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The sluggish oil market and Houston's underfunded pension funds led Moody's to downgrade the city's credit rating this week, a move that underscores the challenges Mayor Sylvester Turner faces in wrestling the city's finances into shape.
The change, the first time Moody's has revised Houston's rating in at least a decade, is expected to marginally increase the city's borrowing costs. But the announcement's real weight, observers said, will be the psychological impact at City Hall. Turner announced Friday about 40 layoffs will be needed to balance the budget he is preparing to submit to the City Council.
"It only reinforces the need for us to address these long term systemic problems we have," said Controller Chris Brown, the city's elected financial watchdog. "It heightens the sense of urgency."
Turner agreed the Moody's report - which chiefly highlighted continued weakness in oil prices, the pension burden, and a cap on city property tax collections - "without question" underscores the need for a fiscal fix.
While Turner said the oil market is outside his control, he pointed to the praise the Moody's analysts gave his administration for beginning work on a longterm plan to shore up the budget.
"They did note ... that we are taking conservative projections," Turner said. "The road map to balance the city's budget is already finished on my part. In the absence of the changes that we have already taken, it probably could have been worse."
Turner said he hopes to present council members with a plan in mid-April explaining how he will bridge a budget deficit that had been estimated at $126 million. Falling sales tax collections have pushed projections as high as $160 million.
The revenue cap, which voters approved in 2004 and modified two years later, lets Houston collect more property taxes each year than the year prior, but limits the increase to the combined rates of inflation and population growth.
For more on the subject:
- Moody’s Downgrades Houston’s Bond Rating, Cites Low Oil Prices & High Debt.
- Moody's Downgrades Houston's Credit but Mayor Turner Has a Plan. Sort Of.
- Houston Undaunted by Downgrades Ahead of $600M Deal.
