Firefighter settlement costs could raise Houston's budget shortfall to $280M

Houston City Controller Chris Hollins said the financial implications of the recently announced settlement between the city of Houston and the Houston Professional Fire Fighters Association could further exacerbate a looming budget shortfall.

Current situation

Hollins made the announcement at a March 26 news conference. It follows a March 14 announcement from Houston Mayor John Whitmire that the city will pay $650 million in backpay to city firefighters for the eight years they worked without a contract.

The settlement terms included giving lump sum payments for the wages owed back in 2017 to all employed firefighters, retired firefighters and families of firefighters who have died since 2017.

The agreement also included pay increases, a new five-year contract, assignment bonuses and additional incentives.

Whitmire said a contract of this nature is necessary to recruit and retain firefighters. However, several Houston City Council members expressed concern during the March 20 council meeting on how the city is going to afford the cost of the agreement on top of a budget shortfall that was already being projected at $160 million-$200 million.

Cost to the city

According to an earlier news release, the $650 million is expected to be paid through the use of judgment bonds.

A judgment bond—according to the Patrick Thomas Agency, a surety and commercial insurance agency—is a type of surety bond that allows the winning party of a case to begin collecting a judgement, or what is determined to be a final court order at the end of a lawsuit, according to the American Bar Association.

With interest payments, that $650 million is expected to reach a total of $1.1 billion-$1.3 billion, which Hollins said will need to to be paid over the course of 25-30 years.

The annual cost of those payments will be upwards of $40 million.

Hollins said by also factoring in the 18% raise for firefighters, an additional $36 million will need to be paid in the next fiscal year's budget. That figure could exceed $140 million by the final year of the proposed contract, he said.

Tacking on roughly $70 million-$80 million for the first year of settlement fees, on top of the existing $160 million-$200 million deficit, the city could be looking at a $230 million-$280 million budget shortfall in fiscal year 2024-25.

What are the options?

Hollins said there are only two ways to address the financial situation—increasing revenue or decreasing cost.

“We will be able to pay the bill [for the settlement] in the near term,” he said. “The question is, will we be able to pay it over the longer term, and that’s where some of these tough choices have to come in. We have to either dramatically increase revenue or dramatically decrease cost, or some combination of the two, and from my look, there is certainly opportunities for our city to operate more efficiently, but we’re not going to get there with cost cuts alone.”

Hollins said some options on how the city can help with the budget shortfall could include:

• Adding a garbage fee
• Lifting the revenue cap, which by law is not allowed until fall 2026
• Auditing the city to find ways to be more efficient

Looking ahead

Hollins said no timeline has been laid out as of March 26 for settlement terms, costs and approval.

Before the agreement can be completely settled, several entities still need to approve the contract, including:

• The Harris County judge
• The attorney general
• Houston City Council