796
1,811
1,828
1,978
2,081
2,257
2,268
2,284
Recurring Expenditures
$ 1,468
1,564
1,668
1,790
1,902
1,916
1,901
1,828
1,954
2,065
2,229
2,347
2,388
Revenues Growth (%)
7.7%
6.5%
6.8%
3.4%
-2.2%
0.8%
0.9%
8.2%
5.3%
8.4%
0.5%
0.7%
Expenditures Growth (%)
6.5%
7.3%
6.2%
0.8%
-0.8%
-3.9%
6.9%
5.7%
7.9%
5.3%
1.7%
6.7%
($ in millions)

FY2017 Preliminary General Fund Budget Summary

18

 City Initiatives: Stabilizing the Budget in a New Downturn
As lower oil prices over the past 18 months signaled economic challenges, the City has responded
with expenditure reductions intended to cushion the economy’s anticipated effects on City revenue as
indicated in Exhibit 4 below.
Exhibit 4 – FY2015/16 Budget vs. Actual/Estimates

FY2016

FY2015
($ in thousands)
Revenues
Expenditures
Surplus/(Shortfall)

Adopted
Budget
2,210,910
2,259,370
(48,460)

Actual
2,291,146
2,228,912
62,234

Variance
80,236
(30,458)
110,694

Adopted
Budget
2,305,376
2,391,254
(85,878)

Estimates
2,281,753
2,372,749
(90,996)

Variance
(23,622)
(18,505)
(5,117)

In FY2015, compared to the adopted budget, City of Houston managed to add $111 million surplus in
fund balance to ensure future ending fund balance will be above the minimum 7.5% of expenditures
less debt/PAYGO. This consisted of $80 million additional revenues and $30 million expenditures
savings.
In FY2016, the impact of the economy and falling oil prices finally showed its effects on the City’s
sales tax revenue, currently estimated at $636.3 million, 7.6% below the budget. Additionally, with the
increasing tax refunds from prior years’ litigation of contested property tax appraisals, the City’s
property tax is estimated at $1.09 billion, 1.9% below the budget. The total revenue shortfall from
FY2016 budget is at $23.6 million. Whereas conservative revenue projections have helped yield yearend surpluses in prior years, FY2016’s large revenue drop negates expenditure savings and yields a
remaining shortfall.
The current situation has been mitigated to some extent by cost reduction initiatives undertaken in
FY2016 of $18.5 million (net of other increases), shown in Exhibit 4. These included a slowdown in
hiring and identification of efficiencies that have reduced City spending below budgeted levels; where
savings were projected, budgets were reduced accordingly and savings were directed to fund
balance.
Upon taking office in January 2016, the new administration took a number of steps to tighten
spending. Executive Order 1-53, issued in January, calls for a series of new policies and procedures
to improve the City’s financial and performance management. These include an increased emphasis
on outcomes in budget decision-making (program- or performance-based budgeting); greater scrutiny
of spending proposals; long-range financial planning; greater focus on goal-setting and monitoring of
progress toward those goals; and more transparency with regard to communication on fiscal matters.
An administrative policy explicating these high-level commitments is to be released by the end of
April.
The administration also introduced a new Staffing Efficiency Assessment process (requiring
justification to post and fill positions that are not front-line service delivery roles), and has effectively
limited hiring to those critical front-line roles. Additional improvements have been achieved with
limited staffing cutbacks (as noted in the Mayor’s budget letter, the goal is to achieve these primarily
FY2017 Preliminary General Fund Budget Summary

19

 via attrition and elimination of vacant positions), and the savings identification and budget capture
efforts noted above. Exhibit 5 shows the budget initiatives in FY2015 and FY2016, and Exhibit 6
shows reduction initiatives by department. It is important to note these savings initiatives will not tie to
the expenditure variance on Exhibit 4, as other costs have partially offset these savings.
Exhibit 5 – FY2015/16 Budget Initiatives
FY2015 ($ in thousands)
Initiatives
One-time Land Sales
Cost Savings Initiatives
Vacancy Savings
Total Initiatives FY2015
FY2016 ($ in thousands)
Initiatives
Cost Savings Initiatives
Vacancy Savings
Total Initiatives FY2016
Total Initiatives FY2015-16

Revenues
$

Expenditures

Total Initiatives

$

23,437 $
23,437 $

$
18,510
3,677
22,187 $

23,437
18,510
3,677
45,624

$
$

$
23,437 $

17,078
6,431
23,510 $
45,697 $

17,078
6,431
23,510
69,134

Exhibit 6 – FY2015/16 General Fund Expenditures Reduction Initiatives by Department
($ in thousands)

Department Name
Administration and Regulatory Affairs
City Council
City Secretary
City Controller
Finance Department
Fire Department
General Services
Houston Health Department
Housing & Community Development
Houston Emergency Center
Human Resources
Houston Information Technology Services
Legal
Library
Mayor's Office
Municipal Courts Department
Department of Neighborhoods
Office of Business Opportunity
Parks and Recreation
Planning & Development
Police Department
Public Works & Engineering
Solid Waste Management
General Government

FY2015
FY2016
Total
Reduction
Reduction
Vacancy
Reduction
Vacancy
Initiatives
Initiatives
Savings
Initiatives
Savings
$
856 $
$
244 $
178 $
1,278
19
79
98
89
48
137
85
171
410
471
1,137
2,442
178
5,291
123
8,034
78
309
161
548
435
161
802
1,398
7
101
70
178
2,000
2,000
20
60
49
59
187
433
1,000
17
1,024
2,474
443
748
394
173
1,757
537
450
240
69
1,297
49
186
235
420
336
756
61
70
90
121
341
30
32
34
96
1,259
600
913
1,034
3,806
129
400
140
669
10,181
4,525
980
15,686
29
171
200
449
1,641
835
2,925
459
459

Total Budget Initiatives FY15/16 $

18,510 $

3,677 $

17,078 $

FY2017 Preliminary General Fund Budget Summary

6,431 $

45,697

20

 Closing the FY2017 Gap
As noted before, expenditure reduction initiatives began early in FY2016 to mitigate the effects of
expected lower-than-anticipated revenues due to the drop in oil prices. The City continues to develop
initiatives to improve the General Fund’s fiscal stability, primarily via identification of efficiencies and
opportunities for expenditure reductions. These are reflected in the $25.8 million expenditure
reduction below; limited revenue increases will be utilized in some instances as indicated in the table
below.
Exhibit 7 – FY2017 Budget Initiatives
ALL FIGURES ARE PRELIMINARY AND SUBJECT TO CHANGE
($ in thousands)
Additional Revenues
TIRZ - Municipal Service Fees Revenue 1
One-Time Land Sale
Total Additional Revenues

$ 19,564 Recurring
12,500 Non-Recurring
32,064

Expenditures Reductions
Debt Prepayment from Building Inspection Fund 2
Debt Refinancing - resulting reduction for the following:
Debt Service Transfers 3
ReBuild Houston Transfers according to City Charter 4
Debt & PAYGO Expenditures Reduction Subtotal

31,849 Non-Recurring
13,467 Non-Recurring
68,860

Council District Service Fund
Department Expenditure Reduction 5
Service Chargeback Reduction to General Fund
Proposed HPOPS Deferred Contribution 6
Other than Debt/PAYGO Reduction Subtotal

8,250
25,789
2,200
12,500
48,739

Total Expenditures Reduction

117,599

Fund Balance Drawdown

10,000

Total Gap Closed

$ 159,663

23,544 Non-Recurring

Recurring
Recurring
Recurring
Non-Recurring

Notes:
1. TIRZ Municipal Service Fees will increase to match service costs generated by the TIRZs
2. Debt Prepayment of General Obligation Debt on the 1002 Washington Permitting Center from the
Building Inspection Fund went to debt service fund balance in FY2016. This prepayment will be used to
offset General Fund debt service increase in FY2017. The General Fund will assume $23.5 million of
1002 Washington debt service going forward.
3. Debt Refinancing savings from 2016 Public Improvement Bond refunding transaction.
4. Captured Revenues Transfer to the Dedicated Drainage Street and Renewal Fund will be made
according to ReBuild Houston capital improvement projects.
5. Department Expenditure Reduction in General Fund by Departments can be seen in Exhibit 8.
6. The City has proposed to HPOPS a contribution deferral in lieu of a $12.5 million interest in the 1200
Travis Building owned by the City.

FY2017 Preliminary General Fund Budget Summary

21

 Exhibit 8 – FY2017 General Fund Department Reduction
($ in thousands)

Department
Administration and Regulatory Affairs
Finance Department
Fire Department
General Services
Houston Health Department
Housing & Community Development
Houston Emergency Center
Human Resources
Houston Information Technology Services
Legal
Library
Mayor's Office
Municipal Courts Department
Department of Neighborhoods
Parks and Recreation
Planning & Development
Police Department
Public Works & Engineering
Solid Waste Management
General Government

FY2017
% of FY2016
Reduction Current Budget *
$
311
1%
855
4%
8,296
2%
419
1%
1,820
3%
41
8%
587
6%
120
3%
323
1%
311
2%
636
2%
402
5%
763
3%
196
2%
142
0%
192
3%
5,800
1%
47
0%
2,293
3%
2,236
1%

Total FY2017 Reduction Initiatives $

25,789

1%

* Rounded to the nearest percentage of FY2016 Current Budget for departments
stated above.

As indicated earlier, savings achieved through staffing reductions are focused on non-critical positions
that will not directly impact the essential services the City delivers; further, the administration will work
to achieve such savings via attrition and elimination of vacant positions wherever possible.
Specifically protected from staffing reductions are our classified police and fire personnel, and there
are no layoffs in parks or libraries included in this budget.
Note also that this budget maintains the City’s commitment to ReBuild Houston, the pay-as-you-go
infrastructure funding approach endorsed by Houston voters in 2010. This budget holds the General
Fund’s contribution to ReBuild Houston proportionally consistent with reductions to the property tax
rate as required by the revenue cap with no impact to the implementation of capital projects. It also
includes a reduction to the City’s solid waste sponsorship program that subsidizes homeowner
associations that choose to obtain solid waste collection services beyond those provided by the City.

FY2017 Preliminary General Fund Budget Summary

22

 Exhibit 9 – Unassigned Ending Fund Balances

As indicated in Exhibit 9 above, the City has traditionally held its General Fund balance at or above
7.5% of General Fund expenditures (the City’s new financial policies call for 7.5% of General Fund
expenditures excluding debt service and pay-as-you-go capital transfers). In FY2017, the unassigned
ending fund balance is at 9.27% of expenditures less debt/PAYGO. It is the City’s goal to maintain
fund balance at or above 9%, well above the minimum required. Maintaining this larger cushion
provides additional protection in the event of emergencies or further deterioration in economic
conditions and helps maintain our credit rating and flexibility heading into FY2018.
Both recurring and non-recurring initiatives are included to balance the FY2017 Budget; these include
limited layoffs and elimination of positions as indicated elsewhere in this document.
Without considering non-recurring items in achieving budget balance, the City would need to reduce
an additional $93.9 million of expenses (Exhibit 10). This would require layoffs – both civilian and
classified employees. The average annual pay for a municipal employee is approximately $76,000
with benefits; fire classified is approximately $91,000 with benefits and police classified is
approximately $97,000 with benefits. For context, reducing $93.9 million in expenditures via staff
reductions would require elimination of about 1,235 average municipal employee (non-classified)
positions.

FY2017 Preliminary General Fund Budget Summary

23

 Exhibit 10 – FY2017 Significant Impact of Removing Non-Recurring Items
ALL FIGURES ARE PRELIMINARY AND SUBJECT TO CHANGE
($ in thousands)
Additional Revenues
TIRZ - Municipal Service Fees Revenue
Total Additional Revenues

$ 19,564 Recurring
19,564

Expenditures Reductions
Council District Service Fund
Department Expenditure Reduction
Service Chargeback Reduction to General Fund
Other than Debt/PAYGO Reduction Subtotal
Total Expenditures Reduction
Additional Expenditure Reduction

8,250 Recurring
25,789 Recurring
2,200 Recurring
36,239
36,239
93,860

Fund Balance Drawdown

10,000

Total Gap Closed

$ 159,663

While the City’s financial policies call for structural balance (recurring revenues greater than or equal
to recurring expenditures), and the City could make staffing cuts to do so, non-recurring measures are
included in this budget. With the work the City will do to achieve structural balance in FY2018-2019, it
makes little sense to make staffing reductions of this magnitude to balance the budget while fund
balance and other measures are available. This budget implements $55.8 million in recurring changes
and preserves vital City services.
Additionally, the administration will continue to identify and implement further recurring savings. There
are extensive opportunities to continue consolidating back-office operations, cutting unnecessary
spending, streamlining operations, and eliminate unnecessary positions. Further, the administration
will look closely at our reporting structures for efficiencies and begin renegotiations of our largest
contracts where we have not already done so. As these opportunities are capitalized upon, the
administration will remove one-time sources of funds and replace them with the savings generated.
This targeted, strategic approach is preferable to across-the-board cuts now, before the
administration has had sufficient time to fully evaluate operations and implement the changes needed
to capture recurring savings.

FY2017 Preliminary General Fund Budget Summary

24

       

?nu-FY2017 Preliminary General Fund Budget Summary

25

FY2017 Preliminary General Fund Summary
Fund Name: General Fund

ALL FIGURES ARE PRELIMINARY AND SUBJECT TO CHANGE

Fund No. : 1000
FY2015
Actual
Beginning Fund Balance - Unassigned $

FY2016
Current Budget

FY2016
Estimate

FY2017
Estimate

222,620,490

287,841,725

287,841,725

196,393,647

General Property Taxes

1,074,435,185

1,114,028,980

1,092,731,468

1,133,190,875

Industrial Assessment

16,735,785

18,200,000

18,992,572

18,042,943

667,061,076

688,837,000

636,300,000

615,000,000

Revenue and Other Sources

Sales Taxes

15,992,280

16,678,981

16,615,981

16,908,772

100,564,568

101,141,850

101,145,516

102,029,934

Telephone Franchise

43,450,849

40,865,000

43,219,885

42,000,000

Gas Franchise

14,538,332

14,839,561

14,839,561

15,015,585

Other Franchise

31,282,727

30,945,026

33,155,801

33,738,694

Licenses and Permits

37,999,329

37,870,062

39,555,871

40,019,911

Intergovernmental

24,184,766

26,470,476

53,485,088

70,151,379

Charges for Services

63,272,442

53,207,496

58,678,460

58,829,529

Direct Interfund Services

47,851,393

50,705,238

53,552,058

53,764,807

Indirect Interfund Services

25,327,922

26,750,414

26,790,414

27,436,084

Municipal Courts Fines and Forfeits

25,446,825

28,698,175

22,812,017

22,812,017

Other Fines and Forfeits

4,731,606

4,155,722

4,309,422

4,306,281

Interest

3,039,623

3,000,000

3,600,000

3,000,000

17,216,717

12,756,750

26,426,799

13,824,806

2,213,131,425

2,269,150,731

2,246,210,913

2,270,071,617

46,651,874
31,363,014

5,500,000
30,724,961

5,501,000
30,041,561

14,500,000
12,049,011

78,014,888

36,224,961

35,542,561

26,549,011

2,513,766,803

2,593,217,417

2,569,595,199

2,493,014,275

Other Tax
Electric Franchise

Miscellaneous/Other
Total Revenue and Other Sources
Other Resources
Sale of Capital Assets
Transfers From Other Funds
Total Other Resources
Total Available Resources

Expenditures and Other Uses
Public Safety
Fire Department

494,140,178

507,890,583

507,767,336

504,651,890

Houston Emergency Center

12,517,759

10,495,106

10,495,106

10,148,271

Municipal Courts Department

26,862,735

29,146,536

28,514,278

29,561,764

Police Department
Public Safety

741,251,982

801,945,758

800,945,756

811,296,432

1,274,772,654

1,349,477,983

1,347,722,476

1,355,658,357

41,817,398

41,382,513

41,221,640

41,223,483

7,707,990

6,118,289

6,118,289

4,189,347

32,260,022

31,629,307

31,458,088

31,943,989

Development & Maintenance Services
General Services
Planning & Development
Public Works & Engineering
Solid Waste Management
Development & Maintenance Services

74,793,572

75,771,536

75,771,536

79,163,385

156,578,982

154,901,645

154,569,553

156,520,203

FY2017 Preliminary General Fund Budget Summary

26

 FY2017 Preliminary General Fund Summary
ALL FIGURES ARE PRELIMINARY AND SUBJECT TO CHANGE

Fund Name: General Fund
Fund No. : 1000

FY2015
Actual

FY2016
Current Budget

FY2016
Estimate

FY2017
Estimate

Human & Cultural Services
Department of Neighborhoods

12,018,096

Housing & Community Development

12,263,579

12,263,579

11,704,705

668,929

577,465

497,634

532,760

Houston Health Department

59,549,369

61,441,105

60,639,244

65,639,362

Library

38,707,100

40,205,473

40,137,935

40,916,822

Parks and Recreation

68,621,171

71,296,782

71,296,782

73,139,214

Human & Cultural Services

179,564,665

185,784,404

184,835,174

191,932,864

28,890,580

29,495,672

29,495,672

30,522,833

8,135,147

8,730,584

8,682,542

8,886,974

10,592,134
805,096

19,378,940
879,419

19,378,940
800,061

10,329,476
907,691

Administrative Services
Administration and Regulatory Affairs
City Controller
(1)

City Council
City Secretary

Finance Department

18,358,497

20,254,083

19,782,928

19,622,040

Houston Information Technology Services

22,554,445

24,594,024

23,950,478

23,362,802

Human Resources
Legal

3,285,302

3,637,406

3,578,886

3,053,604

15,072,057

15,839,370

15,746,041

16,046,138

Mayor's Office

7,600,250

8,164,446

8,164,446

7,695,641

Office of Business Opportunity

2,743,152

2,947,094

2,913,179

3,048,590

118,036,660

133,921,038

132,493,174

123,475,791

235,459,236

218,809,422

207,128,644

185,877,435

1,964,412,197

2,042,894,491

2,026,749,021

2,013,464,650

0

27,758,000

27,758,000

0

22,288,000

22,288,000

34,741,000

264,500,000

295,954,000

295,954,000

281,959,000

264,500,000

346,000,000

346,000,000

293,155,978

2,228,912,197

2,388,894,491

2,372,749,021

2,306,620,628

284,854,606

204,322,926

196,846,178

186,393,647

2,513,766,803

2,593,217,417

2,569,595,199

2,493,014,275

Administrative Services
General Government
General Government
Total Expenditures Other than Debt / PAYGO
Debt Service and PAYGO Capital
Other Adjustments (2)
Captured Revenue Transfer to DDSRF
Trans to PIB Bonds Debt Service
Debt Service and PAYGO Capital Projects
Total Expenditures and Other Uses
Fund Balance - Unassigned
Total Budget
Changes to Unassigned Fund Balance
Prepaid Items and Imprest Cash

0
2,987,119

Ending Fund Balance - Unassigned

287,841,725

(452,531)
0
203,870,395

(452,531)
0
196,393,647

(23,544,022)

317,885
0
186,711,532

Amount Assigned for:
Budget Stabilization Fund (3)
Ending Fund Balance - Unassigned
Total Ending Fund Balance

$

20,000,000

20,452,531

20,452,531

20,134,646

287,841,725

203,870,395

196,393,647

186,711,532

307,841,725

224,322,926

216,846,178

206,846,178

(1) City Council budget includes funding for Council District Service Project Program.
(2) Adjustments in FY2016 includes transfer to special fund and FY2017 includes debt prepayment from Building Inspection Fund.
(3) An amount not less that the greater of (a) 1% of expenditures (excluding debt service and PAYGO payment) or (b) $20M.
The General Fund Summary in some cases may not agree w ith some of the departmental totals due to prior year restatements.

FY2017 Preliminary General Fund Budget Summary

27

 FY2017 General Fund Revenues
Property and sales taxes are the City’s largest revenue sources. Over the past ten years, these
sources averaged about 74% of total revenues.
Exhibit 11 – General Fund Revenues
Summary of Major Revenues - General Fund (FY2007 - FY2017)

Property Tax
Sales Tax
Franchise Fees
Other
Subtotal
Growth

FY2007
Actual
748,792
461,417
189,551
327,822
1,727,582

FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
FY2014
FY2015
FY2016
FY2017
Actual
Actual
Actual
Actual
Actual
Actual
Actual
Actual
Estimates Estimates
830,889
890,088
892,865
859,413
866,141
910,034
976,240 1,074,435 1,092,731 1,133,191
495,173
507,103
468,965
492,824
546,543
600,256
629,441
667,061
636,300
615,000
190,196
190,322
190,868
190,563
192,760
195,304
189,989
189,836
192,361
192,784
295,702
297,401
294,631
297,251
251,899
284,862
285,790
359,814
360,361
355,646
1,811,959 1,884,913 1,847,329 1,840,052 1,857,344 1,990,457 2,081,459 2,291,146 2,281,753 2,296,621
4.88%
4.03%
-1.99%
-0.39%
0.94%
7.17%
4.57%
10.07%
-0.41%
0.65%

The revenue projection for FY2017 is approximately $14.9 million (0.65%) higher than FY2016
estimates as summarized below. These figures are based on conservative assumptions including oil
prices reducing to $19.00/barrel by the end of the year and going down further to $18.79/barrel by the
second quarter in 2017.
FY2017 General Fund Revenues - Net Change to FY16 Estimates
($ in thousands)
FY2016 Estimates incl. Other Resources
$
FY2017 Proposed Budget inc. Other Resources
Incremental Increase/(Decrease)
Revenue Increases /(Decreases):
Property Tax (1)
Intergovernmental (2)
Sale of Capital Assets (3)
Licenses & Permits
Direct Interfund Services
Miscellaneous (4)
Transfer from Other Funds (5)
Sales Tax (6)
Others
Net Change of Revenues $

2,281,753
2,296,621
14,867
0.65%
40,459
16,666
8,999
464
213
(12,602)
(17,993)
(21,300)
(40)
14,867

Note:
(1). Property Tax revenues based on limitation Prop 1 + H.
(2). Includes additional $19.6 million TIRZ Municipal Service Fees in FY17.
(3). Includes one-time land sales of $12.5 million.
(4). Significant decrease due to one-time large settlement received in FY16.
(5).Transfer from Houston First for arts funding will be reported in Houston
Civic Events Special Fund.
(6). Sales Tax decrease of 3.35% from FY16 Estimates due to the
economic conditions.

FY2017 Preliminary General Fund Budget Summary

28

 FY2017 General Fund Expenditures
The City’s primary expense is personnel, with public safety representing the largest component of
City spending.
Exhibit 12 – General Fund Expenditures
Summary of Major Expenditures - General Fund (FY2005 - FY2017)
FY2007
Actual
Police
581,787
Fire
360,542
Other Depts
516,747
Debt Service/PAYGO 209,000
1,668,076
Growth

FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
FY2014
FY2015
FY2016
FY2017
Actual
Actual
Actual
Actual
Actual
Actual
Actual
Actual
Estimates Estimates
663,420
621,739
697,417
723,066
741,252
800,946
811,296
618,304
657,225
662,766
388,352
422,718
435,852
448,175
420,198
433,176
452,316
494,140
507,767
504,652
560,828
588,757
577,750
568,443
548,106
574,856
646,205
729,020
718,036
697,516
222,850
232,948
240,020
220,837
220,507
240,203
243,813
264,500
346,000
293,156
1,790,334 1,901,648 1,916,388 1,900,875 1,810,550 1,945,652 2,065,400 2,228,912 2,372,749 2,306,621
7.33%
6.22%
0.78%
-0.81%
-4.75%
7.46%
6.15%
7.92%
6.45%
-2.79%

On average, about 57% of the City’s General Fund budget is allocated for police and fire, with about
30% distributed among the remaining 22 other departments (many of which directly or indirectly
support public safety activities) and 13% for debt service/pay-as-you-go transfers.
FY2017 General Fund Budget Expenditures - Net Change
($ in Thousands)
$

FY2016 Current Budget
FY2017 Proposed Budget
Incremental Increase/(Decrease)

2,388,894
2,306,621
(82,274)
-3.44%

Contractual or Mandated increases:
Compensation (1):
Municipal Pay
Classified Pay
Subtotal Compensation:
Maintenance Renewal & Replacement
Election
Recycling Cost
Pension (2)
HPOPS Supplemental (3)
Subtotal Contractual/Mandated
Transfers/Pass Through Increases (offset by
corresponding revenues):
Subtotal - Contractual/mandated & Transfers
(4)

9,213
17,849
27,062
1,496
(2,000)
4,140
15,465
14,284
60,447
(14,453)
45,994
(13,995)
(15,305)
(23,544)
(27,989)
(25,500)
(12,500)
(8,250)
(1,185)
(128,268)
(82,274)

Debt Service Transfers
Pay-as-you-go Transfers to DDSRF (4)
Debt Prepayment (5)
Budget Reduction
Prior Year HPOPS Deferral
Current Year HPOPS Deferral
Council Service District Project Program
Others
Subtotal - Non Contractual
Net Change of Expenditures $
Note:
1. Compensation pay based on meet & confer agreements with unions.
2. Pension contribution mandated by State Law, not contract.
3. Supplemental pension contribution for Police based on meet & confer as funded
ratio is below 80%.
4. Decrease in Debt Service Transfers and DDSRF pay-as-you-go transfer as
a result of debt refinancing.
5. Includes $23.5 million debt prepayment from Building Inspection Fund.

FY2017 Preliminary General Fund Budget Summary

29

 Next Steps – FY2018 at a Glance
Our work on the FY2017 budget is strategic and future-focused, planned with the understanding that
today’s decisions will impact our city’s financial standing not just now, but in the years ahead. While
FY2018 is likely to be another challenging budget year for the City, the administration’s FY2017
proposed budget anticipates those future challenges and takes important steps to address them.
With the property tax revenue cap still in place, and the Houston economy likely to see limited growth
the year ahead, FY2018 is likely to be another challenging budget year for the City. Our preliminary
forecast range for FY2018 revenue growth is between 0% and 3.5%. Meanwhile, expenditures are
expected to grow by as much as 8% in FY2018. Expenditure growth will be driven primarily by
contractual and mandated increases, including pay raises for municipal and police classified
employees covered by meet and confer agreements. We also anticipate that fire classified employees
may receive contractual pay raises (firefighters have not received pay increases since March 2014),
although our ability to achieve this will be heavily predicated upon reaching resolution on pension
challenges.
With all this in mind, our focus is on implementing sustainable budget changes that do not just
address FY2017, but prepare a path toward long-term structural balance, in which recurring revenues
match or exceed recurring spending. The FY2017 budget includes $55.8 million in recurring
expenditure savings and new revenue – these changes are lasting, and stand as evidence of our
commitment to correcting our financial course through shared sacrifice and an understanding that
every dollar saved today puts us in better stead for the years to come.
Our structural financial challenges in FY2017 are exacerbated by the property tax revenue cap, the
economic slowdown, and rising debt and pension costs. We have taken a thoughtful, multi-pronged
approach to solving these problems. In less than four months, we have reassessed and reduced City
spending through steps including:
•
•
•
•
•
•
•

Stringent limits on hiring for any positions other than critical front-line roles;
A freeze on pay increases;
Elimination of vacant positions;
Targeted layoffs;
Tighter management of contracts;
Issuance of Executive Order 1-53, which calls for new policies and procedures to improve
accountability and transparency as we budget and invest the public’s money; and
Working with our TIRZ boards to increase municipal service fees paid to the City to better
match the service costs TIRZs generate.

We are proud of these accomplishments, all recorded in the administration’s first 100 days. But our
work is not done. The expenditure growth rates above do not include full funding of the City’s
unfunded obligations. If the City were to begin fully funding those obligations, expenditures would
increase significantly. That is why we are moving so aggressively to address our long-term challenges
with sustainable, long-term solutions, beginning with our pension challenges. We have already met
several times with representatives from the pensions, and have initiated productive conversations
about how to rein in our pension costs. Our pace will quicken once the FY2017 budget is put to rest.
FY2017 Preliminary General Fund Budget Summary

30

 In addition to addressing the pensions, we must also address the property tax revenue cap, which
has been repeatedly cited by debt rating agencies as a significant threat to our fiscal health. We
agree with the debt rating agencies that removing the property tax revenue cap will better position
Houston to achieve long-term financial strength and stability.
We are also far from finished with our identification and implementation of additional recurring
savings. There are extensive opportunities to consolidate back-office operations, cut unnecessary
spending, streamline operations, and eliminate unnecessary positions. Further, we will look closely at
our reporting structures for efficiencies and begin renegotiations of our largest contracts where we
have not already done so. Capitalizing on these opportunities will allow elimination of one-time budget
fixes; these will be replaced by the savings generated from our focus on efficient and effective use of
public resources. This targeted, strategic approach is preferable to across-the-board cuts now, before
the administration has had sufficient time to fully evaluate operations and implement the changes
needed to capture recurring savings.
Thus far, the culmination of our work to date is a budget that prioritizes recurring improvements while
protecting and, in some cases, improving vital City services. This budget does include some one-time
gap-closing measures, but our charge is clear: we must wean the City away from fund balance
drawdowns and other short-term, temporary solutions to our situation. Excluding our one-time
solutions from the FY2017 budget would leave a deficit equivalent to the cost of more than 1,200 nonclassified municipal employees. Were we to try and achieve budget balance solely through personnel
reductions, the impact would be devastating to some City services and our community’s quality of life.
This is unacceptable. We must find other means of restoring the City’s financial health. We are doing
so, and with the assistance and support of Houstonians, we will succeed.

FY2017 Preliminary General Fund Budget Summary

31

       

?nu-FY2017 Preliminary General Fund Budget Summary