On Thursday, Fitch Ratings, one of the “Big Three” in credit rating agencies, notified the City of Houston that it was altering the city’s outlook from “stable” to “negative” because of the recently passed firefighter pay parity proposal. In the same letter, Fitch affirmed the city had an unexceptional ‘AA’ bond rating.
“The Outlook revision to Negative from Stable is due to anticipated erosion of expenditure flexibility due to a charter amendment (Proposition B) approved by voters on Nov. 6 that requires the city to increase firefighter pay to levels comparable to police pay,” read the press release.
Simply put, Fitch is altering the outlook because the now charter-required, voter-approved raises have maxed out the city’s spending flexibility.
Fitch also noted the city is “exploring the question” of whether state law supersedes the city charter, likely in an effort to have legislation passed during the upcoming session to undo what voters approved.
But the recently passed firefighter raises only gave the city the final push off of the spending cliff — it is not the primary reason they found themselves at the edge.
The press release cited increased pension-related spending from Mayor Sylvester Turner’s “pension reform” as well as existing budgetary pressures as additional reasons why Fitch will test the city’s spending flexibility.
According to the city, the raises amount to a 29 percent increase costing about $100 million in the first year. Turner says to afford this he’ll have to lay off at least 1,000 employees; the City of Houston has 22,000 employees.
While Turner took the release as an opportunity to attack both the referendum and the voter-imposed property tax cap, his hands aren’t tied.
The firefighters have repeatedly expressed willingness to work with the mayor on gradual implementation of the raises. The Houston Professional Firefighters Association, the group behind the charter push, has said they are willing to spread the raises over a three-year period to avoid layoffs and not overly burden the city.
In a budget that tops $5 billion, the mayor should be able to find areas to cut to fund the increases, though he is instead choosing to punish his employees. He has definitively said that the layoffs will start in the fire department and, as his current statements are showing, he will likely be seeking remedy from the state Legislature to override the will of the voters when it convenes in 2019.