Good morning, everyone, and welcome to the May 19th, 2026, budget and fiscal affairs committee, last day of budget workshops.

I'm Sally Alcorn, chair of the budget and fiscal affairs committee, and we will today have uh we'll be starting off with the controller with his trends report and his departmental workshop to be followed by libraries, and we'll finish up with the HPD.

So really appreciate everyone being here.

Um welcome my Vice Chair Mario Castillo, Councilmember Joaquin Martinez, Mayor Pro Tem Castex Tatum, Councilmember Julian Ramirez, Councilmember Fred Fleckinger staff from Councilmember Tiffany Thomas's office, councilmember Abby Kayman's office, and council member Tarsha Jackson's office.

Good to see you, Controller.

The floor is yours.

Madam Chair, would you mind if we flipped and did the controller's budget first?

That'd be fine.

Let us just skip to those slides.

As we're flipping, good morning, uh council members and staff.

Great to be here with you this morning.

Uh and I know y'all have been going through this, and so thank you for all of the hard work and the attention that you've been paying to uh each of these line items in every department.

All right, so we're gonna get started with the controllers' uh office budget first, and then uh from there we'll move over to our trends report.

So just starting off on slide three, uh, which is the vision for the city controller's office.

Uh, this is unchanged over the past three years, so you've seen this before, but our number one focus is is on accountability, uh cracking down on waste fraud and abuse, and ensuring that Houstonians' tax dollars go uh as far as they can, and that that investment that they're making in the city uh is paying off in their lives and in their communities.

Uh next is transparency.

Transparency goes beyond just a monthly report, a quarterly report, an annual report.

Uh, but from there it's about making sure that this information, which is terribly hard to understand, as you all have experienced over the past couple of weeks, um, that we break that down into plain English as well as plain Spanish and other languages.

Um, and then not only just post it up on the city website somewhere, but put that information at the fingertips of Houstonians.

Um, and so it's important that folks in the community know what's going on, that that is the first step to them, you know, driving the change that they want to see in their community is that they have to have an understanding of what's truly happening.

Um, and then understand what they can do about it.

And so that's this transparency piece, uh, which we take very seriously.

And then finally, innovation, new ideas and best practices, largely driven through our audit division, but also through our financial reporting and the insights that they provide.

Um, it's about making sure that you know we hold ourselves as the controller's office to a high standard, and then by doing that, hold the entire city uh to a high standard to deliver for Houstonians in the way that they deserve.

Uh flipping over to strategic priorities.

Again, this is unchanged over the last three years, uh, but I kind of covered this in uh in what we're doing in terms of vision.

But audit is protecting our tax dollars uh through aggressive audits and also looking into income uh pardon me outcomes with performance audits.

Financial reporting uh is about charting a path to fiscal sustainability by identifying opportunities to increase revenues and decrease costs, uh, to increase transparency, uh, with clear and more relevant communication as we just discussed.

Uh, operations is is moving the trains, right?

Uh, improving the efficiency and operations of how the city flows, making sure that people get their paychecks on time, that vendors and contractors who do their work uh get paid on time as well to keep their small businesses uh in steady operation.

And then treasury is maximizing uh public funds through smart investment.

Uh right now, our treasury is investing about $8 billion dollars in assets in the financial markets, uh, consistently delivering above benchmark returns.

Uh, and those returns you know flow back into uh the various fronts from which they come in the form of interest.

And so um that's a good thing.

And on the flip side, managing the city's debt.

Uh, right now we're sitting in the $18 billion dollar range in terms of debt.

And what I've been explaining, especially in recent workshops, is that the word debt is not necessarily a bad thing on its own, right?

I have a mortgage, probably everyone around this horseshoe does.

So debt itself is not a bad word.

Uh there are some bad aspects of debt.

We can see at the national level, you know, a debt that goes well beyond our GDP, that it becomes problematic at a certain point.

But what Treasury does is manage that debt and make sure that we're borrowing at the most inexpensive rate possible, which delivers millions and millions of dollars of value uh back to Houstonians.

So that's Treasury.

Again, not new here.

We have five divisions audit, executive division, financial reporting, operations, and treasury uh that report in to me, and I report out to the residents of the city of Houston.

Uh all of our office's programs flow into the mayor's priority of government that works.

Uh again, our focus is on making sure that government works and making sure that people know how it works and then driving uh more efficiency and accountability through our local government.

All right, so starting to jump into the actual proposed budget for the city controller's office.

What you're seeing is a 5% increase year over year, uh, and that is three main sources of growth.

Uh number one is the hope increases.

So essentially all, and we'll get over there on the next page.

You know, of our expenses are personnel.

And so when you see folks get a raise, then our budget has to go up to compensate uh for that raise.

Similarly, within our operations division, that's that's what houses all of our interfund costs.

So these are things that we don't control at all and just get charged back to us from other city departments.

Um, and so that has gone up within operations.

And then the final increase that you'll see that's meaningful is within audit, and that is a change of 70 or 80 grand.

And the reason for that is we switched to a new audit software.

The software that we had previously was woefully, you know, uh what's the right word?

Uh, it just wasn't up to you know what what our audit team needed.

Uh, Miss Pierce, who's not with us today, but has sent a surrogate, um, made the choice to send out an RFP, sit down, go through a couple of different uh audit softwares, uh, came up with one that is essentially the industry standard and uh and is moving forward uh with that one.

And so our our annual cost for that software moved up from the 20, 25,000 range to the $95,000 range, and that's where you see growth uh in the audit budget.

Just staying on this for a second, I think we've kind of covered it here, but personnel makes up 85% of our costs.

Uh the other costs are services and our restricted accounts and basic supplies.

Uh already gone over this again, where you see is you know, audit and operations have the largest bumps.

Again, that's that's restricted accounts, uh, that's audit software, and then the general raise of you know a couple of percent in the other divisions is simply the hope increases.

Within audit in particular, uh audits uh FTE count 14.4.

Uh Jermaine, who's representing uh Ms.

Pierce will come and talk to you about how that compares to other cities across the state of Texas.

So I'll I'll leave him uh to that.

But if we look through uh the KPIs, uh the savings that that audit generates is one I know that's come up, and I believe uh Chair Alcorn that you inquired about that.

Uh a couple things here.

One is that that two million dollar figure is very conservative, but two, the driving kind of cause behind this, and we'll we'll respond in writing in a lot more detail, uh, is from our fleet management and fuel card audit.

Uh as a reminder, what we found there is that there are a lot of instances where there is a nearby city owned fuel station, uh, where our fleet largely, you know, fire trucks, uh, you know, police cars, etc., will go to you know a shell station instead.

Yeah, we we actually had a discussion of that during the fleet uh presentation.

A couple of the council members did bring that up and ask some good questions based on by based on the audit of how that was being corrected in the in the um in the fleet department.

So yes, appreciate that.

So happy to move forward uh with that, but that's that's largely where this two million dollar figure comes.

Uh there.

We're not done with the fiscal year.

You're gonna see a couple more audits uh from Ms.

Pierce's shop uh before the end of the fiscal year.

And then as we go in to next year, the 2.9 million figure there is highly conservative.

If you think about the fact that the police overtime audit and the fire overtime audit uh are gonna be coming up uh in fiscal year 2027.

They both already started, but you'll get the results in fiscal year 2027.

Uh executive oversight, um the the priorities in KPIs are largely around again getting the information out to Eustonians.

So newsletter distribution uh website visits community um events and financial reporting.

Uh again, you've seen an increase in the number of insight reports that we've delivered to you.

Uh these go beyond the monthlies and the quarterlies and take tidbits of information, say about overtime, about the city's energy costs, um, and bring them to the forefront.

And you know, that's for Houstonians, but frankly, it's also for you uh to help you understand some of these concepts at a bit of a more granular level.

Uh operations, again, this is about keeping the the trains moving on time.

Um we're trying over time to go paperless, and so what you see over year to year is trying to cut fewer paper checks.

Um we want to do more when it comes to early payment discounts.

There's also an audit going on right there, which which we expect uh to be fruitful in terms of both securing more early payment discounts but also reducing late payment penalties, uh, and so look forward to that.

Um, and then it's also about you know serving you, making sure that you get uh things on the on you know your desk on Wednesday morning so that you can make important decisions and then treasury.

I covered this in in a little bit more detail earlier.

Uh, but this is about investing the city's assets, maintaining uh a high rating on our investment portfolio and getting above benchmark returns for those investments, and then on the debt side uh attempting to bring down the cost of debt and then maintaining a healthy cash balance so that again when we have to pay for contracts and pay for other things that that money is there uh to be utilized.

Okay, with that, I will uh I will pause and bring Jermaine up.

Uh Ms.

Pierce is out this entire week.

Uh, and so she has sent uh an assistant controller in her stead.

And so I'll introduce to you uh Mr.

Jermaine Brooks.

Welcome.

Thank you.

Okay, to me, we're all on.

Okay.

Good morning, Madam Chair, members of the council.

Thank you for having us today.

Uh my name is Jermaine Brooks, Assistant City Auditor with the Office of the City Controllers Division, and I am speaking on behalf of Jennifer Pierce, uh Deputy Director today.

Um today the audit division respectfully submits a request to expand our fiscal year 2027 budget, and we are seeking approximately $700,000 to support phase staffing increases necessary to fulfill our responsibilities effectively.

Next slide, please.

The audit division is the fourth largest city in the nation, and it conducted a benchmark analysis comparing Houston's audit staffing and budget levels with San Antonio, Dallas, Austin, and Fort Worth.

Despite having the largest population and municipal budget in Texas, Houston's audit division remains one of the smallest amongst its peers, comparable only to Fort Worth, the city with half our population and half our budget.

This staffing gap limits our ability to effectively evaluate the city's internal controls, risk environment, and governance functions.

Next slide, please.

Additionally, Houston's per auditor responsibility is significantly higher than that of the benchmark cities.

This metric reflects the amount the city spends per auditor and often correlates with longer audit engagements due to limited staffing.

Houston's per auditor responsibility is double the average of the comparison cities and more than 80% higher than Dallas, the second highest.

Currently, the audit division has 16 staff members to align with Dallas, which has the second highest per auditor responsibility.

An additional 13 auditors or 29 in total would be needed.

Next slide, please.

This understaffing significantly increases the risk of the audit division being unable to perform fully perform its six core functions.

The description column outlines each function and its importance, while the status column details current staffing levels and additional needs.

Understaffing of the forensic function presents the greatest risk, reducing the city's ability to monitor financial records, detect fraud, and identify irregularities.

We currently do not have any resources committed to forensic auditing.

Next slide, please.

While aligning fully with benchmark cities will require 13 additional auditors, we recommend a phase staffing approach.

For fiscal year 27, we request approval to add five auditors, and the estimated budget impact for these positions is approximately 700,000.

Next slide.

We are working closely with Ernst and Young to strengthen this assessment.

And please note the EY team risk assessment team.

It is not the same team that is currently performing the efficiency study.

The audit division would like to thank all the city departments for their participation in the new evolved comprehensive risk assessment, and would like to give a gentle reminder that the audit division has issued the risk assessment to the members of the city council, and we would like your input to identify a relevant risk.

Your perspective is unique and truly valued.

Enhancing the audit division's capacity is essential to protecting public resources and strengthening internal controls and safeguarding the trust placed in us by Houston residents.

We respectfully ask your support as we work to build a stronger, more resilient audit function for the city.

And this also concludes our presentation.

So we want to thank you for your attention, and I'm happy to answer any questions you may have.

Thank you very much.

Thanks for the presentation.

We'll start with Vice Mayor Pro Tem Peck.

Really quickly, Vice Mayor, before you jump in, I just want to note so the administration asked that we not submit any increases.

For the last two years, you've seen me come up here and ask for an investment in a transparency tool that will help Houstonians answer basic questions about the city as operations and finances.

We did not submit that this year at the request of the administration.

As we've sat down here for the last two years, we've heard several times that there will be some kind of new investment and that we can do this for free with some other contract that already exists and yada yada yada.

We're now here two and a half years later.

No such tool exists.

And when an average Houstonian just wants to find some real basic information out about the city, it is terribly difficult for them to locate uh that information.

I'll save you the rest of the spiel.

You can refer to last year's and the previous year's presentations if you want to learn more about that.

But I just want to note that despite promises uh and conjecture about this kind of thing being possible without an investment.

We haven't gotten anything like that.

Houstonians remain largely in the dark when it comes to trying to get answers to very basic questions.

Um as it relates to the audit requests.

Ums Pierce was aware that there was this request to not submit such a um a request, but she felt strongly enough about the need with an audit to have it presented anyway, and that's why uh Jermaine is here.

Thank you.

I appreciate that.

Um, excuse me.

Thank you, Jair.

Thank you, controller, um, for the presentation.

Um, for the auditors, I mean, I completely agree we need as many auditors as we can as we can get.

So for the um additional 703,000 dollars, that's not a part of that this budget.

Is that correct?

You're you're saying that you would be able to do that.

It is not in this budget at all.

That is a request from the audit division.

Um, and if we were to add that amount to your budget for auditors, how many more audits a year do you think that we could accomplish with the five additional auditors?

Uh so uh currently, um, because looking at the past year we have completed 10 engagements, we currently have 15 in progress.

Um we have six in planning, so while it can be kind of difficult to give the exact amount, we can definitely say that we've ramped up double.

Um, and I imagine five additional auditors, um, I believe we'd probably be able to produce an additional maybe five more as well, but that's a conservative estimate as well, but definitely more.

We currently have more in progress too as we continue to ramp up efforts.

Sorry.

From my observation, you know, these audits are ranging from nine to twelve months, and so you'd get a minimum five additional audits on a maximum seven to eight additional audits.

Okay.

Um, and it's very alarming that we don't have um auditors looking at forensics right now.

Is there a possibility of being able to hire outside contractors or shifting people around to accomplish that task?

Uh well I it's it's possible, but it it becomes more costly.

I think the most impactful and effective way to be in cost effective way would be to bring on more staff so that we can do it because as we know, there will be more engagements with the risk assessment.

They've a lot of departments have identified a lot of risks, so they want us to be there.

It's just staffing, and I think long term that may be the most proactive way to ensure instead of contrary and contracting out each audit and assignment.

Yeah.

My additional comment there is uh with the the mayor's original Ernst and Young project, the first one back in 2024, uh, there was supposed to be a forensic element to that.

Now, again, those were management consultants, they're not auditors, but this forensic piece was supposed to, I guess, mirror what forensic auditing might look like.

Um, I have yet to see any results from that.

I'm not saying that they don't exist, I'm saying they haven't been shared with me.

Um, and so I don't know what that has borne out.

Um I think the answer to can you contract forward is always yes.

Uh, what that looks like in terms of the the procurement process and the timing and the cost is where where the question mark comes in.

Explain the difference between a forensic audit and a regular old audit.

It would uh forensic is is much more detailed.

Um, whereas in other audit engagements, there could be contract audits, compliance, forensics, you're really nailing into financial details.

Really true line by line accounting, really more meticulous and methodical.

Um, whereas when we typically do audits, it's more risk-based rich approach risk approach.

Kind of high level until we begin to see things whereas forensic you're really nailing in and in areas of finance where it becomes extremely important to see.

Got it, because sometimes I think we throw around the word forensic audit when we mean regular audit, so yeah, um, okay.

Councilmember Ramirez.

Thank you, Madam Chair.

Thank you both for the presentation thus far.

Jermaine, you mentioned uh, in regards to the additional five audit positions, an increase in salary, too.

If I heard you correctly, so is this strictly adding five positions or is part of this 703,000 requested for salary increases as well?

This is strictly for the audit positions.

Um if we can go back to the slide, we can outline the positions and in detail of what we would need.

Um that'll be slide 19.

Thank you.

But solely for the staffing positions, and as the slide here mentions, there would be um an auditor five, two auditor fours, and two auditor threes.

Great.

And the cost of the software tool that you're requesting, what is that again?

I know it's below the hundred thousand dollar threshold because otherwise it would have come to you for approval.

All right.

And in regards to the potential 2.9 million in savings, you started to explain about the fuel card audit.

And the distance of the city uh fuel stations.

Um can you can you delve into that a little deeper and and explain exactly how that matters and how it can save money in this uh fuel card program?

Sure.

So um first, just to get clear on the numbers, uh it's it's 2.0 million.

Okay, the 2.9 is a projection for fiscal year 2027.

Uh so that two million dollars, and we are gonna respond in writing in much more detail here, but conceptually, uh, there are three things going on that this audit found.

Um, a police car or you know, any city-owned vehicle that has access to a city-owned fuel island, instead of going to that island, even though we're you're within a range of say a mile and a half, you just go to Chevron or Shell or Sit Go or whatever it is.

Um at Shell, you pay more than you then it would cost at the city owned island, and so that differentiation over the course of thousands of visits adds up to quite a bit of money.

Um in addition, you have vehicles that um are tagged as requiring regular unleaded that are getting premium unleaded when they go to the pump.

We all know the difference in that cost.

I think right now it's about a dollar per gallon.

And so again, you do that thousands of times, it adds up.

Uh, and then the third uh thing that this audit found, which this goes back to the question about forensic auditing uh chair, is it was identified that several fuel cards that are being used are tagged to vehicles that the city no longer owns, right?

Now this audit sort of stopped there.

A forensic audit would start to double click on that and kind of pull on that a little bit more to identify which officers using those cards.

You know, can we go and pull video, you know, from a sitgo and see you know who who filled it up and what vehicle was sitting there and those sorts of things to say, you know, is that like a massive red herring and people are just kind of using the cards and there's not a lot of accountability, but they're still ultimately using them to fill up city vehicles, or is there something a little bit more sinister going on?

But this audit doesn't get to that final step, uh, because that would require forensic auditing.

Gotcha.

Thank you.

Councilmember Martinez.

Thank you, Chair.

Uh, and thank you for the presentation, controller.

Um, so if I'm reading uh your slide correctly, you're looking for a five percent increase in your budget, correct?

Uh I wouldn't say I'm looking for it, or you're adding aside from the 700, your the budget your budget is increasing by five percent, correct?

Uh that is correct.

Okay.

Um, and then as as you're looking for these auditors, I think it's a little bit in alignment with um with my uh uh colleague, Councilmember Peck is asking.

Is there opportunities to be able to identify where you can cut?

And I think we've been asking this across the board for every department as well, where you can save uh, you know, whether it is adding just additional staff, but where else within your budget could you find those dollars?

Yeah, I mean, we've gone through just like every other department a reorganization, um, you know, per city policy.

Uh we've looked for those opportunities.

Uh in fact, when the voluntary retirement took place and we lost several colleagues, you know, we audited audited a strong order.

We looked at those positions uh to say, are they critical or or are they not?

Um and so we we haven't found that genuine opportunity.

Uh if you were to go back a longer period of time, about five to seven years, what you saw is that the controller's office under controller Brown was cutting head count year over year over year, such that the controller's office that that I inherited was significantly smaller than the one that controller Brown uh inherited.

At over that same period, no other city department was going through that kind of uh reduction.

And so it's our view that we're operating pretty uh leanly.

Um and in fact, I for my entire time as controller have been operating without uh a chief of staff position in the office, and we reallocated those resources to other critical needs within the office.

So then there's no opportunities to find other cut cuts.

None that jump out at me uh with any significance.

The other question that I have is on the dollar amount of cost over revenue opportunities, uh FY25 actuals were six million, and then uh the target now is 2.9.

Can you dive a little bit more into what is what does that mean?

Why did why are we seeing that reduction in costs or revenues?

We're referring to I page 10 or slide 10.

Yeah, so that is that's our audit division.

Um it's an actual, so that the target for that year was much lower than six million.

Uh it just so happened to be that in that year what they identified was was big.

Um that one, if if memory is serving me right, is on housing, when um, and this is related.

We can go back and document this, but I'll give you what I believe to be the the answer.

During Harvey, uh we had dollars from the state that we had that had to be reimbursed for housing.

And because we submitted a lot of those reimbursement requests late, and we also submitted uh a lot of those reimbursement requests without the appropriate documentation, uh, even if they were on time, they were denied.

And so that's where this uh six million dollar opportunity came from in terms of if we tighten uh and I've received uh confirmation again, this was a year plus ago from Director Nichols that those changes have been put in place, uh, so that in the future we no longer run the risk of not getting reimbursed uh from the state.

So that's what that six million dollar figure was for, but that was what I would call kind of a blip on the radar screen that year that was significantly beyond the goal for that year.

Put back in the queue, please.

Councilmember Castillo.

Thank you, Chair, thank you, controller, for the presentation.

On the transparency component, since this has been a couple of years now that that this request has been out there, has there been any changes uh in terms of the price in terms of the you know implementation of what it would be in with that specific tool?

So I didn't look this year because we didn't put in the request.

Um I can tell you that in the math we've presented last year, we assumed about a five percent increase, you know, year over year, just in terms of sort of the inflation of what that contract uh would cost.

Now we use an estimate based on a single vendor.

Um this wasn't meaning that we were going to use them.

That was just what we used our to base our estimate.

Um and now it's that's open gov that already has another contract with the city and is also sort of one of the leading transparency tool, you know, providers across the country with you know, whatever thousands of cities and counties and blah, blah, blah, blah, blah.

Um, and so that estimate was based on, you know, quotes from them.

There was an assumption that it would increase about five percent a year.

Um, and so if I recalling correctly, we were asking last year for maybe 350 in startup cost, and then it would be about a hundred and fifty a year to maintain it.

Um, and so maybe you can add a five percent kicker to that to assume what it would might cost now.

And this is uh to to clarify, this is to procure a new tool, not to revamp the current tool.

You'd have to talk to some software engineers to know which one was better to do, whether start from scratch or to revamp the old tool.

Um, you're sort of the tech expert, I think, on council, and I think building kind of Frankenstein stuff on top of old stuff normally is not the right thing to do, and especially in sort of the new world with AI coding, et cetera, et cetera.

I would assume that there's a more efficient way just to do it from scratch, but that is just me as a layman uh speculating.

Yeah, that's well one of the reasons I I wanted to ask is just because of how fast things are changing in that space year over year, and so with the two and a half year lag time between the request and between, you know, here we are still talking about it, to see if there were, you know, any changes from y'all's in that you could see with respect to new tools or uh just in an different implementation, different price, et cetera.

Yeah, I'd be more than happy.

I mean, if there were serious consideration, I'd be more than happy to go dig on that a little bit further.

But just to with the understanding of what's out there, it is truly a shame, a shame that a regular Houstonian who is educated and knows how to use Google and knows how to use the internet, can't find really basic information about the city of Houston because our systems are so non-responsive and non-intuitive.

Yeah, I would I would agree with you.

Thanks.

Councilmember Flick and Chair.

Thank you, Chair.

Thank you, controller.

Of course.

How many auditors do we currently have?

Our approved head count is 16.

Um, with the way the that finance does this, that that comes to like a 14 and a half FTE S.

Yeah, so 14.4 is what you've got.

It is I assume there's some people that are uh doing different tasks depending upon.

No, that's not what that is at all.

Um what that works, and it's the same for every single department, is that you have your approved FTEs, which for audit is 16, and then finance applies what's called a vacancy factor that assumes that you know some of those positions will be vacant, and so the actual cost of them will be lower than a whole person over the course of the year.

And so that's just a math calculation that gets you to 14.4.

It's not an indication that anyone there is doing something different than audit.

Okay.

How many do you have that are on staff today?

Uh today there are 14.

Uh we parted with a colleague uh a couple of months ago, and we've been in the hiring process for that one.

Some applications came in, none of them fit the bill, so we put it back out as a new uh round of applications, and then um there is one additional FTE where Miss Pierce will be bringing in a sort of a deputy for herself, but she's been operating without that for uh her entire tenure here so far.

But as of today, you've got 14 auditors.

14.

And how many audits do you expect to complete year end?

Uh so by this year end, we currently have three in reporting.

Um so that could probably tie with that to f FY26, but we do have five in field work and those and six in planning, and those will go into FY27.

So I would say an additional eighteen, that would be eighteen in total that we've done for that.

18 in total.

So essentially they do just slightly more than one audit per person.

That's correct.

Again, there's about a nine to twelve month uh duration of an audit, and so on the high end you're doing one per person on the look okay.

Yeah, yeah.

Um early payment discounts.

We're gonna do 10% less than what we did last year.

Can you speak to why that would be?

Uh let me pull that page up and you go from two million to one point eight.

Um so the question, if I understand it, is why do we go from an actual of 2 million to an estimate of 1.8 for this current year?

Yeah.

Uh I'd have to dig and get you a more specific answer to that.

Appreciate that.

Um I will uh so one, we will answer that question and get back to you.

To uh reiterate, we're actually going through what's called the Texas prompt payment audit as we speak.

And so we should have distinct findings on both early payments as well, early payments that should be getting us a discount as well as late payments that are getting us penalties uh once that audit is complete.

Can I follow up on that one point real quick?

The late payments.

It's my understanding that unless the pay request the additional money for the late payment that we don't pay it out, or we're not supposed to pay it out.

Is that correct?

No, it's actually the opposite.

State law requires us to pay that.

Now, what's we've seen in practice, and I don't want to go into too much detail because the audit will have like the real answers.

What we've seen in practice is that sometimes vendors don't request it.

Um and then in other instances, vendors do request it, we send them payment without that penalty in there, and they accept it and kind of move on with their lives.

But that's very anecdotal.

I'm gonna be clear about that.

And so uh I would suggest we wait for the results of the audit to see what we really can do.

Because I've had vendors tell me that they didn't request it and were surprised that they got it.

Yeah, I would assume it works, you know, both ways, but state law requires it's very the law is set up not to help us get discounts, the law is set up to help the vendors get paid.

Um, and you know, make sure that cities don't, I won't say stiff them, but cities don't kind of use the financial advantage that we have to delay those payments.

Um and so by state law, we should pay them regardless.

Okay, can you put me back in the queue?

Vice Mayor Pro Tempet.

Thank you, Chair.

Um, the city's open finance a website.

Um, I know they've done a lot of work um to make it a little more user-friendly for people to be able to you know figure out our finances.

Could you get us some specifics of what um you're referring to that the tool that you want the city to implement um some specifics of what you would like it to see so that maybe we can work with the administration on that further?

Council member, I would respectfully refer you to the presentation that I've made for the last two years that goes into several specific instances.

Um, but yes, and I I recall all those presentations, but after they implemented the updates, do you think that all of those specifics that you had before are still that's still the critique of it still?

Yes.

Okay.

Um back to the audits, um, do we have numbers on how many findings in the audits or dollar amounts that the administration has actually or the departments have implemented?

And this is not uh um a critique on this administration or the controller's office.

It's just that has kind of been over the years.

Um of the criticisms is that you know the controller's office, they they do an audit and then it doesn't get implemented.

And so, do you have any stats on how much of that has actually been implemented?

Uh would have to get back to you there.

Um, Ms.

Pierce took our audit division and the entire city, and again, thanks to all the department heads for their you know teamwork and cooperation to go and identify all of the open audit findings and then figure out what to do from there.

I believe, and again, I'm just going off the top of my head and we can get back to the specifics.

I believe there are 169 open audit findings across uh the city.

Uh when they went department by department, they were able to close quite a few of those and then leave another subset of remaining open findings that they would have to kind of go through a follow-up audit to uh address.

But that that exercise was just completed and I believe reported to you all maybe 60 days ago or so, and I could get um Jermaine and Miss Pierce and others to could come back with the specifics on that.

So all of the open ones are ones that have not been accepted by the David, it doesn't mean they haven't accepted it, it means they haven't then implemented a change.

Um so I do also want to be clear in terms of when you see the numbers identified here in audit uh in terms of the dollar amount of opportunities identified, right?

It is still up to the departments to go and take hold of those.

And so as it relates to the six million dollars that was identified in housing a number of years back, uh Director Nichols uh has assured us that those changes have taken place.

I don't believe a follow-up audit has happened to confirm that, but but Director Nichols has walked us through the changes that they put in place there.

Uh for the fleet and the fuel cards.

Um, I'm that's more of a recent one, and so I don't know if all the changes have happened yet, although I know that they were acknowledged by the director.

Thank you.

Councilmember Martinez.

Thank you, Chair.

Um, and just to follow up a little bit more on some of the things that you said you've requested, I just want to get clarification.

So on uh enterprise risk assessments you've requested, but it hasn't been approved.

And also on the software you said you requested it, but it's I didn't I didn't say the word enterprise risk assessment today ever.

Um I yeah, I did.

Yeah.

Yes.

We're working with Ernston Young.

That is in the process.

We are currently getting all of our survey results.

We're actually scheduling interviews with the departments.

Uh we received a lot of responses.

They've identified a lot of risk across the departments, and again, still let your feedback from council because your perspective again, uh, but we are moving with that, and then we expect to be reporting June, July-ish for that.

And on the software you've requested for for that as well, and it hasn't been approved.

So the last two times I've sat at this podium for this budget workshop, I've come to you uh with the request for an investment in this transparency tool software.

Both times it's been uh not supported by the administration, and both times you know, we did not get that, and today there is still no tool that provides that kind of transparency to Houstonians.

Okay.

Just want to make make sure because um here and otherwise, but uh, I think there was another the other tool you described, the software you described at the beginning that the audit division there is new audits.

That was requested from the administration and you got that.

That is that's accurate, uh, okay.

Why don't I just get trying to get some clarification?

Uh so there, um again, we we had an inadequate software previously uh to perform audits.

Uh Ms.

Pierce highlighted that um to me and to the administration, and the administration supported that audit software being changed out.

And then just the last one.

Um on slide 13, um, and I'm trying to get a better understanding on this on this front where it says percent of ordinance certification processes completed prior to relevant city council date.

Uh we've I've seen an unusual number of not ins during council meetings.

Um where does that fall in within your office?

Um and then you you sometimes we delay council meetings because finally they do come in towards the end of the meeting.

Who handles that part?

And I've never as a staffer, never seen that many not ins during agenda meetings.

Uh just want to kind of get some clarity.

Where is there some support that you might be needing?

Yeah, there is um, so one, I don't want to this is not bashing anybody and no nor will I even name a specific department here.

But very often, you know, we get to the morning of a meeting and the stuff that needs that we need would need to ultimately certify to get it down to you, like it's not in our queue, right?

So there's there's very specific processes of step one through step ninety-nine that have to get done, and then we're the last one before it comes down here.

And then oftentimes we identify that we just don't have the stuff that we need in order to get it down here.

Is there ways where y'all could work work on that uh a bit better?

Just because again, I've never seen that on an agenda significantly that high.

So no, look, we we flag these issues uh early when um now stuff is not in our queue at all, then it's just not in our queue.

Right.

If it's come to us but there's something wrong with it, we get that back early.

Like it's not a Tuesday evening thing or anything like that.

We say, hey, here's what we would need um to to get this, you know, lined up for Wednesday morning.

Um more often than not, significantly more often than not, departments say absolutely, and we work on it and stay late and get all that stuff done.

Sometimes it flows into Wednesday morning, but ultimately it's a very you know team-oriented effort to get that uh to your desk.

Okay.

Uh because it says 100 percent and 99 percent, but uh I don't know if is that is that a factual that it's 99 percent?

That is factual.

Councilmember Flickinger.

Thank you.

The 90K per year for the audit software, or is that actually is that per year, or is that a one-time purchase?

Okay, so that's an annual cost.

Okay.

Also, how does your budget compare from when you took office to where it is today?

What's been the change?

I would have to go and look at that to tell you what I can tell you is that you know personnel budget has not increased beyond hope increases that are automatic in the contract that we can't control.

Um this audit software is one item that I can identify of being sort of a new addition.

Uh but outside of that, our budget has been just sort of a tag-along budget where we get the hope increase, we get the increase that's related to the interfund expenses that are again outside of our control, and we've just moved forward.

Okay.

Um this last thing's a little off topic, but since you're here, uh I've got a personal social media.

My office has official social media.

Uh there's things that I would post on my personal that I would never do on my official city.

Do you think it's ever appropriate for the official city to use F bombs?

Uh thank you for the question, Councilmember.

Uh for clarity, uh, there was a bleeped out curse word uh that was used.

Um we've definitely been working to get more attention paid to the city budget, and uh we've been successful in drawing more attention to the city budget, and I'm really proud of the team's efforts in in making that the case.

In reference to that post, would it have been more actual or I mean more accurate if the word structural had been used?

Do you believe the budget is is balanced, council member?

I don't believe we've had a structurally balanced budget for decades.

All right.

So would it be a factual statement then to say the budget's not balanced?

I it's not structurally balanced, no, you're that's correct.

All right, that's what the post said.

Can you tell me when the last time was that it was structurally balanced?

Uh I can tell you the last three times that our fund balance went up, and that was fiscal year 2024, fiscal year 2023, and fiscal year 2022.

Can you tell us the last time we had a structurally balanced budget?

Uh let me go look at that and I'll give back to you.

I know we didn't have one in the last administration.

We didn't have one in the previous to that.

Nor did we have one previous to that.

I think the last time we had one was when Lee Brown was the mayor.

Then they made the changes to the pension plan, which ended up being significantly more than what they thought it was going to be.

And I don't think we've had a structurally balanced budget since then.

I appreciate the history lesson, Councilmember.

Um I didn't serve in any of those, nor did you.

Uh my focus has been on, you know, my service to the city of Houston, which has been from January 2nd of 2024 uh to today.

And my problem is that we've had record deficit spending uh in those years.

The first budget uh that was passed under this administration that you approved had the highest deficit of all time.

The second budget, which is the one that we're living through right now, doubled that deficit to again set the new record for the highest deficit of all time.

Uh that's deeply problematic.

And uh I am not ashamed to highlight that.

Thank you.

Controller, when you um request additional staff, I'm sure you've had to request additional staff in other divisions.

What's that process?

I mean, do you just put in a PBJ for a another staffer or for or for like the the audit software that you got?

So um I've outside of this audit um request, I've never requested any additional staff.

Oh, okay.

So you don't you haven't submitted any for any department?

Okay.

And and of course, as you know, I haven't received the audit increases, and so we've never received a new employee addition to our office.

Okay.

But even if you're like replacing somebody, you know, like you're in the hiring process right now.

I mean, you just go through the process of, you know, onboarding somebody or requesting that.

I mean, is there like a request that has to be made?

I'm just trying to work through the mechanics of if you need the, I mean, and I'm believing unlike the Vice Mayor Pro Tem, I believe audits good and can really save us money.

So I'm trying to figure out, you know, can this can the request for more additional staff um be made or has it been made to the administration?

My understanding is that it's a it's the process is called the PBJ process.

Um last year we put in a PBJ for this.

Uh it was not approved.

I will say that at the time uh a member of the mayor's team stated that once vacancies got filled, it would be reconsidered more um favorably.

Um with this request, there is a PBJ that has been formally submitted as well.

Okay, so you have submitted a PBJ for these five additional auditors.

Uh that's correct.

And the and the vacancies have been filled.

Correct.

No, we did have we did have someone depart just recently, and so that's a a new vacancy, but before 60 days ago, we had gotten fully staffed up in terms of our staff level auditors.

Okay, thank you.

That's helpful.

Um Anna with Councilmember Kamen's office.

Thank you, Chair.

Thank you, controller.

Um we our office will be submitting further questions via the portal.

But um, firstly, you really touched on this, so just to confirm, um, our question was, is there anything in your budget that you do not have but you need in order to perform the duties that voters elected you to do?

So it sounds like the audit division increase request and the transparency tool.

Is there anything else that you do not have currently in your budget that would help you complete that?

I could probably come up with a lot again.

There was a request from the administration that was sent to all departments with to the controller's office is a city department to kind of save it on those sorts of requests.

Um and so that's why we did not submit the request for the transparency tool, but you can go back to last year's presentation or the one before that to understand the need for that transparency tool, uh, we can get updated costs, council member Castillo uh as an estimate if uh, you know, if if that's helpful.

And then this this audit uh this audit staff increase has also, this is now the third year in a row that we have submitted this request.

Great, thank you.

And in your office, there have been several instances where you have disagreed with the city legal's determinations as an independent entity.

Can you walk us through and explain how you are navigating that when legal disagreements arise?

Yeah, I mean, that's a tough one, and and thank you for the question.

Um all of us, the controller's office as well as each of your offices, um, go to city legal for questions.

Um city legal reports directly to the mayor and doesn't report directly to any of us, and the mayor has sole hiring and firing power of that city attorney.

Uh it has become very clear to me, and it should be clear to each of you that when the city attorney provides information and advice that he's providing the mayor's position on those things.

Um that is distinct from, you know, true legal advice about here's the ups and downs of this, here's what might happen, here's what might happen.

Um, how could we get this done if we were trying to get it done, right?

That's what you would expect from an independent legal counsel, and we absolutely do not have independent legal counsel uh here in the city of Houston.

Now uh city attorney Michelle has shared with me after um a number of challenges that we've had, that it that any office uh is entitled to have a different legal opinion uh and position than the mayor's office.

Um that having been said, there is no one to provide that, right?

Now I know that there has been one staff position provided to like help y'all with Prop A.

Um, but even just, and I'm not trying to wait into all the political stuff, but just with the most recent instance, um you saw that it wasn't the Prop A attorney who was providing legal advice to you all on that matter, it was the city attorney, right?

And so even in that instance, it turned back on its head, and the mayor's position was was put out forth.

Um in that specific instance, uh, I'll speak for myself.

I, you know, you could speak for council member Cayman and Councilmember Salinas and Pollard or not here, but there was legal advice that I requested on that matter, trying to understand how much money was truly at stake, and legal refused to provide me with that legal advice or even the basic information like contracts uh related to those grants until after y'all had already voted.

Now today I have some documents in my possession.

We're still digging through that very slowly because one, we're in budget season, two, we don't have a lawyer on our staff, and so on and so forth, just to try to understand the facts of that matter.

Um, but at that time, again, the city attorney was representing the mayor's position, um, not meeting the duty of providing my office uh with legal advice or even basic after basic access to documents that you know an outside attorney could help me with to understand what was going on or what was not going on.

Um and so that was just a single instance of being very disappointed and not being served uh by the city attorney's office.

Um there are several that I could go into, but again, the the main point is the city attorney or some legal advisor should be providing independent legal counsel to you all uh or to your principals uh and to my office, and then that's not happening today.

Thank you.

Thank you, Chair.

Okay, controller, that um concludes the um any um discussion of the controller's office budget.

Does anybody in the public have a specific comment on the controller's office budget, not the trends report?

Sure, I see Doug Smith.

Come on up.

If y'all just step aside for a second and come back and do the controllers report, that'd be great.

There's other ones too.

Hi, Dad.

Less day.

Last day.

Yeah.

Um, I'll go through this quickly.

Uh this department handles audits uh throughout the city.

My question is do they audit the vendors at the airport?

Because my understanding from receiving information from uh Vice Mayor's office, the vendors at the airport are supposed to charge prices that are 15% above their out on the street prices.

And I traveled two or three months ago and I did my own audit, and several of the vendors comply with that, but there are several that do not comply, at least I think I checked six of them.

And I don't know whether these guys audit that or whether there's somebody else that all that could, right?

Yeah, we we come up with lists.

I mean, count they always ask counsel and departments for lists of things we want audited, and we can add that to you, add that to the list.

I don't want to pay too much, the airport.

I'm sorry, I don't want to pay too much at the airport.

Well, to tell you the truth, I don't know why I don't know.

I don't know why they're allowed the 15% because they've got, you know, they've got an audience that's stuck there.

Uh and if anything, it would it should be less because the uh uh, you know, can't go anywhere else.

But yeah, so so Doug, the the airport is a subdivision of the city, and so we could uh audit the airport at the at this high at its highest level.

Um we you just heard us talk about constrained resources within audit, and so we are we're forced to prioritize, you know, what comes to the top of the list for auditing, um, and sort of what doesn't make it uh with additional audit resources, we could do more.

Um but we're always gonna prioritize uh the audits based on you know risk to the city um and you know the potential value to the city of pursuing that.

Um and so there's so that's not a guarantee that a new auditor would then come in and do this audit, but um, but we consider from the community as well as from council and other stakeholders, uh including department heads and so on, what we should be prioritizing for audit, and then the audit division puts that through sort of a rigorous process of what ultimately rises to the top to get audited.

Okay.

Well, hopefully eventually this will uh because I think it should.

Uh okay.

Uh a couple of departments, executive oversight uh and uh financial reporting.

Uh they in executive oversight they talk about seven community events hosted, and in number of insight reports, they just explained what that is.

I now understand that uh, but I have no idea how they have advertised their community events, and I'm not on the mailing list regarding insight reports.

I'd be interested in both of those.

So, and I know they have my emails.

We we can get you some additional information on the events.

Okay, fine.

Uh on operations, they talk about uh assuring their funds for uh various payments.

Do they actually approve the funds or does the finance department uh they certify that the funds are available in the system to pay?

Okay, no, the controller's office issues the checks.

They do, okay.

I didn't know that.

Okay.

Finally, uh, this is a personal request.

Uh, you all know that I come to uh budget and fiscal affairs meetings regularly, and it's kind of depressing.

Uh first of all, it would be nice to see Chris at those meetings.

I like Will, but Chris is our elected official, and I think he should be the one that comes to these meetings to present the controller's report.

But more importantly, uh it's kind of and this relates to Melissa as well.

Uh it's very disconcerting when you say, okay, no more questions from counsel, any public comment, and I come up, and as I come up, everybody for those departments walks out.

Uh, and it's like what I have to say, excuse me, is not worth it.

And if that could change, I think what I do have to say is worth it.

So uh and they say they watched it on TV, but it's a big difference between watching it on TV and being here just like he was now to answer questions.

Yeah, I do think that's getting better.

I do think that we are having more um at least some staff stay behind.

Um, I know I I recognize that sometimes departmental people have to get back to their jobs, but to have somebody here to listen is important.

I agree with you.

Thank you.

That's all.

Sure.

Anyone else on the controller's office budget?

Okay.

We will move on to the trends report.

We're running a little behind um.

I'm sorry, did I miss you?

Did you want to say something about the office budget?

Um, probably the trend.

Okay, the trends report.

Okay, we will get uh to the next section.

Um, controller uh on the trends for FY 2027.

I apologize, lot libraries, this is all very important stuff.

We're we're gonna get to you.

Get to you soon.

All right, long time no see, folks.

Madam Chair, uh honorable members of council and staff, uh, now here to present uh the controller's office's trends uh for fiscal year 2020 uh seven.

Just to fly through what we're gonna talk about here, broader economic outlook, what's going on with the general fund in terms of revenue, uh, as well as property tax and sales tax and franchise tax.

Uh we'll then look at general fund expenditures, the general fund balance, uh, and then we'll look at our enterprise funds, our primary enterprise funds, airport, convention entertainment, and combined utility system.

Sound good.

All right.

Uh jumping to slide three, our economic outlook.

So, you know, broadly speaking, according to you know, the math that we're seeing, the Houston economy is expected to experience moderate uh but stable growth across employment and real estate, um, and there continues to be a diversification um of our economy beyond just energy.

Uh given that the city's long-term fundamentals appear to be resilient, but we're seeing some major change going on in the world right now that certainly gives us uh some pause.

You know, if we look at single family homes, uh this appears to be, you know, continued recovery, you know, from post-pandemic.

And so we've seen uh sales go beyond the 2024 levels.

Uh inventory uh has expanded and there's been more of a healthy market as well as interest rates that uh had peaked for a moment, but seem to be sort of coming back down, but again, a lot of volatility uh right now.

But single family home sales appear uh to be you know moderately strong.

Uh the crude oil price.

So if you look at estimates uh for going forward and forecast, there's a broad range that goes from the low 50s uh up to the mid-80s.

However, um right now futures are trading above $100, and they've been going up and down and up and down every time we get, you know, a tweet from the White House about what's going on uh in the Middle East, and so although you know what's in our models sort of caps out at the mid-80s uh based on expert estimates, I am personally nervous about uh this number and the potential for it to be significantly higher.

Um jumping over to non-farm employment in the Houston metro area, uh GHP is forecasting, you know, 31,000 new jobs uh this current year, this calendar year, and we're seeing health care, public administration, construction professional services uh go up with some offsets as traditional oil and gas become more efficient and and lay off employees.

Uh, but that diversification, that balance is leading to a view of a slow uh increase.

Again, there's some noise here.

We've seen some layoffs in the medical center lately, and so it's something to pay attention to, but the numbers you know broadly say slow uh but moderate growth.

With CPI growth, we all know the gas prices are higher.

Um we all know the cost at the grocery store are higher.

Uh, but in Houston, uh our outlook remains lower than the national average outlook.

Um, and so this indicates that this would be sort of a favorable environment for Houstonians compared to the rest of the nation, you know, over the coming year.

Again, with what's going on, there is a whole lot of volatility uh and risk that CPI could be significantly higher than we're expecting.

Um that said, what does that mean for the city's finances in the near term?

Now, over the long term, this becomes problematic in a number of ways, and affordability becomes an issue and so on and so forth.

Uh in the short term, increases in the oil price as well as increases in CPI actually lend themselves to higher sales tax revenue for the city.

And so while these are major risks for Houstonians, uh they are not a risk for our sales tax estimates uh in the coming year.

If they are much higher than expected, you would normally see higher uh sales tax revenue, not lower.

So, you know, it's one of those things where we want this to be a better environment for all the people who live here, uh, but for the city's finances, um, this would trend towards more uh sales tax revenue.

Our general fund revenue, uh fiscal year 2027 revenue, excluding other resources uh increases by 132 million dollars over the fiscal year 2026 estimate, primarily due to an increase in property tax of 12 million, an increase in sales tax of 18 million, um, other revenues of 100 million.

Um what's in that other revenues?

Well, the most meaningful one is 104 million dollars in the right-of-way fee, uh, which we'll discuss in a bit, uh, municipal services fees coming from the TURS.

So basically we're seeing a roughly a doubling of of the fees that are going to be charged of TERSIS by the general fund.

Uh that's offset by licensing permit, permits going down, uh solid waste revenue disappearing because that's being moved over into C US in this proposal, and then uh another 5 million in miscellaneous decreases.

The property tax number I think is the most important one to look at on this particular page, and we'll go into more detail.

If you look at the the first line, you know that size five font there, it says property tax, and if you go all the way over uh to that number at the end, you see uh 1.465 uh billion dollars.

As you know, property tax always makes up roughly about half of general fund revenue, and so sensitivity on that number um is meaningful.

So what does that mean?

Let's flip over to the next page for property tax revenue.

Uh assuming a flat tax rate uh of you know 51.919 cents, which is the same tax rate that we've held now for a number of years uh with a pledge to not raise it again, we see property tax increasing by 0.9 uh percent.

This number comes in meaningfully lower uh than finance's estimate.

And I have a handout that I want to share with you all that describes this.

Uh for those of you watching online, apologies.

We will try to post this as a follow-up so people can understand it.

Um, but as you're seeing that handout come around, the controller's office's estimate of property taxes that will be collected with this current tax rate is almost 40 million dollars uh lower than finances, and uh this page shows the difference between the controller's estimate and finance's estimate.

Now on the left-hand side, we're all starting with the same exact data.

So HCAD sends this over to us.

Um, and so this is what's called the April estimate.

And what you see is we have the same exact number, which is a little bit over half a percent growth uh from last year's rolls.

From there, the controller's office and the finance office are doing two distinct things in terms of estimating how much money will come out of the back end of this system.

The controller's office is looking at trends over the past several years and saying when we get this April estimate, how does that tie to the values that show up in the final roles?

That's the money that actually comes in to the city, and that doesn't get finalized till like a year from now, right?

What finance is doing is a little bit different.

They're they're comparing the number to what's going to show up on the August report in a couple of months.

That's that's around the time that you see truth in taxation and you all ultimately approve the tax rate.

However, because they stop at that step and don't go all the way to the final rolls, um, what we believe is that that misses a crucial time period in which there are continued appeals uh around the tax rolls, and the tax rolls always inevitably decrease.

And so when we compare what normally happens between April and then all the way to end of year next year, what we see is that that's typically flat, and and when I say typically, that's a three-year average.

If you go back even further, it's actually a negative average.

It goes down half a percent to one percent.

It never increases in a meaningful way.

And so what we're showing on our final roll, this is like the third vertical box you see here.

Our final role assumed shows about a half a percent growth from last year.

So it's that 0.59, and then subtracting the negative 0.1.

What finance is showing is the 0.59 and adding 2.6%, and they're getting to about a 3.2% growth compared to our half a percent growth.

Of course, that then that impacts the total sort of set of tax rolls where we come in, you know, billions of dollars beneath them.

But then when you translate that with our assumed tax rate of 51.919 cents, where we get to is 1.465 billion, where finance gets to is 1.503 billion, and there's a 38 million dollar gap there.

Uh we feel pretty confident uh in our number.

Uh the truth is always, you know, in the middle, and of course, it's our job to be a little bit more conservative.

Um, but I can tell you, you know, with a high degree of confidence that if the tax rate doesn't change, if you keep it the same, um, then the number that's being estimated in property tax revenue is too high.

And we're what we're actually going to achieve is a lower number, which of course you then have to plug that hole somehow, either with deficit spending or uh with other cuts.

Um sorry, let me let me stop you there a second.

So are you saying that okay?

I think that the finance director has projected like if by staying at the 51 cents, that's a 20 million dollar delta, and what we could collect if we went to the cap.

And what are you saying?

We're saying that if you stay at 51 cents, there's a 62 million dollar delta.

So instead of the 20 million delta, it's a 62 million dollar delta based on the timing and the how you're looking at the the roles.

It's based on what's what actually gets certified and collected at the very, very end of the day, whereas they're looking at a midpoint in August that doesn't account for continued appeals and drop off in taxable value uh over several months beyond that.

And so uh I'll remind you that last year I sat here and I told you a similar story.

Now it's for different reasons.

Uh this is a different estimate than what we had last year.

But last year we did our math and we told you at this tax rate, if we don't move it, we are not going to be able to collect the number that's in this budget.

Broadly speaking, we were ignored.

Y'all passed the budget that had the proper at that point, it was the revenue cap figure in the budget, and we came up fifty plus million dollars short of that, and had to plug that hole with deficit spending.

I'm now telling you again, the number that's in the budget, we're not going to be able to collect that number in real life at this rate.

And so you have two choices.

You can adjust your revenue projection down and understand the reality of that and deal with that however you may, or you could increase the tax rate from that number to achieve higher revenues.

That is your choice.

I'm not making a recommendation about which one of those two things to do, but you have to deal with reality.

That's what I'm recommending.

And in reality, this 1.503 number uh will not be achievable uh at this tax rate.

Are we clear on that?

Okay.

Um the next number of slides continue to touch on what I just shared with you.

Um, but taxable values.

You know, our number comes in, and you have that on your your blue and orange sheet, but our number comes in at about nine billion dollars lower than finances in terms of taxable values, and then of course we are projecting that the tax rate stays the same because that's what um the mayor has advertised.

Uh, and with those two, with that tax rate and with the value the the taxable value that we're estimating, then we get to that one point five 1.465 billion dollar uh figure, which will be short of what's in this budget.

Uh jumping forward to sales tax, um, it is historically the trend that that we come in a little bit more conservative than finance on this number.

And so again, here our number is lower than theirs.

That's not that big of a deal.

Frankly, we would like for our estimate here to be lower, and then we can adjust it positively over time.

I think finance takes a very similar approach, but we tend to be just a little bit lower than them.

And so what we're estimating for our sales tax revenue is 938 million, which represents about a 2% increase from the fiscal year 2026 estimate.

Now we have a model, and that model ranges from conservative up to optimistic.

As I shared with you earlier, these concerns about volatility of CPI of oil prices, those things are bad when they go up for regular folks.

For city sales tax revenue, the tax revenue normally goes up in those scenarios.

And so our base case scenario is actually showing 988 million.

And our optimistic scenario is showing 1.011 billion.

And so that's that's quite a range.

It's about you know a 70 million dollar upward range that our model is indicating, but we always come to you transparently with our conservative case, which in this case is 938 million.

And I don't have finance's number right in front of me, but I believe we're about 8 million below finance on this number.

Franchise tax revenue.

We have this being just short of two percent growth.

The past number of years, we've seen it fluctuate uh up and down.

Um, but we're showing about a 1.7 million dollar, pardon, 1.7% growth, which represents about $2.5 million, and it's primarily due to electric uh franchise fees.

General fund expenditures, uh, these are the same numbers you would see uh from finance, and so we're we're showing a $3.2 billion budget.

Um, of course, you know, solid waste is no longer represented uh in here, which represents the the key changes, and I think we have a slide in a moment that goes into a little bit more detail there.

In fact, if we could just do that really quickly, if we could jump to page 12, because that's that's kind of more in order.

So uh slide 12 shows general fund expenditures versus the the adopted budget from last year.

Uh this budget is a hundred and nine million dollars higher in spending than the budget that you adopted in June of 2025.

Uh why is that?

Well, 94 million dollars of that is in increased pay for police who got an 8% raise, fire who are showing a 3% raise, and municipal, which is showing a 3.5% raise.

Um I haven't caught up on the workshop yesterday from HFD, but I did reach out to the union uh given that there was a misunderstanding to put it lightly about what raise fire would get last year.

As you know, you passed or approved a contract that has an escalator clause in it, but the terms of that escalator clause are quite vague.

And so last year, the budget that you passed had 3% raise for fire, but fire came back and said we deserve six percent, and we fought them on that, and we went to an arbitrator, and the city lost, the union was successful.

They got a six percent raise.

Here, we're showing now a three percent raise again, with no indication from the union that they believe it's three percent versus six percent.

Um, and we're setting ourselves up again for there to be a disagreement, and then ultimately to get sued or whatever you call, you know, getting taken to arbitration and potentially be on the hook for new deficit spending that's not accounted for in this budget.

My recommendation, again, I don't I don't have a view on should they get three or should they get six.

The the contract is incredibly vague, and so I don't even know if I could begin to have an opinion on that.

What I am urging you to do is get crystal clear on if it's three or if it's six, make sure that the union agrees with that number, and then put real numbers in the budget so that we're not surprised uh with arbitration that cost us money, and then of course an unfavorable arbitrator's ruling that cost us even more money.

We good on that.

This came up at the hearing yesterday, and there was some talk about the negotiations.

Okay, but what's in this budget right now just has the three percent, and so if you're to get to six percent, of course, this goes up.

Um what else is in here $31 million increase in captured revenue transfers to DDSRF, uh, $26 million increase due to a rate increase for the city's health benefits, uh 25 million dollars for an increase of due to pitching costs, uh 21 million in other services and charges, uh, which there's an asterisk there that shows you a little bit more detail there.

Uh there's OPEV, there's special pays, there's service chargeback, there's technology expenses.

Uh we did increase the budget for 15 million dollars in overtime, that still does not come close to what is expected in overtime.

We have not seen meaningful operational changes that would drive us to believe that overtime will be anywhere near the number that's in this budget.

And so again, my urge there deal with reality, put a number in the budget that is actually achievable, and then figure out how to pay for it.

If not, what you're setting yourself up for is what happens every year where we come and sit down and say, hey, we gotta throw 50, 70 million dollars back into this thing, and we have to pay for it with deficit spending because we have not identified any other revenue sources.

Um, but what's in here is a $15 million increase in overtime, uh, which is better than last year.

Uh $15 million due to procurement savings never identified.

Uh another challenge here, we've we've gone over in too much detail, so I won't spend a lot of time here.

Last year there was 17 million dollars in fake savings that were never gonna be achieved.

Of course, those savings were never achieved.

Of course, then you had to add 17 million dollars in deficit spending to the budget.

Um, here's an improvement, now there's two million dollars in fake savings, um, but that's still two million dollars in fake savings, but there's an improvement of 15 million dollars, so we're showing an increase to the budget based on not having so much fake savings in it.

Um, so those are the increases.

They're offset by a couple of decreases.

The most significant one is solid waste transfer to combined utility system.

So, of course, as you know, all the solid waste comes out as an expenditure uh and gets dumped in to our water fund.

Um, okay, Chris, I gotta speed you up just a little bit.

We're running so far behind.

Sure.

$13 million.

I think I think people will be most interested in your ones dealing with the CUS.

So sure.

Uh so $13 million to department reductions, three million dollars in SWOT funding.

Um, go back to the right-of-way slide.

So now let's come back to slide uh.

Uh I have another couple of handouts I want to share with you, and again to the folks online.

Uh we will definitely make sure you get access uh to these.

So this slide is the very simple uh output of these calculations, uh, but what we're sharing with you is is greater detail.

Are there assumptions on on this there are that are being passed around?

Okay.

Um, and in fact, we're giving you two copies.

Okay.

We're giving you assumptions that come out of the city's solid waste cost of service study, and then we're giving you assumptions from the administration.

Both of them tell the same story.

Um the the unrealistic assumptions in the administration's deal, they're slightly more favorable, but you're still gonna be in trouble regardless.

And so once you have those, I'll talk a little bit in more detail.

But what's going on here is that right now we have 1.5 billion dollars in sort of a combined um fund balance within CUS.

That sounds like a whole lot of money.

However, according to CUS's own policies, uh we have to maintain minimum reserves of 1.36 billion dollars.

That means we have 140 million dollars of room.

This budget, if you spend 100 million plus on a right-of-way transfer to the general fund and another 100 million uh on subsidizing solid waste, that adds up to 200 million, this is really simple math, that takes you well beyond the 140 million uh of room that we have, and it takes us below our threshold.

Now the administration has said, well, we'll just change our policy from holding 300 days of cash down to 250.

Well, a day of cash is worth about 2.4 million dollars, and so if you were to eliminate the need for 50 days of cash, that gives you about another 120 million dollars of room.

So in that case, we would survive the coming year, but the very next year we'd be in the same situation where we run out of money.

Um these assumptions include in both instances the the knowledge that you know over time the garbage fee will increase.

Now I know we've heard mixed messages.

Randy sat here yesterday and said again, we may never ever have to take it till five, you know, past five dollars.

That is an absurd statement.

Um, it just it simply is.

So, what's real, what's real is that solid waste, and let's just use the mayor's assumption.

So there's one that says administration assumption.

So let's use that one.

Our trash free revenue this year, starting in fiscal year 2027 is 24 million dollars.

That's the exact number that the administration is using.

Other revenues, 11.1 million dollars.

The solid waste operational cost, 117 million dollars.

That is the exact number used that solid waste and public work showed you yesterday.

Solid waste debt service, 17 million dollars.

That's the exact number that solid waste and public work showed you yesterday.

With that, there is a total subsidy of about 99 million dollars for solid waste, and that's before you have any investments in picking up heavy track, I mean not heavy trash, picking up illegal dumping, so on and so forth.

So these are sort of on the leanest assumptions possible.

You have a $99 million uh subsidy, being as favorable to the administration as possible, go out to year five, you still have a subsidy at that point.

But what I will tell you as a common sense person, and you are all common sense people, these assumptions make no sense.

The view that solid waste in five years would cost the exact same or cheaper than it does today makes no sense.

You've all been around government for a long time.

Uh, some of you are fiscal conservatives who I know don't believe in the efficiency of government.

To believe that a government's provided services would get cheaper over a five-year period of time while maintaining standards of service, when today we are not maintaining those standards of service at a lower cost, it makes no sense.

It makes no sense.

In addition, if you just add up these numbers and you can pull out your personal calculator, if you look at the cost of solid waste in the in the mayor's numbers, $117 million, and you add the debt service, $17 million, and if you, you know, account for the additional revenue.

If you just do that math and add it up, what you get to a number is what you get to is a number where this five dollar subsidy will not pay for even 20 percent of the trash fee today, and fast forward into some imaginary future world where we did not increase cost at all, and we got up to a $25 fee.

The $25 fee would still not pay for the cost of trash.

Now, in the real world, right, if you look at what's in our study, the study that we paid $200,000 for and waited two years to get published.

The study says that today the cost per household of providing solid waste services is $32.

And the only way to bring it lower than that is to charge another clean city fee on top of the garbage fee.

Fast forward to year five, that goes up to $46.

And the only way to bring it down is to charge another clean city fee on top of the garbage fee.

And so that's a bit of an aside.

We know that this garbage fee doesn't come close to paying for this service, and even five years out at $25 will never pay for the cost of this service.

And so Houstonians should expect that their garbage fee is going to go significantly higher than $25.

Now coming back to these assumptions, again, even at the most favorable uh assumptions of the mayor where costs don't increase, and in a world where the mayor's commitment of not raising the water fee beyond what it was already gonna go up, and we continue to provide uh these services when it comes to investments in projects.

If you assume that all that is true, even with the mayor's number, you look at the bottom right red figure, we're burning 930 million dollars in five years.

And it can try to just to state, I mean, I've also asked for some modeling from the administration too.

I think that there's some other things that have been spoken about efficiencies, perhaps in gaining more revenues from transfer stations.

I think there's a lot of factors also that go into this, but I appreciate your modeling.

We're it's gonna be just us looking at two sets of models, really is what it's gonna come down to.

Yeah, back in in my days as a consultant, what we would talk to when we were forecasting scenarios, we would talk to our CEOs and we'd say, what would you have to believe for this scenario to be true?

And for a scenario where we keep making all the investments that are necessary, not just to serve a Houstonians, but that are required by law because the federal government has sued us and reached a settlement, when we know about you know the expansion of the Eastwater Plan and all that needs to go into that, and so on and so forth.

So if you assume all that stuff keeps happening, and you believe that there's not going to be a water rate increase, in addition to the water rate increases that we already know are coming, money does not fall from the sky.

We will have to spend this money down, and this is the equivalent since we're subsidizing the general fund uh with the water fund.

This is the equivalent of paying your mortgage with your child's college savings account with some assumption that you'll refill the college savings account at some point, or maybe college will get cheaper over the next five years, right?

You would have to believe an assurd and absurd amount of assumptions to think that these numbers are anywhere close to reality.

And so the truth, which is right in front of you, is that we're subsidizing, even with the garbage fee increasing, we're subsidizing to the tune of about 200 million dollars a year, and so that gets you close to a billion dollars a year in five years, or in some other absurd assumptions, you're still going down 930 million dollars a year.

This is what's being put in front of you.

This is not in line with reality, and the only way to make the math math is to increase fees.

And so we've been misled a number of times about what will happen with these numbers.

I sat with you last year, okay.

Okay, Chris, we're gonna we we got it.

We got it.

We got uh I'm not I'm not trying to cut you off, but we we know we know we've we've got two departments left, we're running a half hour behind already.

We got it.

I hear you.

All right, next slide, or it's slide 13.

Uh, this is general fund expenditures, you've seen this before.

Uh fund balance requirement, we are projecting.

Um, and again, this is using the mayor's numbers with slight differentiations on property tax and sales tax.

Uh we are projecting that our fund balance goes down to 205 million dollars, a decrease of 71 million dollars from what we have at the end of this year, and that gets us down to 7.8 um million dollars.

This is assuming those overtime numbers are true.

This is assuming the fake savings come in, so on and so forth, we're still down to about 7.8.

Uh airport system.

Uh now we're into our enterprise funds.

Uh the airport uh system is revenues predicted projected to increase by 9.3 percent or 34 million dollars.

Uh expenses to increase by 8.2 percent or 51 million dollars.

Uh revenues projected to exceed expenses by 100 uh million dollars, resulting in an increase uh in their position.

Any questions on airport?

Commission entertainment uh revenue projected to increase by 5.6 million percent to eight million dollars, um, total expenses and debt service projected to increase six percent, uh which is about seven million dollars, and uh CNE revenue is expected to be balanced with revenues offsetting expenses.

Any questions there?

And then the combined utility system, uh fiscal year 2027 revenue is projected to increase by three percent to 66 uh or 66 million dollars compared to fiscal year 2026.

Uh expenses and debt service projected to increase 18.6 percent or 363 million dollars to uh to 2.3 billion.

CUS expenses according to the mayor's own numbers are projected to exceed revenues by 204 million dollars, resulting in a decrease in ending total net position uh and fund balance.

We've covered this in a bit already, but I want to just repeat according to the mayor's assumptions, the mayor's numbers, not mine, the CUS fund balance will decrease 204 million dollars this year.

Um if you don't have any additional questions about CUS, then that concludes um my report.

Uh one last thing, again, this is based on the previous rate study, not the current rate study.

Um, but we're seeing an eight percent increase in water rates that's assumed in this CUS budget.

So any additional rate increases uh would be on top of that.

Thank you.

Got it, thank you, and I appreciate your speeding it up as we're backing up.

Um any questions for the controller on the trends report?

Councilmember Flickinger.

The sales tax projection, we don't think FIFA will bump it up more than what we're looking at.

Uh most of FIFA is this fiscal year.

Um I believe, and I don't know who's a soccer fan amongst you, but I think July 4th is the is the last game, and so that's one game worth of kind of things.

I thought that revenue collected though actually fell into the next year.

Because we don't get the sales tax immediately.

But we book it to the month that it actually is.

So it's accrued and that's correct.

That's why we do oftentimes our reports about two months after the the date because we use those actuals and and bank them backwards.

But it's the it's the pro it's the practice of the controller's office, and I believe the finance office as well, to not book like one time events in as assumptions and just sort of take it as a bonus when it does come.

But on FIFA in particular, that's all gonna happen this fiscal year, not next fiscal year.

Um, on the firefighters, you and I are in complete agreement on the language in the contract.

In fact, I brought that up before we passed the contract as far as their escalators.

Um, although one thing I would disagree with is that, and even the historical that we were talking about that happened, um, we paid that money out after the additional money had been brought in.

So essentially itself funding.

The issue was that we didn't plan on spending that money until we got the arbitrators ruling.

Like the increase in the ambulance.

No, I get what you're saying, that there was additional revenue to offset it.

Um we had assumptions correct, but the assumptions about the revenue were already budgeted in large part, we didn't expect.

That's correct.

And so again, it comes back to again, it's not an argument about should we do it, should we not do it?

It's just like are we dealing with the real math up front?

And so last year we had some uh assumptions around the revenue from ambulances already, which we have increased for sure, but not as much as the cost that we weren't expecting.

That's my understanding, uh, I can connect further with you offline or send you a note about it.

Yes, sir.

Vice Chair Castillo, thank you, Chair Controller, your first handout that talked about the projected property tax revenue.

We've heard around the horseshoe um Councilmember Caymans mentioned shifting our timeline on budgeting, pushing it later into the year.

I think some others have also talked about that.

Would that eliminate this need for the estimates and the assumptions related to the property tax?

It wouldn't completely eliminate it, but you know, the further you get to the finish line, you know, the less you have to estimate because you have more certainty.

And so if we were to push the fiscal year three months, would that help with this assumption?

Um yes.

Uh but the distinction between our estimate and finances estimate, they're still both estimates, but we're tagging it to projecting the final number that comes out in real money at the end of the day, which flows over the course of the fiscal year, and they're tagging it to a number that we receive in August that later gets ratcheted down, and so that's why we have more faith in our number, um, and have a high degree of certainty that the number that's being shown from finance is not going to come uh to pass.

So that 3.2% increase uh from the two percent, so in the second column, the 2.6% increase from April, if you were to take that all the way to the sort of the end of the fiscal year, we haven't in the last decade ever achieved that number of two point six percent increase, and so we're very confident that that's not the number.

Um, whether our number is too conservative or or too um optimistic, happy to have a longer conversation about that as well because that too is is an estimate, but it's much more in line with what's actually happened historically.

Got it.

Thank you.

Anyone else on the trends report?

I will say this budget has really made us focus on the C US in a way that we have not in the past.

We're usually really focused on the general fund department, so this has been interesting, and we're all trying to learn a lot more about the reserves and the reserve requirements and how reserves will be impacted and how water rates will be impacted.

So I appreciate your perspective.

Um I did hear a lot from uh the director of public works yesterday talking about efficiencies and talking about things they're doing differently to bring down that that bring down the cost uh of producing the water from when the rate study was first done.

So there's some there's some wiggle room in that or head space as the consultants call it in that in the reserves built built into the reserves.

Um, and that the new rate study will will again be looking at how to produce water and what that you know what that costs at that at this time and in place.

So there's a lot to consider.

We're all playing catch up on learning about uh water sewer reserves, because that is the big story of this budget.

So I appreciate your your thorough discussion, and we'll hear now from public speakers.

Thank you to the controller's office, whoever's still here.

Um really appreciate all the good work that you do, and we'll call Doug Smith as our first speaker.

Thank you.

Thank you all.

I didn't really plan to speak after this, but I'm glad you called on me anyway, because there's something I'd like to stress, and that is the and you mentioned it, the uh 1.3 billion dollars of reserves, cash reserves, uh, and I mentioned this yesterday as well.

Um, it's not gonna work uh the way they have it's gonna disappear so fast.

And Chris forgot one thing, I believe in his analysis.

He had a hundred million dollars for the right-of-way, 100 million dollars for solid waste.

There's another 82 million dollars that's in the budget for 1600 Smith Street, I think.

So we're talking about almost 300 million dollars that's going to be used against the C US cash reserves, and uh I just don't see it working.

Thank you, Doug.

Fang Faye.

Fang Fei, not here anymore.

Okay, Felix Kapoor.

Um, want to thank the controller's office for putting that presentation together.

Um, couple questions, uh, if they can be answered here pretty well.

One, yes, I think uh from our community's perspective, one to put a trash fee uh to allow access into the CUS and to put that burden on homeowners and residents in the city of Houston, um, is not a message or a tactic that's well received, especially implementing that without any exemption uh if you're disabled, if you are on a fixed income, um, or if you just plain out can't afford it, while at the same time subsidizing richer neighborhoods, which I understand is state law, but want to echo that.

Second, uh for the controller's office or anyone up here, has anyone looked into we talking about revenue a lot, right?

Um has anyone looked into the tax abatements that some of the oil and gas companies have been receiving here and the agreements within the city of Houston and the expiration date because why doesn't the city just protect the CUS, increase the taxes by one cent, and uh the property taxes by one set and review these contracts um to make sure the agreements are being met uh with those abatements, and if they're not, we need that money back.

Otherwise, who's the people paying for it are the people um in our neighborhoods and the people that elected all these officials in.

So, yeah, is there a direct answer to that question?

There's been a lot of discussion about the tax abatements, um, and and we that came up during one of the workshops.

And yes, we're we're we're making sure that everybody's abiding by what they said they would do when they when the abatements were given, and there has been some attention on that.

So thank you.

Great.

And then I think the last thing I wanted to say was um I liked that after three years, the controller's tool to make the budget more accessible, coming from someone who works in community trying to teach the budget, trying to make the budget accessible in multiple languages.

Um it's refreshing and frustrating to now hear some interest in that, and I really really encourage council, even though um it wasn't presented by the controller's office to really uh pursue that and pursue one-on-one meetings with that office to make sure your constituents know how to participate, understand uh, and influence the budget because it's their money we're working with.

Thank you.

Thank you, Felix.

Anyone else from the public like to address the council about the trends report?

Okay, seeing none.

Thank you, Controller Hollins and your entire staff for your presentation and work today, and we will take a short break.

I'm so sorry, libraries.

We we ran long, but we'll get to libraries in about five minutes.