Finance staff present differing FY25 fund-balance projections; report shows investment gains, swap losses and disaster reimbursements

Chair Sally Alcorn called the Budget and Fiscal Affairs Committee to order on Feb. 3 and heard quarterly financial reports that showed differing year-end general fund projections and updates on investments, swaps and disaster reimbursement activity.

The controller's office, represented by Deputy Controller Vernon Lewis, presented a projection of a $348,900,000 ending fund balance for fiscal year 2025, about $17.6 million lower than the finance department's projection. Lewis said the difference is "due to the raw revenue projection than that of the finance department." Lewis also reported that the city's general investment pool held approximately $5.4 billion as of Dec. 31, 2024 and was yielding 3.815 percent for the quarter, up from 3.738 percent the prior quarter. He said two small tax-compliance pools total about $16 million and that a detailed listing of securities is included in the investment report.

Finance staff delivering the 6+6 report said their projection for the general fund was an ending balance of $366,500,000, which the department described as 14.5 percent of expenditures (excluding debt service and pay-as-you-go). The finance presentation noted $4.7 million of upward revision from the prior month because of intergovernmental revenues tied to reallocation of ARPA funds for revenue replacement.

On nonoperating items, staff said combined utility-system nonoperating revenues rose by $12.6 million because of higher-than-anticipated impact fees, while operating expenses for the utility system rose by $4.6 million largely for emergency repairs at the Lake Livingston Dam and related infrastructure work. Staff also projected personnel savings in several dedicated funds, including a $3.8 million reduction in the Dedicated Drainage and Street Renewal Fund (DDSRF) expenditures due to personnel savings.

The report included a swap and liquidity update. Lewis said the city had a net negative receipt of $4.4 million for the 12-month period ending Dec. 31, 2024 on its swap portfolio and that the fair value of the swaps was negative $58.4 million as of Dec. 31, 2024 ("which is about $36.29 million less than last quarter," per the transcript). He advised committee members to contact the controller's office with technical questions about swap fair values.

Staff also summarized disaster-related activity. As of Dec. 31, 2024, the city had paid $89.4 million in invoices related to debris removal and reported having received about $87.6 million in funding for those costs, including $65 million from FEMA and $22.7 million from state reimbursement. Finance staff said an additional $12 million from the state had been received through the end of January and that the city is "nearly at 99 percent" of invoices paid and received.

Committee members asked several follow-up questions. Council Member Ed Pollard asked whether the drainage litigation would require payments in the next fiscal year; finance staff said they were seeking to mitigate timing and working with legal counsel. Council Member Joaquin Martinez asked about the projected FY26 deficit; staff said the anticipated shortfall was "around $220,000,000" before adjustments discussed later in the meeting.

On housing and federal grant matters, Council Member Tivity Thomas raised questions about the federal guidance affecting HUD CDBG-DR grants following a recent Office of Management and Budget memo and rescission. Finance staff said they had not seen new guidance since the memo was rescinded and were coordinating with the legal department and the housing director to track federal direction and timelines.

The presentations concluded with staff noting an upcoming Ernst & Young citywide efficiency study presentation to full council and continued monitoring of litigation and intergovernmental reimbursement.