Revenue-raising moves in a $7.5 billion fiscal 2027 budget the Houston City Council passed Wednesday sparked concerns about their impact on combined utility system bonds that could be addressed through a debt refunding.
The budget, which includes $3.157 billion in general fund spending for the fiscal year that begins July 1, is largely balanced by tapping excess revenue from the combined utility system enterprise fund, which supports water and wastewater services, through a
In addition, trash collection will move from the general fund to the utility system. Residential customers for the first time will pay a $5 monthly "administration fee" supplemented by a subsidy from the system. Subject to city council approval, the solid waste fee would go up in $5 increments between fiscal 2029 and 2032, when it would reach $25 and would more fully cover administrative expenses.
The measures will "deliver approximately $220 million in structural improvement and position Houston to sustainably fund core services while planning for the future," according to
Houston Controller Chris Hollins, the city's fiscal watchdog, questioned how the utility system will generate that revenue, while meeting operational and debt service obligations, as well as capital improvement commitments absent a rate increase. He also said the city plans to collect the right-of-way fee ahead of a proposed refunding of the system's bonds aimed at obtaining needed flexibility in bond covenants for the fee.
"The position that they've effectively taken is that they can start this right-of way transfer immediately without bondholder approval, but to continue it into what they call phase two, they do need bondholder approval," he told The Bond Buyer.
The utility system had $5 billion of first lien and $25.3 million of water and sewer junior lien revenue bonds, along with $950.2 million of debt sold through the Texas Water Development Board, outstanding as of June 30, according to the city's
Houston Finance Director Melissa Dubowski told the city council on Wednesday that moving trash collection into the utility system is allowed under Texas law and that the budget's revenue-raising moves involving the system do not require bondholder consent.
In an emailed response to questions, Dubowski on Thursday acknowledged that changes to the system's more than 20-year-old master bond ordinance "to provide additional transparency to the market" would be a part of a refunding of callable debt this fall for economic savings.
"Potential amendments to the master ordinance under consideration include provisions to explicitly allow the ongoing payment of a right-of-way fee in the flow of funds and more importantly, provide a cap or limit on the transfer," Dubowski said. "The FY27 right-of-way transfer is subordinate to all debt service paid and, as such, is allowable under the master ordinance."
She added that rating agencies and the state water development board were informed about the revenue measures ahead of the budget's approval and that the city is evaluating a potential restructuring of the system's variable-rate debt into fixed rate, along with the termination of related interest rate swaps.
Mayor John Whitmire said the budget, which does not raise property taxes, lays the foundation for Houston to be on a sound financial footing in the future.
"It's a budget we can be proud of," he said. "It's not perfect, but we'll build on this to get other resources and make sure we'll even have a better budget."
Hollins gave the spending plan a "F" grade for transparency and accountability.
"It kicks tough decisions down the road and puts political convenience over sound financial planning," he said in a statement.
