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Negative financial outlook foreseeable without corresponding payment plan for firefighter settlement, Houston comptroller says – Houston Public Media
Lucio Vasquez/Houston Public Media
City Comptroller Chris Hollins said an agency’s negative outlook on the city’s municipal bonds, which in part fund a landmark billion-dollar settlement with firefighters, was predictable.
On July 1, S&P Global Ratings changed the agency’s outlook on the city’s overall debt to negative from stable, driven in part by the city’s massive financial obligations following the $1.5 billion settlement with the fire department.
“We will repay these bonds through the year 2051 at a total cost of $1.35 billion,” Hollins said Wednesday. “This deal was approved without a corresponding plan for how to repay it. Predictably, the rating agencies have not responded positively.”
RELATED: Houston firefighter back pay settlement approved by city council
In a unanimous vote, city council members on June 18 approved the multibillion-dollar deal that includes $650 million in retroactive pay for firefighters who have been working without a contract since 2016. The deal, which also covers up to 34 percent in raises over the five-year life of the contract, is being funded by taxpayer-backed bonds.
The agency’s outlook assesses the potential direction of a long-term credit rating over a period of time. A negative outlook means that the city’s financial rating could be downgraded, which could lead to higher interest rates and potential barriers to attracting investors.
City Comptroller Chris Hollins said Wednesday that the city needs to recognize “that this is a problem.”
“The negative outlook reflects at least a one in three chance that they could downgrade the city’s debt based on one; the fact that we are spending down our reserves, two; the anticipated budget deficits related to increased debt service and wage increases and three; no articulated plan to raise revenue,” he said.
According to S&P Global Ratings earlier this month, the agency could downgrade the rating during its two-year forecast period.
“The negative outlook reflects challenges to balance the budget over the forecast period with material declines in the fund balance as a result of increased debt service, with limited ability to raise revenue due to a municipal statute restricting property tax increases,” Katy Vazquez, credit analyst at S&P Global Ratings, said in a statement earlier this month.
Hollins said that since his last report to the city council, the city’s treasury division has completed the marketing, pricing and sale of $734 million in general obligation refunding bonds.
Houston Mayor John Whitmire said he attended a meeting Monday at the governor’s office to make plans for obtaining additional funds to meet the city’s financial obligations. Whitmire and Hollins said they have both been in contact with the credit rating agency since the negative outlook was issued.
“If some of our elected officials would stop scaring them and scaring them with misinformation, we would be in a much stronger financial situation,” Whitmire said.
Whitmire defended the settlement Wednesday, saying it helped the city avoid a costly and risky trial.
“I will ensure that there will be sufficient funds to meet our obligations before we address next year’s budget,” he said.
Hollins said he has tried to assure credit rating agencies that the city is “not broke” but needs to be on a more solid financial footing.
“The fact is, as you know, we continue to fund these recurring costs with one-time money and we need to change that,” he said.