Nearly every city in the country, including major cities in Texas, have ordinances in places requiring mayors and city council to pass balanced budgets each year. While on their face they follow this rule, in reality they’re doing so using accounting gimmicks and financial tricks causing cities to run up massive debts and crowd out other budget priorities.
The 2022 edition of the Financial State of the Cities report, an annual project of Truth in Accounting, was recently released and it continues to reinforce what we’ve long known, cities in Texas are not addressing their debt and, quite frankly, many don’t even have enough money to pay their bills.
The report looked at 75 cities across the country and the only cities in Texas that not only had money for their bills, but also ran a surplus, were Plano and Corpus Christi. Plano ran a surplus of $233.2 million or $2,700 per taxpayer while Corpus ran a surplus of $72.9 million, or $800 per taxpayer. Most other Texas cities had a taxpayer burden in the tens of thousands of dollars.
Arlington received a “C” rating in the report and was $78.5 million short in what was needed for its bills, leading to a taxpayer burden of $700. San Antonio was $1.4 billion short meaning it would take a payment of $3,100 from every taxpayer for them to get out of their deficit.
Fort Worth received a “D” grade for its $2.5 billion shortfall and $9,300 burden per taxpayer as did Austin for its $3 billion shortfall and $10,300 taxpayer burden.
According to the Truth in Accounting report, Austin’s elected leadership has consistently made decisions which have ultimately left the city with a debt burden of $3 billion. Much of this problem is due to the fact that the city has set aside only 62 cents for every dollar of promised pension benefits and none for retiree health benefits. These unfunded obligations have built up over the years and will cause heartburn for future generations of Austin taxpayers.”
Dallas and Houston, the two worst offenders, came in at $5 billion and $8.9 billion, respectively. That equates to a burden of $12,700 for each Dallas taxpayer and $13,200 for each Houston taxpayer.
These burdens are the result of unfunded pension liabilities and unfunded retiree healthcare liabilities, the biggest source of debt for local governments.
As city employees retire and age, pension debt grows and retiree healthcare costs climb. Because cities want to pass a “balanced” budget, they often take funding that should otherwise go to paying down unfunded debt and use it to pad budget holes as they increase expenses and add new programs and projects. From there, it’s simple, the city’s unfunded debts grow faster than they’re paid down and the taxpayers are left holding the bag.
While most cities have implemented balanced budget requirements, they rely on accounting tricks like the debt payment delays previously mentioned, one-time funding sources, land sales, and increased fees to balance the budget each year. While it might technically be balanced, it’s not structurally balanced, meaning that spending is not truly equal to the revenue being brought in.
All told, cities across the country are facing $357 billion in debt. Unlike the federal government, cities can’t just print money so this debt has real-world consequences on communities. As the debt grows, city credit ratings take a hit making them riskier investments. It also crowds out the budget, limiting local officials’ ability to fund priority areas and improve services.
Whenever you question why your city hasn’t hired more cops and firefighters, doesn’t improve trash service, or fails to address crumbling infrastructure, you’ll probably be told by your officials that there isn’t money to do so. The reason for that is their inability to pass a structurally balanced budget.
Charles Blain is the president of the Urban Reform Institute.