S&P Global Ratings, a major credit rating agency, has changed its outlook on Houston’s municipal bonds from stable to negative due to increased financial obligations from a firefighters’ settlement.
According to the Houston Chronicle, the bond has increased the city’s financial obligations. Houston issued taxpayer-backed bonds to finance $650 million in back pay and promised up to 34% in pay raises over the next five years, explained Katy Vazquez, an analyst at S&P Global Ratings.
“The negative outlook reflects challenges to balance the budget in the outlook period with material fund balance declines as a result of increased debt service and salary increases, with limited capacity to raise revenue due to a city charter that restricts property tax increases,” Vazquez said in a statement.
While a negative outlook is not a downgrade and doesn’t immediately affect Houston’s finances, it signals potential financial challenges and the city’s ability to repay existing debt, according to Houston Controller Chris Hollins.
A downgrade would raise interest rates on future bonds, straining city funds further and diverting money from essential services like policing, parks, and public health programs. Hollins said there is at least 1-in-3 chance S&P Global Ratings will lower Houston’s rating in the next two years.
“We already have a significant chunk of the city’s budget that is spent just on debt payments,” Hollins told the Chronicle. “That’s money that is either coming out of your pocket as a taxpayer directly, or it’s money that we could be spending on something that more directly benefits you and your family.”
Hollins also blamed the Whitmire administration for the negative outlook for not having a clear plan to finance the firefighter’s deal.
“It’s not the firefighters’ fault that we’re in this situation,” Hollins said. “The problem is that there’s no plan in place to pay for this stuff, and the markets are beginning to demand a greater standard of fiscal responsibility.”
Mayor Whitmire, on the other hand, said he won’t ask voters for more tax revenue until he’s dealt with inefficiency and corruption at City Hall. He emphasized that S&P Global did not downgrade the city’s bonds and criticized those who politicize the city’s finances and credit rating. He added that the previous administration relied heavily on federal funding and that his administration is working to address the shortfall.
