901 Bagby: Inside The Mayor's Office

Houston's Chief Operating Officer On Fixing The Budget

• Houston Mayor's Office • Season 1 • Episode 9

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Houston's city budget has run a structural deficit for nearly 40 years — the last structurally balanced budget was under Mayor Lee Brown. In Episode 9 of 901 Bagby, Chief Operating Officer Steven David walks through exactly how the Whitmire administration plans to end that streak, and the math is straightforward. Two policy moves, one budget cycle, and the projected FY27 gap shrinks.

David is a fifth-generation Houstonian who left Accenture and a higher private-sector salary to take the COO job. He explains the Ernst & Young assessment commissioned in Year 1 — a four-part review covering org structure, performance, spend, and forensic accounting — and the Voluntary Retirement Incentive Program that followed: 1,056 employees accepted the offer, 80% of those positions were deleted from the budget, and the city locked in roughly $100 million in permanent annual savings without a single layoff. Then comes the FY27 budget itself: declaring solid waste a municipal utility (lifting ~$117M off the general fund), and a new right-of-way rental fee on the water and sewer system (~$104M in new general fund revenue) that aligns Houston with Dallas, Austin, San Antonio, and El Paso. Plus the $5 monthly solid waste fee — the Mayor insisted on $5, not $25 — that makes Houston the last major city in Texas to charge for garbage service.

The stakes, in David's words: do nothing, and the FY30 gap approaches $450 million — enough to wipe out libraries, parks, the health department, and most of city administration. This is the same briefing he's given  87 times. Now you've got it too.

Thanks for listening!

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SPEAKER_01

Bureaucrats and elected officials should look at the profit of the city of Houston, a satisfaction of the resident. The line that I like to use is that anybody who walks up to you and says government should be run exactly like a business doesn't understand government at all.

SPEAKER_00

From City Hall in downtown Houston, this is 901 Bag Meeting inside the mayor's office. Welcome back. This week, a special guest on our show, Chief Operating Officer of the City of Houston, Stephen David. Stephen, how are you doing? Good morning. It's good to see you, Alan. You too. Thanks for coming in today. Um really excited to talk a little bit about the budget, but I want to start with you a little bit. Um you've had kind of an interesting career path. You were in government once before, to the private sector, and then back. It's kind of a big arc, a big swing. Can you talk a little bit about that and and how it's prepared you for this role you're in now?

SPEAKER_01

Yeah, of course. I went to uh Arizona State University, got an undergraduate degree, a bachelor's of science in political science. So my background is like public polling, statistical modeling. Uh so worked for uh niece Parker uh for the majority of her administration, five of the six years, and uh did a whole bunch of uh internal consulting work. So I think performance and operational assessments of the city of Houston. So I got to learn the departments that way. I worked for two years under Mayor Sylvester Turner. Um, had the same job for year one, and then Hurricane Harvey happened. Uh, and then I was positioned, transitioned into a role. Effectively, I was the chief data officer for hurricane data. So I helped collect all of the data where there was um high water marks on buildings and compile it all into information so we can make an educated argument, uh, an informed argument uh to the federal government as well as the state government about the amount of money that the city of Houston should receive. Uh after that, I pivoted to work for KPMG, where uh I did government operations, government assessments, and specifically audits uh within the governments uh that we worked for. I had a whole bunch of West Coast clients and Midwest clients, as well as some in Texas, focusing mainly on cities and counties. Uh, and then I moved over into Extincture, where I helped uh with the mayor's first chief of staff, Chris Newport, uh, build the practice that focused on how cities and counties across the nation can uh look at themselves in a critical way and improve operations to better deliver services and equity to residents of the communities they serve. And about a year before um Mayor Whitmeyer took office, I was introduced to him through a friend of a friend, and we uh talked about what the city of Houston is, what the city of Houston is not, what his vision for the city is. Um, and after he won election, he asked me to serve. So I left the private sector and I've been working with him all two and a half years.

SPEAKER_00

I um I usually ask city directors and executives within the city that I talked to about the moment the mayor asked them to take that job. You've been with him a little longer and you've done a bunch of different jobs in the city. So maybe we'll just kind of reframe it back to that time when he said, Hey, listen, I I re I could really use your use somebody like you. What was that moment like and and why was it maybe easy to say yes?

SPEAKER_01

Or yeah, so I am very much on board with the the position that the mayor takes about public service. I truly believe that working for government is a calling. Um I do believe uh in local government being a tool for good. I also think that when you don't pay attention to local government, people are people and things can get longer, more expensive, uh are harder to do, uh, get set in their ways. And the the worst thing that comes about in any industry when you ignore uh processes is that you have a resistance to change. And he brought a very unique perspective in that was very appealing to me professionally of being able to say, um, I reject that we have to do it this way just because it's the way we've all we've always done it. And uh one of the first, the the quickest and easiest way to send the mayor through the roof is to say, this is we're doing it because it's always been done that way. And he had this really impressive um curiosity uh in asking people why are you doing it like this. And they would answer and he go, okay, but why that? And they answer again, he goes, Well, why that? And eventually you get down to the core, and I would say nine times out of ten, it's because, well, we just do it that way. And so there's been a lot, and that that is borne out, uh, so that's his instinct. And I've been able to experience that across jurisdictions in the United States for years and years, that that's kind of the way that governments operate. I think one of the reasons why um people get so frustrated with government is that they experience they interact with it, whether it's through the permitting process or your water bill is too high, or you get a ticket and you go to municipal courts and you interact with the government and there's something that happens, and you go, why in the heck are we doing it this way? And nobody is able to say, one, yes, we are inefficient, we need to fix this. But two, um, we're we are taking what your feedback is and we are internalizing it, and we are trying to fix it so we can deliver a better service. And that's the core for Mayor Whitmeyer. Like you have to start there. And if you can't, he says this all the time, you can't fix what you can't admit is broken. And so that's uh that was a very, very appealing thing to me to be able to leave the private sector, as is with with any job in the private sector compared to government, you get paid more. Um, so I took the pay cut, had the conversation with my wife. But it's it's uh it's an important thing. It's it's a very um distinct privilege and honor to be able to serve the city that I love. I'm a fifth generation Houstonian, and uh being able to serve the city that my entire family has grown up in is a very important thing to me. Um and so that's why it was a very easy yes to be able to come to the city of Houston when he asked me.

SPEAKER_00

Oh goodness, any of those uh inefficiencies that needed to be changed, your family would have seen all of me from the from the very beginning. I like that you brought up the the line though, you can't fix something that you can't admit is broken. How do you take that first step to start identifying those areas in government and city government that, you know, if we do a little something here, this is gonna give us a better return for our citizens. Yeah. How do we start that process?

SPEAKER_01

Yeah, so you start by just analyzing what you do. Um it's I I'm not gonna, this is a little bit of uh maybe too much of a plug for what we've already done, but um, when we came in within the first five months, we had gone to RFP and negotiated with a ton of different uh consulting agencies to come in and do a third-party assessment of the city of Houston in four different buckets. And the buckets were organizational. So what type of organization are we? Are we a pyramid? Are we an hourglass? Are we a middle manager bloat organization? Um, what are people doing? Um, how far away from the executive are they? What's the reporting structure? Then we did a performance assessment. Um, and that performance assessment is what key performance indicators do we have? Um, how do we stack up against the measurements that we've set for ourselves? But more importantly, how do we stack up against our peers? And then the third was a spend analysis. So how do we spend our no different than people sitting down at their kitchen table and pulling out their checkbooks and saying, what have we spent our money on this month? What are we spending our money on? Are we utilizing contracts? Are we issuing one-off purchase orders where we're not under contract, where we don't get favorable terms and conditions? What are the billing structures that we have? Are they reasonable? Are they market competitive type of stuff? And then the fourth was a forensic accounting analysis. And that forensic accounting analysis was critical because while the mayor was running for office, uh a bunch of scandals came out in the city of Houston. There was a political staffer that uh pled guilty to bribery and went to jail for a year. There was a public works employee who stole about four and a half million dollars in a scheme. She's pled guilty, she's now currently in jail. And then there was a story that came out about a uh tax increment reinvestment zone employee who stole $8.5 million over about eight years, and he's pled guilty, and he'll be in jail soon. And so we brought in what's called a forensic accounting analysis. And what forensic accounting is, is a very interesting look into utilizing statistics and data analysis uh to predict human behavior. And so when you are um trying to steal money, there's a lot of habitual stuff that people don't recognize we do. Um, and so you create these tests against all of the transactions, all the money flowing out of the city. And we we, it's called flagging. So we flag transactions that seem risky or irregular, and we have a team of people that pile on top of that transaction and dig deep and figure out what happened, why is it looking risky? Is there actually risk there? And if there's not, and it just happens that it met a couple of tests, then obviously it continues. But there have been a handful of things that we found where there was very irregular behavior and we were able to address it. And in some instances instances, we've been able to debar vendors, we've been able to um pass stuff off to law enforcement. So it's it was those four things were the um was the efficiency analysis that the mayor talks about. Um it was conducted by Ernston Young. Um, and that year one, within year one, we were able to identify a whole bunch of challenges. But effectively what it helped us do was prioritize our thinking. We knew coming in that there was going to be efficiencies that we wanted to address. We also knew that we had to uh react to a whole bunch of problems that we weren't gonna be able to predict. And a good example of that was within the first seven months of the administration, we had the college football playoffs. So we had about 300,000 new people in Houston. So big stand-up thing. This is very important for police and fire public works to be able to deal with those folks, do crowd control, traffic control type of things. A few weeks later, we had a four-day freeze where there were sub-20 degree temperatures. Then we had the high water bill crisis where people were getting $10,000, $15,000,000, $20,000 water bills for single-family homes when there's two people living in the house. We had a uh after that, we had the uh 2,000, 264,000 uninvestigated police incident reports. So this was ultimately what led to um a change in leadership within uh the police department. We had um 264,000 incident reports that were closed utilizing a code that basically said they were closing it because there's a lack of evidence when there was no investigation into whether or not there actually was evidence. Um we had to open that up and HPD did a wonderful job of going through everything and combing through it. There was also a five-person third-party panel that um Mayor Whitmeyer put together that was led by former council member, former state rep Ellen Cohen. Um, and they were able to validate the work that was being done. Then we had uh Kingwood floods, then we had the direct show, and then we had Hurricane Barrel, all within the first seven months. And so we had all these plans that we had put together. The mayor had made a bunch, you know, a year and a half, two years worth of commitments on the campaign trail. And we get in and we're reacting to everything. And so the first proactive step that we took uh was with the Ernst ⁇ Young analysis. And what that gave us was a roadmap to be able to say this is where the city is strong, this is where the city is weak, and this is what we need to prioritize because it's either on fire or it's going to help us save cash.

SPEAKER_00

Can we talk about some of those areas? Where are what are our high points, our highlights right now? What are the things maybe that still need fixing? Can we go over some of those? Yeah, of course.

SPEAKER_01

So if you look at the, let's say the organizational aspect. So one of the things that tends to happen uh in the city of Houston is that we negotiate our pay raises with our unions. We are a unionized workforce. So there's the police union, the fire union, and the police, and the civilian employee union, municipal employee union. And those three, we have what's called a meet and confer or a bargaining. Effectively, we sit down at a table across from each other and we say, these are the things that are important to us. What are the things that are important to you? And then you negotiate, come up with a contract, and then the contract is set for anywhere from three to five years. Um one of the things that was again a reactive reaction. So, for example, on the fire side, we had to negotiate a out of our negotiate a settlement to a lawsuit that dealt with the back pay of firefighters because they hadn't received a pay raise in eight years because they were not under a contract with the previous administration. Um, but more importantly, we had to negotiate the uh the union agreement for the next five years. So um within those organizations, we analyzed what people did and how people did the work, um, what the shape of the organization is. And what we figured out was that the city of Houston had not been giving pay raises to employees other than what was negotiated within the contracts. And so, you know, Owen, you're an excellent employee inside the city of Houston and you're on the same team as me, and I'm a terrible one. I do the bare minimum, I barely get by, I do the minimum, but so I'm not written up, but you are just an overachiever of an employee. We make the same amount of pay because the city of Houston really focuses on stuff like that. Um, but our team lead knows that you're the rock star and I'm not. And so this person can't give you a pay raise because it's negotiated at the union contract level, and the city has never taken the position that we want to give meritorious pay raises. So you say, I gotta leave. I'm tired of carrying Steven's water, I'm ready to leave the city of Houston. And our boss says, I can't have you leave because then I'm just stuck with Steven. And so we decide uh that there's a position, a managerial position that's open. It gets you your pay raise, but you don't really want to be a manager. So you get promoted into this position, you get the pay raise, so you're not leaving, but then we got to make Steven and maybe one other person report to you to justify the fact that there's a manager. So in any normal environment, the city of Houston, the city of Houston, any normal environment in any industry, the average number of people that should report to a manager is between five and seven. Forty-two percent of the people managers in the city of Houston had three or fewer direct reports. So, what that means is when we talk about the shape of an organization, you'll hear that there's a pyramid, there's the head of the pyramid, and then it spans out. And the largest number of people you have are the people doing that frontline service delivery work. The city of Houston's shape was like this, and then it went back down. And so we had a ton of middle managers, huge amount of middle managers. And and it became this untenable thing. And on top of, stacked on top of that, when you look at any industry in the United States, the number that is an okay number to have of retirement eligible employees is between eight to 10%. So anywhere between one and 10 employees being eligible for retirement is generally a safe thing. If it if it ticks up above that, you start to run in sort of risky territory because you you can't lose two employees at the same time, type of thing based on retirement. The city of Houston had 32% of its workforce eligible for retirement. Very, very high number. And the very overwhelmingly large number of those people who were eligible were middle management. And so what we did was we sat down and said, how can we impact this? The mayor did not want to lay employees off. We had, he believed his hypothesis was, and it was, it bore out to be true, that there were efficiencies that could be gained uh within the departments themselves that could minimize the need to lay off employees. Um, and nobody wants to lay people off, anyways. It's that you're impacting people's lives. We'd rather change the organization and the work that we do. So what we did was we said, we've got uh too large of a pool of middle managers. We have too high of a risk pool for people eligible for retirement, overwhelming majority of them being middle managers. So we offered an incentive program. And we said, if you want to voluntarily retire in a time that we can predict, so by May 1st of 2025, if you retire, then we're gonna give you three months salary as an incentive, and we're gonna let you stay on active employee benefit rates for five years. So you don't have to go to retiree rates, which are like almost quadruple the cost. So you get to stay on active employee rates. We had a thousand people take that. And we were able to reduce the cost of the city of Houston, all the those thousand and fifty-six employees. They took it, their salary costs with the benefits layered into it, was about a hundred million dollars a year. And so we we we do what we call delimiting positions, is basically you eliminate the position in the budget. When they retired, we eliminated 80% of those and were able to bring in $100 million of savings permanently into the city of Houston. And so that's a good example of the way in which we were able to prioritize and affect, and the sweet spot that we were able to hit was we were able to impact risk, cost, and human behavior all at the same time.

SPEAKER_00

So when we look back to that efficiency study that kind of led you in this direction, what else is left? Is there a lot left that we really want to attack?

SPEAKER_01

Yeah, there's a ton left. So so we took the city of Houston has a structurally imbalanced general fund budget. Um we have that at a high level, the city of Houston has three buckets. We have enterprise fund buckets, which means they are a fee-based service. It's kind of like a business where you pay a fee to get something from us, and then the expenditures that we have sit inside of that bucket. So there's an enterprise fund for airports. Um it's about a $740 million budget. We have an enterprise fund for public works, which is about six different funds. So this is going to be permitting, water and sewers, streets and drainage, traffic type of stuff. And then there's a general fund, and that's everything else. And general fund for us is um 12,500 of our 21,000 employees. Uh, it's a $3 billion budget, and uh it is police, fire, uh solid waste until the uh next fiscal year, um, parks, libraries, health, and then all of our internal corporate functions. So these are gonna be the IT, legal, human resources, fleet, general services, which maintains our buildings. Um, so all of that, the majority of the people in the city of Houston sit inside that general fund. And so what that structurally imbalanced budget necessitated us to do was to say we got to go after cash stuff first. We have to find the low-hanging fruit that allows us to cut cost. The next thing that we're going after is staff level efficiency. So cutting cost was a critical moment that we had to meet at that point at that year by us focusing on, but that's really just saving cash. When we focus on staff time and staff efficiency, we are by design improving the product that they produce or the service they provide. So when we look at, you know, improving solid waste services, we're talking about improved services to those residents. When we're talking about improving IT turnaround time, we're talking about an internal service improvement. So I we have more less downtime in the field for our route workers uh who utilize uh a tablet or a cell phone to tell them which job they're going to next, which work order they go to next. And so by improving efficiencies, we either have direct primary or secondary benefit to uh Houstonians when we focus on staff time. There's less of a cash savings inside that pool.

SPEAKER_00

But there are those uh you know, it it does bring up thoughts of of a corporation, of any company really. And I know people like to make that comparison between, well, it's a it's a huge budget, and we do have that in common. But the one difference, and and I've read this part of your philosophy, we got to look at the companies different from a local government purely because of the profit motive. It just doesn't exist. And you've talked about about that in the past. How does that come into play uh uh here in the city of Houston now that you've you know you've worked for a couple different administrations? What do a lot of people get wrong about that comparison?

SPEAKER_01

Yeah. The line that I like to use is that anybody who walks up to you and says government should be run exactly like a business doesn't understand government at all. Um at its core, and you said this already, is that businesses by design have to look at profit. Um I think that the city of Houston, I think that any government could, in theory, look um look at profit, um, but profit's in the eye of the beholder. So there's a monetary profit that they have to care about, they call it margin. Um on the government side, I think that government uh bureaucrats and elected officials should look at the profit of the city of Houston as satisfaction of the resident, right? So how happy are you with the services you receive? Do you feel like you are being served? Do you feel that uh the city is utilizing the tax dollars and the fees that you pay in the most efficient or equitable way? And so there's there's a way that you can look at that stuff. But you know, at its core, the city of Houston, all governments um are by design um debt motivated. So we have the the two most stable things inside of a government are the taxpayers who pay property taxes or sales tax. Although sales tax is a little bit more volatile, that's more the consumer behavior type of thing. Yeah, get prices will change that temporarily. Exactly, exactly. But your your property values are are generally the same and generally going up. And so it's a very predictable revenue stream. The other predictable revenue stream are the fees that are associated with core services like water and sewer. Those two things are the most predictable. We can predict them 25 years out and be pretty accurate. Um, and so when we issue debt in the city of Houston, when we have stable revenue streams like that, it is a a reasonable thing for you to continue to issue that debt. With business, you really don't want to have debt for too long because it makes it look challenging. You're not a solvent, your margin is being eaten up by your debt service payments. Well, because we don't really care about profit margin, we get to carry that debt for longer periods of time. And by design, cities think in increments of 50 and 100 years. A great fun fact about the city of Houston is that we sit on 250 years of raw water. We own all of Lake Houston and 70% of Lake Livingston's water. The city of Houston in the future, a 200-year-from from now, city of Houston, won't be in the water wars that a lot of other major cities across the U.S. are going to deal with. We do not have that challenge. Now, our challenge is the infrastructure that delivers the water and the and pulls the sewage away. But so we all have our own challenges, but the city of Houston is in a uniquely advantage, advantageous position. Um, but and this was the thing that Mayor Whitmire was able to bring in, is that we had been operating in a budget deficit for the past 30 for 35, 40 years. I think the last uh the last mayor that had a structurally balanced budget was Lee Brown. And so a different way to put it is that we have been deficit spending for the better part of four decades. And so the mayor made a very clear choice when he came in, when he brought his team in and he set the goals, the set of goals for us was we are going to find a way to balance this budget in a structural way. And we have to start with looking at ourselves and we have to assume that we're inefficient. Well, it turns out the data showed we are pretty dang inefficient. And so we've been working on that for the first two years. So year one was a year of reacting to all those things that happened in the first seven months and learning with the Ernst and Young analysis. Year two was the year of implementation. And now we're halfway up almost halfway through year three and we're going to pass the FY27 budget and we are going to do two very big structural changes. And the first one, there's two things that we're going to do. The first one I would characterize as one A and one B. One A is that we are declaring solid waste a municipal utility. And a very simple way to describe it is that it pulls it out of the general fund and puts it inside the utility fund. So what that does is that frees up about $117 million of expenditures inside the general fund. So we've created headspace for ourselves inside that general fund which carries the structural deficit. One B is that we are establishing an administrative fee of $5 per household per month. Now what that means is that if we were to do a full tilt garbage fee in the city of Houston, it would be about $25 per household per month. There's a study that we had to go through to understand what the cost of that is. But more importantly the total actual cost of the department has been driving, trending downward as the new director Larius Hassen has been with the mayor has been identifying efficiencies and enacting on those efficiencies. And so when we first started the study, this is a little fun fact as well when we first started the study, the cost of a garbage fee at that point in time would have been $29. But by the end of that study, with all the work that the mayor and Larius had been working through, we were able to reduce it to $24 and 72 cents. So through the study, they, and they recognize it in the study that there's been a whole bunch of efficiencies identified, the actual cost of delivering garbage service in the city of Houston is cheaper than what it once was. And so what we said and what the mayor was very adamant about was one, he doesn't believe that we can go from zero to 25 and not create household shock for people. It's very important to him that we we try and keep this as affordable as possible. But two, something has to change, right? We have been a structural deficit for 40 years, a garbage fee across the state, we are quite literally the last city in the state of Texas that doesn't have a garbage fee. All major cities have it as well. If you look at the cities in the region the Pearlands, the Sugarlands, the uh the Pasadenas, they all have garbage fees if you go to the unincorporated areas to the municipal utility districts, the MUDs, they all have garbage fees. If you live in Houston or if you live on acreage in which you burn your you burn your trash, you don't pay a garbage fee. And so the notion though was that because we can't go to 25, we need to have a rational uh a rational fee that makes sense. The cost of administering the department is $5. And so what we're going to do is we're going to keep it at $5 for at least two years. And after that city council and the mayor will have a policy based discussion of what we increase it to and the speed with which we increase it to make sure that we minimize that shock to the household.

SPEAKER_00

Because mathematically you'd say let's just set it at 25 tomorrow because then we'll, you know, but to your point uh we've got families to think about right this is uh back to the um the the the corporation government model it's not investors we're worried about it's our neighbors it's people it's it's friends and neighbors and grandparents and children and and mother young mothers and fathers and so that was very important to the mayor.

SPEAKER_01

And then the second thing that we're doing so that's 1A1B the second thing that we're doing is we're doing uh we are going to require our water and sewer utility to be accountable monetarily to the right of way that they occupy. So this one is a little bit more complicated. It's also allowed under state law both of these are uh but it's easier to to give a proxy argument so center point everybody knows who center point is center point is both our electricity and our natural gas utility they also know Comcast and ATT as our telecom and internet utilities. Those organizations all pay the general fund of the city of Houston about $150 million combined per year. The reason why they pay is because when a utility occupies the right of way and I'll tell you what that is in just a second they they have to be held they are held monetarily accountable for doing their business inside what is considered the people's ownership. So right of way is like sidewalk to sidewalk inside of our roads. If you drive on a street on a public city street that is considered right of way. And by design the right of way are owned by the residents of Houston and that the residents of Houston are represented via the general fund. So we where we have our structural imbalance. And so Centerpoint and Comcast and ATT all pay the general fund to occupy that right of way to conduct their business. Our water and sewer utility unlike other cities in the state all major cities in the state of Texas are not required to transfer money into the general fund like Center Point is like ATT is like Comcast, but also like Dallas Water, Austin Water, San Antonio Water, El Paso water, they're not required to reflect that they are doing business, conducting business inside of the right-of-way so we are going to establish a right-of-way rental fee and this is going to align us with the other major cities in the state and that is going to bring a net positive $104 million revenue stream into the city of Houston's general fund. So recapping we're declaring solid waste to public utility $117 million, $116 million offset from the general fund. A new revenue stream through the right-of-way rental fee is going to be $104 million. So we're going to have a net positive impact to the general fund about $220 million. And so when we look at uh when we looked at what our uh budget gap projections are going to be so we think about uh the city of Houston increments of five years so we're passing this year's budget but accompanied with that is what's going to happen in the next four so one plus four our budget deficit for FY27 if we were to do nothing is projected to be $209 million. So we would spend more than two $209 million more than we take in. By FY30 our projected budget gap was going to be $450 million. So we were going to have a half a billion dollar budget deficit now to put it in context for other major cities in the US budget deficit in New York is $12 billion. Budget deficit in Chicago is a billion budget deficit in LA is like $1.2, $1.5 billion. Huge numbers, not Houston's numbers, right? We are relatively doing better, but it's that's not good enough, right? You got to be able to move the needle toward structural balance. And so what we are able to do with just these two actions we are able to reduce our FY27 budget gap from $209 million to $25 million. We're able to reduce our FY28 budget gap from $334 million to 92. So we are seeing massive shifts in the conversation that we're having. So instead of I can close a $92 million budget gap, what we cannot close is a $450 million one. And so this budget year is representative we're building this budget year on the back of all the hard work we did last year with changing the way that the city of Houston thinks, reducing cost, getting uh you know, doing a voluntary retirement effort to minimize our retirement liability all of these cost saving efforts that we've gone through, we are now at a point where it's time for us to make a shift in the way that the city of Houston looks at revenue. And the mayor was very adamant about the fact that I do not want to raise taxes until it is the last thing that I have to do. And this is representative of if the city of Houston is a uh if we build this if we view view the city of Houston structural stability as a house, we are laying the foundation with FY27.

SPEAKER_00

Mm-hmm You've done a lot of these uh budget talks obviously a lot of a lot of interviews a lot of public speaking what are you hearing from the people in terms of their response I know the office uh the mayor's office has received some letters of support what are you hearing what's the feedback like yeah that's a great question we're very proud of the support that we have so there are 30 organizations we're expecting a few more to come come in that have issued letters of support for the mayor's budget.

SPEAKER_01

So these are business organizations, uh trade organizations, unions, uh neighborhood advocacy organizations who have said this is a great start. But all of them have talked about it's a great start and we want to make sure that there's accountability on the back end. One of the things that the city of Houston has dealt with over the past eight to 10 years has been moving money in a way that incited lawsuits that we have lost. So one of the big the first things that we had to settle when we came into office was a lawsuit with two gentlemen named Bob Jones and Alan Watson. And what they said uh and the courts agreed with them was that the city of Houston uh took money that was intended for a dedicated lock box for drainage. So we call it DDSRF. When it was passed it was called Rebuild Houston. Now it's called building Houston forward um but there was effectively a lockbox of general fund money that so property tax money comes in and it needed to be locked away into dedicated drainage money. And the city of Houston uh a couple of did a couple of different things. One is it didn't make those transfers and two it indicated I'm not going to bore you with this but there was a fiscal calculation that the city of Houston has to do for the purposes of maintenance maintenance and operations with its tax rate and it didn't follow the rules that were envisioned when the voters passed Rebuild Houston. And so these two gentlemen sued and this we were the courts agreed with them. And so we had to settle that lawsuit with Bob Jones and Alan Watson. Now the outcome of that settlement is awesome because now we put half a billion dollars towards drainage and infrastructure every year, which is great. But the the thing that we heard from a whole bunch of Houstonians including our advocacy groups that have given us the letters of support is we don't want to see that again. I we trust Mayor Whitmire to not do that. We know that he's not going to do that, but we don't know about future mayors. And so there needs to be some sort of accountability. And that was one of the reasons why we decided to declare solid waste a utility. So when you move something into the combined utility system there's a whole bunch of state regulation around it. And they have effectively said through state law that this is a lockbox. You can't touch it. It's got to go for the purposes that it's meant for. If it's in the utility bucket, it's in the utility bucket. And so that is one level of accountability that we've been able to provide an additional level of accountability has been, well, what are you going to do with the the money that comes in? If there's a $5 fee, that's representative of about $26 million going into that. So what are you going to do with that to actually improve the services? Well the answer is that we're going to be able to buy more trucks we're going to be able to fix the solid waste facilities. We're going to be able to do all the really important things to transition that department into something that we're that serves Houstonians in the way that they want to be served.

SPEAKER_00

Sounds like a lot of what you're doing you're hoping is lasting this isn't like okay one administration comes in the next one's just going to undo everything you're able to actually put some lasting uh resources for the people that's absolutely it we're we're not looking at this mayor Whitmeyer has not been looking at this from how do I make my administration look good.

SPEAKER_01

He has said how do I make Houston great for my grandkids right? He's got he's got young grandkids he wants to make sure that they can inherit a Houston that is able to uh have fiscal stability, provide good services to its residents and be able something that we're proud of. And so we've had that mindset the entire time as we build this thing.

SPEAKER_00

Last budget question I'll ask you is kind of can you take us through I mean not to predict the future but where do we go from here?

SPEAKER_01

Yeah so from a a practical the practical answer to it is um we have done uh briefing so the briefing that I just gave you is what we've been given our elected officials so it's a little bit of an insider briefing um the we've briefed every single council member with the exception of one who declined the briefing um and we have been doing I think today is going to be my 87th conversation uh on the budget itself we've done a whole bunch of neighborhood groups I've gone to council member Alcorn and council member castillo's budget town halls um done a bunch of good good work within uh the different communities that we're trying to improve now that we've gotten those behind us it's now being able to respond there's been some uh I would say negative churn in the media um and negative churn coming out of the controller's office um it's been a little frustrating to deal with that partly because the analysis that they're conducting quite frankly uh if I was in the private sector and my team put forward a fiscal analysis like the one they're providing I would have fired them um it's it's a sort of a speculative specious document they could have just asked us they didn't uh but uh we have we're now working towards improving or having the the counterpoint to what the controller's narrative has been which is that we're just doing this blindly we don't know what we're talking about we uh we don't know what we're doing type of thing um so we're having a few more detailed conversations with council members answering questions that they may have but as you know we just finished all of our budget town halls excuse me our budget workshops so each department director sat in front of city council as a legislative body and said this is what my budget is this is what I'm doing with it um so we've completed those council members are sending in their questions we're also starting to hear about some of the amendments the council members will put forward to the budget itself so on June 3rd the budget will be put on the agenda for the first time and uh the council members will all submit their budget amendments we're gonna tag the item which is a procedural one week delay and then we are going to vote on it on June 10th. After that, July 1 is when the budget kicks in we will continue to find ways in which we can cut costs of the city of Houston or potentially increase revenues within the city. There's a whole bunch of things that we're working on there's about 10 items that are serious and legitimate half of them are cost cutting endeavors, half of them are revenue identification measures. We're a little bit more sensitive around the revenue increase because generally revenue means whoever's interacting with the city has to pay more money. And that's something that the mayor is super sensitive to look no further than the $5 instead of $25 solid waste administrative fee. But the cost cutting measures we are sort of motor in the water on um there are a whole bunch of ways that cities can cut costs. I'll use my experience with other municipalities across the state there's ways in which you can utilize automation so people are able to do things more quickly and turnaround stuff, be able to do more work. There's opportunities for us to do what's called managed competition. Managed competition is the notion that cities because they don't have profit margins can in effect do things cheaper because we don't have to think about that profit than the private sector. But sometimes the private sector has found a better way to conduct the work at a cheaper cost. And so we do a comparison between the two where we receive formal bids from the private sector to do a specific thing and then we make ourselves compete with them. And if it turns out that they can do it cheaper, then we have a conversation about what it would look like to potentially outsource. Those are exercises that we're going through we have not landed on anything concrete um we still have to work it. But in effect what this budget gives us is it gets us out of the existential conversation about our budget for about two and a half years. So we have a window of time in which we can be deliberate and thoughtful and meaningful about the way in which we talk about what's next.

SPEAKER_00

And anyone who's maybe criticizing the numbers the way you were telling me earlier these uh this deficit could be a lot worse going forward. Oh my gosh or at least was projected to be before Ernst Young and before the changes were made.

SPEAKER_01

That's right. I I the best way to describe it and I said this number a little bit earlier is for about every thousand employees we have about $100 million of cost tied up into it. So as you recall first part of this the general fund is the big bucket of all the employees 12500 employees not all of those employees are eligible for a layoff if we had to get to that point. There are police and fire they've got to be removed and then solid waste employees have to be pulled out of that pool too because solid waste is a critical service. So we could potentially outsource solid waste but it that's not a quick thing that can be done. That actually takes multiple years to be able to do. So we have to remove them as eligible for a potential layoff if we were talking about the the core group of employees that would be eligible for a layoff so that includes me that includes people on the mayor's staff this is uh there are 4400 people inside the general fund that are eligible. Well if you take the math of about a thousand employees uh for every thousand employees you can cut a hundred million bucks the FY30 budget gap is 446 million dollars projected if we do nothing uh that's the entirety of the city of Houston that's eligible for layoffs that means libraries go away parks go away health department goes away all of our internal core functions IT HR legal finance we basically have a city that are airports public works uh solid waste and that's it police and fire. Not a nice vision for the future and that's why that's one of the reasons why it's so important that uh the work that the mayor has done uh leading up to this point is almost as critical as passing this budget itself. We couldn't be doing what we're doing now if we hadn't taken all of the effort that we took to improve the functioning of the city of Houston to talk about it or as I said at the beginning you can't fix what you can't admit is broken. He's been talking about how it's been broken for a very long time. And so being able to um have the work that we've done over the past two and a half years and then talk about the budget as we're talking about it today, these the order of operations had to be this. But more importantly and this is something that I agree with the mayor with 110% of my heart is that it is important for you to come for people to talk about what is important to them coming out of their government. But more importantly if you are criticizing the actions that we're taking you got to present your own solution. And the things that we haven't seen out of folks like the controller out of folks you know in in communities who have very niche advocacy is they hate this idea but they refuse to provide an alternative. And the alternative is unfortunately that we eliminate things like parks and libraries and all of these big sweeping important city functions. And so this budget doesn't just allow us to have a financially structural look towards the future it also allows us to continue to provide equity to Houstonians to make sure that their parks are top quality to make sure that their libraries stay open and that they can have reasonable hours so their kids can go somewhere after school or before school. It allows us to continue to function as a normal major American city.

unknown

Yeah.

SPEAKER_00

Well we'll let you get back to work on that I know you got some more talks ahead and uh I guess in the future we'll have another conversation to see where this goes. I mean it's very interesting time and I think the next few weeks are going to be crucial for people who are really interested in paying attention to what happens.

SPEAKER_01

We're excited about this fiscal year.

SPEAKER_00

All right Steven thanks thank you yeah I appreciate it man