S&P Global improves outlook on city of Houston’s finances | Houston Public Media

One of the “Big Three” credit ratings agencies improved its outlook on the city of Houston’s financial position on Thursday, two weeks after city officials approved major reforms to the city’s revenue flow.

In a news release announcing the “stable” outlook, the agency said the city “made substantial progress in materially reducing its budget gap … through various structural changes.”

S&P Global lowered the city’s outlook in 2024 amid rising public safety costs tied to the more than $1 billion blockbuster settlement with the firefighters’ union, which included immediate backpay and hiked salaries by more than 30% over the five-year agreement. The “negative” outlook signaled the possibility of a credit downgrade, which would raise the city’s borrowing costs.

This year, Houston Mayor John Whitmire’s administration redirected about $100 million in revenue from the city’s water and wastewater utility to the $3 billion general fund, which supports most departments including police and fire. At the same time, the administration moved the more than $100 million solid waste department out of the general fund and into the utility while adopting a $5 monthly fee for garbage customers.

Altogether, the changes essentially erased the projected deficit for this fiscal year, which runs through June 2027.

Steven David, Whitmire’s chief operations officer, said the improved outlook is “just a validation of the work that Mayor Whitmire has been doing for the past two-and-a-half years.”

“If fiscal stability is a house, we’ve laid the foundation with this fiscal year, and it’s good to see that S&P is recognizing that,” he said.

S&P’s statement included a note of caution. The city’s budget deficit has routinely ballooned beyond what was planned.

In 2026, the administration expected a gap between revenue and spending of about $70 million. The actual deficit exceeded $170 million, although the city’s critical fund balance remained on target.

“If these deviations from the city’s budget continue, it could weaken our view of the city’s budgetary practices and overall reserves, aligning them more closely with those of lower-rated peers,” the agency said.

City Controller Chris Hollins — Houston’s elected financial official and a vocal critic of Whitmire’s financial policies — said the warnings “show we’re not out of the woods.”

The other “Big Three” credit ratings agencies have not yet announced changes. Fitch maintained a negative outlook, first assigned in 2024, while Moody’s outlook remained stable.