DALLAS - Houston Mayor Bob Lanier has proposed a $954.6 million general fund city budget that calls for a 6% increase in property taxes to pay debt and to free money for 550 additional police officers and other services.

Under Lanier's budget plan, the city would raise property taxes by 4 cents per $100 assessed value to raise an additional $25 million annually for debt service and then release a comparable amount in the general fund for police, neighborhood, and other programs. If approved, the budget would include the city's first property tax hike in six years.

"The big element is to increase the police force," said Richard Lewis, director of the city's finance and administration department. And, "we wanted to continue the capital construction program. We are trying to revitalize the inner city to make it more competitive with the suburbs."

The mayor's fiscal 1995 budget plan, which will be considered by the Houston city council later this month, represents a 5.5% increase over this year's general fund budget. Combined with nontax supported enterprises funds, the proposed budget amounts to $1.55 billion. The fiscal year begins July 1.

In addition to hiring police officers, the budget calls for increased funding to combat youth violence and prevent crime, as well as other items - from a new fire station to ambulances. The only big cut proposed is $2 million from the city's planning and development budget.

Formally introduced about a week ago, the mayor's plan already has drawn fire from members of the city council, which is scheduled to consider the budget June 29, as well as city Controller George Greanias.

Greanias is critical of the increase in city debt in recent years and a $400 million restructuring in late 1992 that delayed debt payments. "The city is extending itself financially," he said. "We are going to get a double whammy - first, because of the cost of the debt accrued since 1992, and second, because of the cost of debt that was postponed in 1992."

The city's outstanding general obligation bond debt has jumped $255.2 million to $1.3 billion as of March 31 from $1.05 billion in 1992. The debt has grown primarily because of annexations and equipment purchases from police cars to computers.

In addition, the large debt restructuring in 1992 delayed payments until fiscal 1995-96. Debt service will jump more than $20 million to $105.3 million in fiscal 1995 from about $84.1 million in fiscal 1994. By 1999, it will jump to $157.9 million for existing and authorized debt, according to figures supplied by Greanias.

"It puts additional pressure on taxes and reduces the amount of money for operations," Greanias said.

However, Lewis defended the additional debt, saying that the Lanier Administration inherited many pieces of worn-out equipment, including police cars. "There was a deferred maintenance liability," he said.

In addition, he said, the city needs to continue its construction program, authorized by Houston voters for streets, storm sewers, and other items to remain competitive with the suburbs. Lewis said the city had authorization to issue about 430 million more of general obligation bonds and plans to sell about $100 million annually for the next four years.

That issuance would be coupled with about $160 million sold in the past couple of years for capital construction and capital equipment purchases, he said.

Lewis said the Houston tax base and economy was showing some growth to help support additional investment and higher taxes. Retail sales are up; the tax base has increased slightly after declines in the past; and business expansion has been good.

In addition, the taxes for the average Houston homeowners to pay for city, county, and school services are lower than many surrounding communities and other Texas municipalities, including Dallas and San Antonio, according to figures compiled by Houston officials.

"I think this tax increase is in line with what is needed in the city," said Henry Sauer, Houston's financial adviser and vice chairman of Masterson Moreland Sauer Whisman, an investment banking firm. "The mayor has spelled out the need for it."

Rating agency analysts said the mayor's call for increased taxes to pay debt service and maintain services is no surprises. Fitch Investors Service and Moody's Investors Service rate Houston's general obligation bonds double-A, while Standard & Poor's Corp. rates them AA-minus.

Amy Doppelt, a senior vice president for Fitch, said the proposed tax increase "is a step toward a more permanent solution for their fiscal pressures. Their expenditures have been rising faster than revenues."

In the past, the city restructured debt and took other actions, including a shift of transportation funds, to cope with higher expenditures, said Doppelt and Richard Raphael, Fitch executive managing director.

The lack of a permanent solution prompted Fitch to give Houston's bonds a credit-trend rating of declining more than a year ago, although the double-A rating was maintained. The analysts said the debt ratios remained moderate or totaled 4.5% of the property tax base.

Peter D'Erchia, director of the municipal finance department for Standard & Poor's, also said the mayor's plan appeared reasonable. "We think it is prudent for Houston to cut expenses or increase revenues," he said.

D'Erchia said Standard & Poor's lowered its rating on the Houston's GO bonds to AA-minus from AA in 1992 when the debt restructuring was done and the agency did not expect any further rating action. The bond rating has a stable outlook.

"There are certain things we will keep an eye on," D'Erchia said, including use of metro transportation funds for general city services, reserves, and fund balances.

He said, however, that some positive signs of economic growth have emerged, including strong business expansion.

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