Houston controller says heftier reserves needed for disaster response

Phillip Oettle

Houston should boost its budget reserves in order to be financially prepared for weather-related disasters and the prospect of diminished federal funding, city controller Chis Hollins said on Wednesday.

In his report to the city council, Hollins said Houston, which endured hurricanes, flooding, and winter storms in the past, has had nearly one federally declared disaster every year since 2015, while its reserves are only enough to cover city operations for a few weeks. 

"We're now entering the roughest stretch of the (hurricane) season, just as Washington is cutting funding for (Federal Emergency Management Agency) and other federal programs that cities like ours have long relied on in times of crisis," he said. "If we can no longer count on those dollars, we must make sure that our own finances are strong enough to provide the relief, recovery, and essential services that Houstonians need when disaster hits, because we know that it's a when, not an if."

The nation's fourth-largest city has been hurricane-free so far in the season that runs from June 1 to Nov. 30. In August, the National Oceanic and Atmospheric Administration reported the potential for five to nine hurricanes to form in the Atlantic Ocean during the remainder of the season.

Houston's target of maintaining 8% to 9% of general fund expenditures in reserves lags other peer cities and falls well below the Government Finance Officers Association best practice of having a disaster/emergency reserve equal to two months of operations, according to a report this week from the controller's office.

The report recommended increasing the unassigned general fund balance's current target of 7.5% of expenditures excluding debt service and pay-as-you-go payments, noting the balance was tapped to close budget gaps in fiscal 2025 and 2026.

Hollins on Wednesday projected an ending fund balance of $328.1 million or 12.9% of general fund expenditures for fiscal 2026, which began July 1 with a $7 billion all-funds budget that includes about $3 billion in general fund spending.

The report also called for boosting the size of the budget stabilization fund, which — at about $14.2 million — is below a city policy minimum of $20 million, according to budget documents.

Spending pressures and shrinking budget reserves led to negative outlooks last year on Houston's AA bond ratings from Fitch Ratings and S&P Global Ratings. Both warned their ratings could be downgraded due to the continued depletion of reserves. The city has a stable outlook on its Aa3 rating from Moody's Ratings.