Houston is projected to face a deficit of $330 million for the upcoming fiscal year, an increase of approximately $100 million following a recent Texas Supreme Court ruling.
The court denied the city’s appeal concerning street and drainage infrastructure costs, exacerbating the city’s financial challenges.
As a result, Houston may be forced to consider a range of fiscal measures, including budget cuts, raising fees, or increasing property tax rates.
The city’s financial outlook remains uncertain, with several unresolved issues contributing to the deficit.
A potential federal freeze on municipal grants could further strain revenue streams. Additionally, the timeline for allocating $100 million for infrastructure, as required by the court decision, is still unclear.
The city is also awaiting the results of third-party audits of its spending, as well as ongoing discussions regarding a long-proposed residential garbage fee.
Without new revenue or reductions in spending, City Controller Chris Hollins expressed concerns about certifying the 2026 budget.
During a recent City Council meeting, Hollins emphasized the seriousness of the fiscal situation.
“Despite our repeated message about kicking the can down the road, here we are,” he said, underscoring the urgency of addressing the deficit.
The city’s decision not to raise property tax rates or introduce new fees last year, despite anticipating the shortfall, has contributed to the current financial predicament.
City Council members are expected to review the fiscal 2026 budget in the coming months, with the finance department engaging in discussions with department directors to address the budget shortfall.
The deficit is partly the result of a Texas Supreme Court ruling dismissing the city’s appeal of a 2019 lawsuit, which accused Houston of failing to properly fund water and drainage projects.
The lawsuit was based on a 2010 voter-approved amendment requiring a pay-as-you-go system for such projects.
Officials estimate that the city needs $100 million to comply with the court’s decision, though the final amount required could vary depending on property tax revenue.
The city must allocate these funds by June 30, the end of Houston’s fiscal year, unless it negotiates an extension with the plaintiffs.
Before the court ruling, Houston already faced a $230 million deficit due to the expiration of federal relief funds, storm damage, and a $650 million agreement with the firefighters’ union.
Mayor John Whitmire has not yet outlined a plan to address the firefighter contract and settlement.
In an effort to address the financial pressure, Hollins proposed creating a joint task force composed of his office, the mayor, and City Council budget committee chairs to identify potential budget cuts. ”
However, neither the council nor the mayor agreed to the proposal. Whitmire, while acknowledging the city’s financial burdens, emphasized that none of these expenses were unforeseen. ‘
He expressed confidence in the city’s ability to find solutions, stating, “It’s very easy to criticize or sound the alarm if you don’t have to offer up solutions.”
In addition, the city has pursued collaborations with Metro, Harris County, and the Texas Legislature to secure additional resources.
Some agreements have already been reached, such as Metro’s contribution of $50 million for traffic enforcement and streetlights, while the state has agreed to cover some debris removal costs.
Whitmire has also worked with Harris County commissioners on park projects. However, initiatives such as the $70 million homelessness plan remain mostly unfunded.
Finance Director Melissa Dubowski announced that the department will soon present the findings of the audits. As Houston navigates these fiscal challenges, attention remains focused on finding viable strategies to address the growing deficit.
