City Controller Chris Hollins, Houston’s chief financial officer, warned council members that the city is heading into a financial hole, with a looming $174 million general fund deficit for the fiscal year 2026. Hollins said this is the largest single-year drawdown in the city’s history.
“That didn’t happen overnight,” he said. “It happened one decision at a time. This year’s budget was advertised as balanced, even though at the very outset it included over $100 million of drawdown at the city’s general fund that was brought down to 76 by the time you voted on it.”
But even with the reduction to $76 million, the budget was “never balanced to begin with” based on the assumptions the city knew “would not hold”. His office repeatedly flagged concerns about revenue projections, which did not make it into the council’s policy decisions, Hollins added.
Mayor John Whitmire said that he plans to announce his budget proposal in May. Per his office, this is the same schedule he has utilized in previous years, and Hollis is “well aware of that timeline.”
“I respectfully disagree,” he told the Defender. “We have a solid plan to balance the budget without raising taxes. Based on the EY study, my administration is implementing efficiencies and eliminating waste, which will help reduce the shortfall. The controller missed a recent finance meeting, where we began outlining the administration’s approach. Last year, the controller said we would have to raise property taxes. He was wrong then, and he is wrong now. We will balance the budget without raising taxes, and I look forward to working with him.”
Prior warnings
When the budget for fiscal year 2026 was proposed, Hollins documented his concerns under “10 hard truths” for leaders to consider.
One such warning was that the budget relies on a property tax increase as revenue projections exceeded what the current tax rate would generate.
“These risks were identified, the costs were quantified, the outcome was predictable,” Hollins said. “But decisions didn’t reflect these known risks, and the outcome that we’re seeing should not be a surprise.”
Under Whitmire’s leadership, the city did not see a tax increase. The Houston City Council kept the same tax rate of 51.9 cents on each $100 of taxable value in 2024.
“I’m down here to fix Houston. Financing is critical. The tax rate and the budget is not just about dollars and cents, it’s about trust and credibility…we’re not going back,” Whitmire had said then.
Hollins estimates the result of that to be $53 million in additional debt spending.
Overtime costs
Hollins also pointed out that the city spent nearly $140 million in overtime funds last year, while the budget allocated $64 million without changes to operations that would close the funding gap.
“That gap wasn’t going to close on its own, and it didn’t,” Hollins said. “There have been other revenue and expense changes throughout the year, but just those two decisions alone account for the entirety of essentially the $100 million increase in deficit spending that we’ve had since July…the outcome that we’re seeing should not be a surprise.”
A deficit years in the making
Among the other issues raised by Hollis were underbudgeted overtime costs, particularly in police and fire departments, despite prior years showing far higher spending, and contract risks, including a firefighter pay agreement that lacked defined financial triggers, leading to arbitration and additional liabilities.
Each of these decisions, Hollins argued, compounded the city’s financial strain.
In June 2024, the City Council unanimously approved the firefighters’ agreement, which set the rates they would receive each year. The terms indicated that the agreement would increase the contract cost by over $120 million if triggered.
“Without clearly defining those figures, the likelihood of disagreement was high, and the financial exposure that came with that would be high,” Hollins said. “That’s exactly what followed.”
Hollins added that when the city went to arbitration over this matter, the outcome contradicted the city’s expectations.
“The firefighters believed that they were entitled to the maximum rates in the contracts, the mayor thought they should be paid the lower number, and it went to arbitration, and then the city lost,” Hollins added.
Now, the onus is on taxpayers to pay the firefighters, he added, in addition to the back pay the agreement was intended to resolve.
“We still need to give them a number, but we expect about $10 or $12 million in additional deficit spending this year to cover that back pay and some of the related costs,” he said. “That doesn’t include any legal fees associated with the defense of the matter…we cannot continue to make decisions that don’t align with realities, and expect anything besides reality coming back around to hit us in the face.”
He also pointed to the tangible effects the city could feel during a budget shortfall, including slower response times, missed or delayed trash pickup, and reduced or no public services.
Financial state of the city
“We still have a lot of work to do, and you’re going to see that in the proposed budget,” said the city’s finance director, Melissa Dubowski, to Council member Edward Pollard’s questions on whether the city is “more broke” than before. “There’s an inefficiency study to break down the expenditures where we can.”
While the city decides on a concrete solution, the fund balance is shrinking, from nearly $600 million to just over the projected $300 million, per Hollins, with the margin for error narrowing.
