By Annise D. Parker, Mayor of the City of Houston
As economic booms and bubbles underscore the importance of healthy financial reserves and long-term planning, city leaders are also hearing increased calls for financial transparency from constituents interested in how their taxes are being managed. The City of Houston is addressing these concerns with new financial policies that were approved in early December by the Houston City Council. These policies that will guide budget development beginning with the 2016 fiscal year (officially starting July 1, 2015), represent a guide for improved financial management and heightened accountability with more focus on making sure today’s decisions are sustainable in the future.
The City of Houston staff did an outstanding job of researching and developing these policies using lessons learned in other communities to craft a document that suits Houston as we work to strengthen our City’s financial future. The policies were drafted over the past year by City finance staff in coordination with the office of City Council Member, Stephen Costello, who chairs the City Council’s Budget and Fiscal Affairs Committee. Developed with input from numerous City departments and the City’s financial advisors at FirstSouthwest, the policies address debt management, internal financial controls, and evaluation of economic development investment. In addition, they reflect the best practices of the Government Finance Officers Association and other cities across the country.
These new policies include:
- An increase in the City’s minimum financial reserves from 5 percent to 7.5 percent of annual General Fund expenditures (less debt). To hedge against risk, the policies also provide for a slight increase to the City’s Budget Stabilization Fund (formerly known as the Rainy Day Fund).
- A new focus on recognizing the full cost of capital items and projects including a progressive increase in funding allocated for operating maintenance up to 2 percent of assets’ current replacement value as well as a stipulation that all projects in the City’s Capital Improvement Plan include an accompanying five-year operating budget impact projection.
- Greater emphasis on long-term planning and forecasting to identify and anticipate upcoming budgetary challenges. This includes requirements for regular projections of long-term pension liabilities and the annual presentation of a five-year financial forecast that identifies the potential budget imbalances in future years and the plans for achieving budget balance.
- A conservative approach to debt management including limitations on long-term increases in debt service payments, standards under which debt refunding may be initiated, and a road map for gradually reducing the City’s maximum annual General Fund transfer for debt service to 10 percent of General Fund revenues.
The City Council’s adoption of the policies is just a first step. The rules will only yield benefits if they are used as the framework for fiscal responsibility and prudent stewardship of public resources. Adherence to the policies is essential to the City’s long-term financial health especially in light of the financial challenges ahead.
The new 13-page document also includes a number of items intended to improve transparency in the City’s management of public funds not just for the City Council but for the citizens of Houston. A highlight of this focus requires the City to report in its annual budget whether it is in compliance with each component of the policies. Public reporting on our adherence to the new policies is critical. While the policies codify our current practices in many regards, they also set a high standard for us not just in how we manage and utilize public resources but how we inform citizens and their elected representatives as to our progress.
The full text of the policies is available at http://www.houstontx.gov/finance/COH_financial_policies_approved_120314.pdf
Serving since January 2, 2010, Annise D. Parker has been elected as the Mayor of Houston three times. She is Houston’s 61st Mayor and one of only two women to hold the City’s highest elected office. In 2010, Time Magazine named Mayor Parker one the 100 most influential people in the world. Mayor Annise Parker is a Steering Committee Member of the C40 Cities Climate Leadership Group and serves on President Barack Obama’s State, Local, and Tribal Leaders Task Force on Climate Preparedness and Resilience. She is also on the advisory board of Small Business Today Magazine. For more information, go to www.houstontx.gov/mayor/.
