Budget & Fiscal Affairs Committee Meeting - Jan 6, 2026
Budget & Fiscal Affairs Committee Meeting - January 6, 2026
The Budget and Fiscal Affairs Committee convened for the first meeting of the year to review the monthly financial report for November 2025 and to receive a comprehensive briefing from Houston Public Works regarding the Stormwater Fund and its potential use for building demolition. The committee discussed the city's financial position, including revenue variances, audit results, and the impact of the Department of Neighborhoods consolidation under Public Works. Significant debate arose regarding the necessity of using Stormwater Fund resources for demolitions, the financial capacity of the Combined Utility System (CUST), and the lack of finalized criteria for determining which buildings qualify for funding.
Consent Calendar
- The monthly financial report for the period ending November 30, 2025, was presented and accepted without further agenda motion as a routine informational item.
Public Comments & Testimony
- Doug Smith (Resident):
- Expressed skepticism regarding the claim of a 2,000-building backlog for demolition, describing the number as "difficult to believe."
- Questioned the utilization of the Consolidated Utility System (CUST) fund balance ($1.3 billion mentioned), asking why more resources were not directed to the East Water Plant project if such funds were available.
- Disagreed with the city's characterization of "revenue replacement" for unallocated ARPA funds, noting the city did not suffer significant revenue loss during the pandemic.
- Clarified that the $52 million reduction in property tax revenue projections was included in the adopted budget due to a voted-upon tax cap increase that was subsequently not implemented.
- Expressed concern regarding the lack of heavy trash pickup in their neighborhood despite a reported $2 million allocation increase.
- Requested clarification on the mandatory fund balance requirements for the CUST and questioned why the Drainage and Storm Sewage Fund (DDSRF) retains half a billion dollars in unspent funds.
Discussion Items
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Monthly Financial Report:
- Will Jones (Controller) presented FY26 projections showing an ending general fund balance of $336 million (13.2% of expenditures), which is $17.5 million lower than the Finance Department's projection due to lower revenue estimates. This position remains $144.8 million above the 7.5% target.
- Will Jones reported on the FY25 Annual Comprehensive Financial Report (ACFR), noting a $1.5 billion increase in total net position primarily attributed to capital assets ($11.8 billion invested), which are not available for operating expenses. He highlighted an unrestricted deficit of $3.7 billion, driven by long-term obligations like pensions and retiree health care.
- Director Debaski (Finance Department) reported a general fund revenue projection $41.9 million lower than the adopted budget but $2.6 million higher than the prior month, citing ARPA revenue replacement utilization. Sales tax receipts for October were 6% higher than the prior year. Expenditures were projected $9.5 million higher than budget due to Solid Waste and Police staffing needs. The ending fund balance is projected at $353 million (13.9% of expenditures).
- Director Debaski confirmed the FY25 audit was clean with zero findings, despite a transition to a new audit firm (Weaver) and personnel attrition.
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Stormwater Fund Overview (Houston Public Works):
- Deputy Director Samir Salanke and Assistant Director David Wardlow presented the history and usage of the Stormwater Fund, established in 1992 to support drainage operations, maintenance, and flood risk reduction. They noted the fund acts as a pass-through account primarily funded by the Combined Utility System (CUS).
- They outlined a budget increase of $66 million for FY26, including $41 million for the roadside ditch reestablishment program and $25 million specifically allocated for the demolition of unsafe buildings (previously largely funded by the Department of Neighborhoods via general obligation certificates or building inspection funds).
- The presentation highlighted that Public Works has historically used the Stormwater Fund for emergency demolitions (e.g., post-fire) and now seeks to formalize this for neglected buildings impacting drainage.
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Nexus and Funding Criteria:
- Councilmember Vice Mayor Pro Tem Amy Peck and Councilmember Mario Castillo questioned the specific criteria for determining a "nexus" between a building and drainage impact. Director Wardlow stated a flow chart and decision-making process were in development, targeting a distribution to the Council within 7-10 days, but not in time for the next vote.
- Deputy Director Salanke explained that while the fund has been used for emergency demolitions, the $25 million allocation is a new, explicit commitment to handle the backlog of over 2,000 identified dangerous buildings, with the goal of making the program self-sustaining through lien recovery.
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Financial Capacity and CUST Fund Balance:
- Councilmember Abby Kamen expressed concern that diverting funds from the CUST (water system) to the Stormwater Fund for demolitions could impact the water system's ability to address its own infrastructure needs (leaks, pipe systems) and potentially lead to rate hikes for water ratepayers. She noted the CUST has a fund balance of $1.3 billion.
- Deputy Director Salanke assured the committee that the CUST has sufficient capacity, including a fund balance of $1.3 billion and annual operating budget in excess of $2.5 billion, and that the transfer is from surplus funds not currently needed for critical water operations. He stated the goal is to kickstart the demolition program without requiring annual replenishment from the Stormwater Fund in perpetuity.
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Budget Scrutiny:
- Councilmember Abby Kamen reiterated that the Committee retains the right to scrutinize spending items like the $25 million demolition allocation even if they were initially proposed in the budget book, emphasizing that passing a budget does not preclude further examination of specific line items.
Key Outcomes
- Presentation Accepted: The Stormwater Fund briefing was accepted, with the Committee noting the presentation provided significant clarity on revenue sources and historical spending.
- Next Steps:
- Public Works is committed to distributing the finalized criteria for identifying buildings with a drainage nexus within 7-10 days.
- Staff are tasked with providing specific cost estimates per demolition and the total number of liens expected from the backlog.
- The Committee will review an update on Solid Waste operations and discuss the open space ordinance on the February 3rd meeting.
- Pending Action: The item regarding the Stormwater Fund spending authority (covering the $25 million allocation plus carryover capacity for unsafe building demolition) is scheduled for a vote at the full Council meeting the following day. Multiple Councilmembers expressed discomfort voting prior to receiving the finalized nexus criteria.
- Data Discrepancies: The Council noted the transition to new audit firms resulted in increased scrutiny but confirmed the audit was clean; however, the Controller's projection of ending fund balance differed significantly ($17.5 million lower) from the Finance Department's projection.
Meeting Transcript
First BFA meeting of the year. Happy New Year to everyone. I'm Sally Alcorn, Chair of the Budget and Fiscal Affairs Committee, and we are joined here by Will Jones and Melissa Dubowski, who are going to go over the monthly financial report. Also joined by my colleagues, Councilmember Joaquin Martinez, Mayor Pro Tem Martha Cast Tatum, Councilmember Willie Davis, and Councilmember Julian Ramirez. Staff and Vice Mayor Pro Tem Amy Peck and Councilmember Mario Castillo, staff from Councilmember Ed Pollard's office and Councilmember Abby Kamen's office. Welcome all. We will get right started with the monthly financial report. The floor is yours, Mr. Jones. Thank you and happy new year. Good morning, Madam Chair, Council members and staff. I'm here today to present the monthly financial report for the period ending November 30, 2025. In the general fund, the controller's office is projecting an ending fund balance of $336 million or 13.2% of expenditures less debt service and pay as you go for FY26. This is $17.5 million lower than the projection of the Finance Department. The difference is due to a lower revenue projection than the Finance Department. Based on our current projections, the fund balance will be approximately $144.8 million above the city's target of holding 7.5% of total expenditures, excluding debt service and pay as you go and reserve. So for the commercial paper and bonds, the city's practice has been to maintain no more than 20% of the total outstanding debt for each type of debt in a variable rate structure, which is in line with the rating agency's guidance of 25%. From time to time, the city's enterprise credits have exceeded this threshold on an interim basis as they have undertaken large capital improvement projects or major expansions. So moving on, I do want to touch base on the 2025 ACFA report. So on December 19th, 2025, the controller's office officially filed the FY 2025 Annual Comprehensive Financial Report, also known as the ACFER, with the City Secretary's Office. And this report is now available on the City Controller's website. So just a little information. So when you look at the primary government financial position, which includes all funds, the city's net position, which is a broad indicator of the overall financial condition, at the end of FY 2025, the total net position, including governmental activities, which is included general fund and the business type activities, which are enterprise funds, total 10.3 billion, an increase of 1.5 billion from last year or from 24. Governmental activities account for $3.5 billion of that $10.3 billion, and the business type activities account for $6.9 billion. Approximately $1 billion of the overall increase is in net in the net position is attributable to the net investment in capital assets. So these are our buildings, our you know, roads, bridges. So and at year end net investment in capital assets total approximately $11.8 billion. And so again, while these are essential to delivering city services, they are not available for general spending. So looking at the unrestricted, unrestricted net position deficit, uh the city continues to report an unrestricted net position deficit, which primarily reflects long-term obligations such as pensions, uh retiree health care, compensated absences. At the end of FY25, the unrestricted deficit totaled $3.7 billion, representing an improvement of $420 million from the prior year. However, the governmental activities account for an unrestricted deficit of $4.5 billion, and this is offset by positive unrestricted uh balance of $817 million in your business type funds, which is your enterprise funds. But you know, those enterprise funds are restricted, so you can't use those funds to offset the unrestricted deficit we have in the general fund. On the pension systems, the Houston Firefighters Relief and Retirement Fund moved from a small net position asset of approximately $427,000 to a modest net position liability of $1.3 million in FY25. They remain $99.8% funded. For the Houston Police Officers Pension System, they experienced an increase in net pension liability liability rising from approximately $374 million to $501 million and is 94.3 percent funded. And the Houston municipal employees systems showed an improvement with this net position liability declining from 1.5 billion to 1.2 billion and a funded ratio of 79.6 percent. Overall, the city's total pension liabilities declined by approximately 114 million from 1.8 billion FY24 to 1.7 billion in FY25. And looking at the OPEB, the city's OPEP liability declined to 1.7 billion from 1.93 billion in the prior year. So kind of wrapping it all up, while the city's net position increased by 1.5 billion in FY25 billion, that improvement was largely in investment in capital assets, and it's not really a flexibility for the budget. So again, those are your streets, buildings, bridges, and represent long-term investments that support service delivery, but but cannot be used to fund operations or close budgetary gaps. And with the general fund, we are still seeing a decline in revenue and an increase in expenditure. So there still needs to be a strong focus on long-term financial planning to get to a structural balance and expenditure control uh remains critical. So in the in the upcoming weeks, we look forward to sharing um our popular annual financial report, which is a much simplified version of the AC for to make it friendly for the citizens and easy for them to pick up. Um so we'll we'll still working on that, but last year was our first year, it was very successful, so we look forward to continuing that trend. I do want to give special thanks to my team in the controller's office financial reporting for their months of hard work. Certainly want to recognize the finance department for their collaboration and to all the other departments for helping us get to the finish line. So thank you very much. And that concludes my report. Thank you. So thank you for that quick rundown.
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