City’s Net Assets Plunge by over $1 Billion
A few days before Christmas, the City of Houston released its Comprehensive Annual Financial Report (CAFR) for FY2017-2018. In recent years, the City’s standard operating procedure has been to release the CAFR over the holidays to minimize the attention it will receive because the news is generally not good.
This year is no different. The City’s net position, that is, the difference between all of its assets and all of its liabilities, fell by just over $1 billion. About $300 million of the reduction was an operating loss, i.e., current expenses exceeded current revenues. The balance was due to a change in the accounting rules for the expense of providing health benefits to the City’s retirees (commonly referred to as “OPEB”). As of the end of FY2017-2018, the City’s net assets stood at $762 million. [i] The City’s unrestricted net position hit a negative $6.45 billion, the largest unrestricted deficit in the City’s history.[ii]
The City’s operating loss of $300 million came notwithstanding that the City’s revenue rose by $209 million, a 4.3% increase over FY2016-2017. Sales tax revenues were up by 6.6%. Notwithstanding this robust increase in revenue, I am sure that Turner and others will renew their call to repeal the property tax cap and raise your property taxes even more.
This year’s CAFR once again confirms that the City is on an unsustainable fiscal trajectory. Chris Brown, in his introduction to the CAFR, bluntly states that the City’s budget is not structurally balanced and relies on accounting gimmicks to “balance” the budget each year. He is right. If we don’t get our arms around the City’s financial problems, they will adversely affect our City’s long-term growth and competitiveness.