Houston controller projects $245.1 million year-end balance; $100 million drainage transfer and $26 million sales-tax adjustment reshape outlook

The city controller told the joint Service Delivery and Budget & Fiscal Affairs committees that the Controller's Office is projecting a $245,100,000 ending fund balance for fiscal 2025, based on results through Jan. 31, 2025.

The projection is $119,900,000 lower than the finance department's figure, Controller Chris Hollins said, a gap the controller tied largely to a planned transfer from the general fund into the dedicated drainage and street renewal fund following the Texas Supreme Court ruling. “We are going off to status quo,” Hollins said, adding the court ruling requires the city to make certain transfers unless and until notified otherwise.

The monthly report also recorded a $26,000,000 audit adjustment in the February remittance tied to sales-tax receipts that the state comptroller determined had been allocated to the wrong jurisdictions and were remitted to Houston dating back to 2019. Hollins said the state returned that $26,000,000 in the March remittance and has agreed to a 43-month, 0% interest repayment plan beginning in April for the jurisdictions that were overpaid.

Why it matters: The projected reduction relative to the finance department’s estimate and the required drainage transfer change how much discretionary funding city leaders expect to have during budget preparation. The controller’s office reported the city’s projected fund balance remains roughly $55,300,000 above the city’s 7.5% target (excluding debt service and pay-as-you-go), but the variance compared with finance highlights uncertainty heading into budget season.

Key details and context

- Controller projection: $245,100,000 ending fund balance for FY2025 (period ending 01/31/2025). - Difference vs. finance department: $119,900,000 lower, largely because the controller included necessary transfers to the dedicated drainage and street renewal fund after the Texas Supreme Court ruling. - Sales-tax audit adjustment: $26,000,000 returned to Houston in March remittance after state audit reallocated receipts; state will implement a 43-month, 0% interest repayment plan for affected jurisdictions. - Noted expenditure increases from the Controller’s review: a $100,300,000 increase in non-operating revenues for drainage projects (reflected as transfers into the dedicated drainage and street renewal fund); $3,500,000 increase for the Solid Waste Management Department for heavy-trash pickup; and $1,600,000 higher transfer to parks maintenance renewal and replacement tied to a land sale to TxDOT for the North Houston Highway improvement project.

Finance director’s briefing and reconciliation

Finance staff presented a 7+5 projection model (seven months of actuals, five months of projections) for the same period. That briefing confirmed the $26,000,000 state remittance had been received and that the finance department will enter the repayment arrangement referenced by the controller. Finance projected an ending fund balance of about $363,000,000 on its computations (a different methodology and exclusion of the drainage transfer), representing about 14.3% of estimated expenditures (excluding debt service and pay-as-you-go) and approximately $173,000,000 above the 7.5% reserve target.

Council members’ questions and administration responses

Committee members asked whether the city expects resolution of the drainage litigation before the budget process. Finance staff and the controller said negotiations with plaintiffs are ongoing and “the goal” is to have clarity before budget adoption, but no settlement was reported at the meeting. On the sales-tax correction, finance confirmed the state comptroller had negotiated the 43-month repayment plan and that monthly monitoring of receipts will continue—council members were warned that single remitter issues can produce larger future adjustments.

What the city reported about debt and enterprise funds

Controller Hollins said the city continues to keep variable-rate exposure well below council policy levels for commercial paper and bonds. He also noted changes in the dedicated drainage and street renewal fund and that projections for the Aviation Operating Fund, Combined Utility System Fund, Convention & Entertainment Operating Fund, and Stormwater Fund were unchanged from the prior month.

Outlook and next steps

Staff said they will continue to coordinate on the legal and financial implications of the court ruling and related transfers and will update the council as negotiations with plaintiffs progress. The controller reiterated that the office reports the status quo required by the Supreme Court ruling unless notified of a different outcome. If the drainage transfer becomes final, council members and department directors said they will need notice in time to draft and evaluate budget amendments.

Ending

Council members did not take formal votes on the controller’s report at the meeting. Staff said they will provide ongoing updates as the state repayment plan begins in April and as negotiations over the drainage transfers advance.