Controller Anise Parker attempts to quell fears over the city’s shaky finances, by talking about how it’s borrowing money from itself!

City investments and debt on solid ground
As anyone with any investments knows, this is not your ordinary financial market. The city has an investment portfolio but also uses debt financing to pay for public works projects and other infrastructure improvements. The ongoing turmoil on Wall Street and within the banking industry requires innovation and quick action on both sides of the ledger.

“I want to assure Houstonians that we are exploring every possible option and taking utmost care with your tax dollars during these difficult times,” Houston City Controller Annise Parker said.

When financing public projects, the city commonly borrows using short-term instruments then watches the market for the best opportunity to convert to long-term fixed-rate financing. Last fall, when the credit markets all but dried up and several banks either failed or were struggling, Mayor White and the city controller announced they would pursue various financing alternatives to keep interest rates on city debt as low as possible.

The controller noted that financing through other governmental entities is one alternative that has been employed successfully. For example, she said the city has purchased the debt of (loaned money to) city governmental partners at Metro and Harris County. Likewise, Harris County and Metro have purchased city debt.

City invests in own debt

Parker said the city’s own investment portfolio holds about $229 million in city debt, made possible because the city maintains segregated funds. Interest rates in the municipal bond market have varied widely. By investing in its own debt, the controller said the city earns 1.5-2%. An earlier purchase of $30 million of Metro debt yielded about 4%, and investment in Harris County Flood Control debt returned 6.25-8%. In comparison, more traditional financing options are yielding less than 1%.

“It is important to understand that whether we invest in our own debt or seek financing from another governmental entity, these transactions represent direct transfers of public dollars from one government to another. It is the taxpayers who reap the investment earnings,” Parker said. “The city reaps the benefit of being able to continue the business of local government, which in turn helps the local economy and keeps our residents working.”

The city controller stressed that such inter-governmental financial transactions have been instrumental in helping the city, county and Metro reduce exposure to two banks that have been at the root of recent problems regarding portions of the local public debt financed with variable rate demand notes.

“Fiscally responsible”

“We are all working our way through this in a manner recognized by industry experts as ‘fiscally responsible’,” she said.

Currently, $2.5 billion of the city’s total $12 billion debt load is financed with variable rate methods, the city controller explained. These notes carry “very attractive average interest rates” of less than 1.5%. “Clearly, they have been a very good option for the city. In fact, an analysis of the past decade shows variable rate financing has saved Houston taxpayers $277 million over comparable fixed-rate financing,” Parker said.

Although the city is taking some hits now because of market volatility and ongoing difficulties in the banking industry, ” the savings amassed over the long-term far exceed the increased costs the city is experiencing in the short-term,” she concluded.

Now I’m not about to suggest that an elected official would mislead the public on such a sensitive subject… but I might wish that statement had a better acquaintence with reality.

——————————————————————————–
Grants for credit risks not good for economy

Houston City Controller Annise Parker applauds Mayor White’s decision to withdraw his proposal to use $444,000 in tax dollars to help first-time homebuyers pay off debts and improve their credit scores.

“It is not the city’s responsibility to help those with credit problems, and it does not help the region’s overall economic problems,” said Controller Parker. “Any additional funds available to the city should be used to put people to work and stay in their homes.”

The proposal would have appropriated $444,000 for grants of up to $3,000 to individuals unable to qualify for mortgages through the city’s homebuyer assistance program because of low credit scores.

“If we have learned anything from the current financial crisis, it is that not everyone is ready to be a homeowner,” she said. “If people cannot manage their credit cards or other debts, they can’t manage a mortgage. This is not what I want my tax dollars spent on.”

Controller Parker advocates using the money to fully fund the emergency home repair program. “Aside from safer housing that would allow our seniors to stay in their homes, this option would provide jobs and return dollars to the local economy. That needs to be our emphasis in these tough economic times.”

Heh. She sees which way the wind is blowing there, it would seem.