DALLAS -- To cope with growing debt service demands and to hire additional police, the Houston city council on Wednesday evening approved a $1.5 billion budget for fiscal 1995 and a 3.5-cent property tax rate increase.

In an 11-1o-4 vote, the council supported Houston Mayor Bob Lanier's proposed budget that calls for the first property tax increase in six years to raise about $21 million in additional annual funds for debt service payments and free money to hire 550 police officers within 18 months.

The council debated the issue for eight hours and made dozens of amendments. But the primary budget change came more than a week earlier when the mayor agreed to reduce the suggested property tax increase by one-half cent and cut about 1% from many departmental budgets instead.

The total property tax increase now amounts to 5.5% and will balance the fiscal 1995 budget, which holds $954.6 million in the general fund and the rest in enterprise funds. The fiscal year started on July 1.

"In the spirit of consensus, we decided to make the expenditure reductions," said Richard Lewis, the city's director of finance and planning.

Lewis said the approval of the fiscal 1995 budget means Houston can continue its capital program to improve streets and other services and revitalize inner city neighborhoods. The city plans to sell about $100 million of bonds annually during the next four years under existing authorizations from voters.

However, a spokeswoman for city Controller George Greanias called the council move to increase property taxes by 5.5% unfortunate. "The council will continue to have to look for ways to pay for the things they want to do while meeting the demands of increasing ... debt," spokeswoman Maryann Young said.

Because of a large debt restructuring in 1992 that delayed debt service payments and increases in outstanding general obligation bonds in recent years, the city's debt service will jump from $84.1 million in fiscal 1994 to $105.3 million in fiscal 1995. By 1999, it will reach $157.9 million if no new debt is authorized and issued.

That increase in debt as well as increasing spending has prompted some concerns by rating agency analysts. They believe that the property tax increase is a positive step, but Houston may need to take more action in the future.

"The tax increase is positive. They needed to find some additional revenues for their debt service requirements," said Mary Francoeur, an analyst with Moody's Investors Service. But "they have some challenges in the future," she said.

Francoeur and Chris Evangel, Moody's supervisor of the Southwest ratings region, said the city should look at reducing its reliance on funds provided through Houston's Metropolitan Transit Authority, which is giving $55 million in fiscal 1995. They also said the city may need to evaluate its 50-cent tax cap for operations and maintenance, which curtails Houston's financial flexibility more than many other Texas cities.

Amy Doppelt, a senior vice president for Fitch Investors Service, said the tax increase was a plus for Houston because it is an ongoing funding source. "One of our concerns about Houston has been the use of one-time budget-balancing measures for the last few years," she said.

Doppelt also said the city might have to consider an additional property tax increase in the next few years unless it sees a significant increase in property values and it continues to get the transit authority funding.

However, Lewis said city forecasts show that Houston can balance the budget and fund debt service without increasing taxes through fiscal 1999.

"We are still balanced for that five-year horizon," while providing increased city services that will help promote economic development in the region, he said.

In addition, Lewis said he did not believe the city would lose transportation money unless the mayor wanted to do so. He said the Houston mayor appoints five of the nine board members for the Houston Metropolitan Transit Authority.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.