Houston finance offices differ on $25 million TERS 24 transfer as quarterly report is presented

Deputy Controller Will Jones and the Finance Department offered differing projections of the city’s FY2025 general fund balance at the Budget & Fiscal Affairs Committee meeting on April 29, 2025, centering on whether a roughly $25.2 million transfer tied to the “TERS 24” increment should be returned to the general fund.

Jones, presenting the controller’s quarterly financial report for the period ending March 31, 2025, said the controller’s office projects an ending general fund balance of $2,444,700,000, or 9.4% of expenditures excluding debt service and pay‑as‑you‑go. That figure is $136,100,000 lower than the Finance Department’s projection, Jones said, and the difference reflects a combination of lower revenue and higher expenditure assumptions in the controller’s estimate.

The discrepancy is largely explained by how each office treats a TERS 24 increment transfer. "There’s this TERS 24 increment clawback," Jones said, and the controller’s office is "holding our projections, pending further review of the city charter language with legal" before recognizing the transfer to the general fund.

Why it matters

The committee was told the contested increment transfer could affect how much revenue is counted as available for FY2025 and how close the city is to its voter‑approved Prop 1 property‑tax cap. Finance included the transfer in its projection; the controller has not. Committee members pressed staff to return to legal for a written analysis of timing and authority.

Key figures and staff explanations

Melissa Dubowsky, director of the Finance Department, told the committee the department’s FY2025 projection is based on nine months of actuals and three months of projected results. Finance projects an ending general fund balance of $380,000,000, equal to 14.7% of estimated expenditures (excluding debt service and pay‑as‑you‑go), which the department said is $186,500,000 above the city’s 7.5% target.

Dubowsky attributed a $26.4 million increase in transfers from other funds to Finance’s projection of the TERS 24 transfer and to a derecho overtime reimbursement. She told the committee that sale of capital assets and other one‑time items also improved Finance’s revenue outlook for the month.

Jones and Dubowsky outlined several expenditure changes affecting projections: an $11 million increase to reflect costs for a voluntary municipal employee retirement option, increases for facility security and overtime across departments, and offsetting vacancy savings that together produce the month’s net projection changes.

Background on the TERS 24 issue

According to Jones, the TERS 24 Greater Houston Project Plan was amended in tax year 2020 to raise the city’s participation from 5% to 75%, and the city began transferring tax increment in FY2021 and FY2022. Legal staff and economic development officials later advised that transfers should not have occurred until the City Redevelopment Authority existed and a tri‑party project plan amendment was in place; those steps occurred in a later fiscal year, Jones said. For that reason, the controller’s office is reviewing whether some transfers for FY2021–FY2022 should be returned to the general fund. Finance has included roughly $25.2 million in transfers in its projection, comprising about $17.4 million tied to the FY2021–FY2022 increments and roughly $7.0 million related to reimbursements for development‑era Section 380 agreements for FY2022–FY2025.

Jones described the matter as complex and said the controller’s office had been briefed by legal, finance and economic development and would await legal review of charter language before finalizing its projection.

Investments, swaps and debt

The controller’s office presented a quarterly investment and swap report. As of March 31, 2025, the city’s general fund investment pool totaled $6,460,000,000 and the pool was yielding 3.927%, up from 3.815% the prior quarter, Jones said. Fitch assigned the pool a AAA rating, the report showed.

Jones also summarized two outstanding swap positions: the city recorded net pay from swaps of $4,800,000 for the nine months ending March 31, 2025, while fair value of the swaps was negative $73,000,000 as of March 31. The controller said the ratio of unhedged variable‑rate debt remained below the city’s 20% internal limit.

Vernon Lewis, the city’s investment manager, told the committee the investment strategy has been adjusted to a duration of roughly 1.2–1.4 years to maintain liquidity amid an inverted yield curve and market uncertainty.

Disaster reimbursements and other funds

Committee members asked about disaster reimbursements tied to the February derecho. Dubowsky and Finance staff said the city has received about $99.7 million in funding and had paid $94.2 million in debris‑removal invoices; FEMA and the Texas Division of Emergency Management (TDEM) remain engaged to review overtime and employee‑cost claims. Finance said reimbursements for eligible overtime and debris invoices are in process and that some recovered funds may be transferred back to the Budget Stabilization Fund as timing and federal/state rules allow.

Staff noted other fund movements that will appear in the general appropriation item coming to council, including adjustments in the aviation, combined utility systems, stormwater, building inspection and several special revenue funds. Finance said the General Appropriation Ordinance amendments reflecting these items will be considered by council in early May.

Council follow‑up and next steps

Council members asked staff for a fuller legal explanation of whether the TERS 24 increment can be recognized this fiscal year and requested flow charts and timing for the proposed transfer. Finance said it will continue working with legal, economic development and the controller to reconcile the differing projections. Committee members also were briefed on the FY2026 budget timetable: the city plans to release the FY2026 budget on May 6, with budget workshops May 13–20 and public hearings and town halls scheduled in mid‑ to late‑May.

Quotations

"We're holding our projections, pending further review of the city charter language with legal," Deputy Controller Will Jones said of the TERS 24 transfers.

"We're projecting the ending fund balance to be $380,000,000," Finance Director Melissa Dubowsky told the committee when explaining Finance’s projection and the items included in that estimate.

Ending

Committee members asked staff to return with legal analysis and flow charts explaining the timing and authority for recognizing the TERS 24 increment. Staff said the disputed amounts and other monthly changes will be reflected in the General Appropriation Ordinance that council will consider in the coming weeks and urged continued monitoring of sales tax receipts and disaster reimbursement timing.

(Reporting based on presentations and discussion at the Budget & Fiscal Affairs Committee meeting, April 29, 2025.)