The city of Pearland plans to address the concerns of its investor services by minimizing the impact of a budget shortfall caused by a county worksheet error.
An overvaluing of the “2022 value of properties not under protest or included on certified appraisal roll” by about $1.3 billion set the city back by about $10 million: $4.7 million in the general fund and $5.6 million in the debt service fund. The error occurred between the Harris County Appraisal District and the Brazoria County Tax Office, city staff said at a Nov. 7 meeting.
Following the shortfall, the city’s assigned analyst from Moody’s Investors Services—a bond credit rating business—contacted the city’s financial adviser John Robuck on Nov. 9 to inform him the city could be placed under “Review for Possible Downgrade.” As of Nov. 15, Moody's has not made a public announcement that would officially place the city under review.
The review period would provide the city with 60 days to develop a plan for minimizing the impact on Pearland’s fund balances before the city receives a credit rating downgrade, according to an email from Robuck to City Manager Clay Pearson.
Pearson said the city will develop a plan in that time to address both the general and debt service fund deficits. He said for the general fund, the city will consider dipping into its reserve fund balance, and for the debt service fund, staff and council will consider restructuring some existing debt.
“There likely won’t be any kind of credit degrade for us once we figure that out,” Pearson said.
According to a staff presentation Nov. 7, utilizing reserve funds may drop the city below its 90-day reserve policy. Pearson said the city recently upped the policy from 60 days to 90 days due to having a “healthy cash balance” in the fund.
“We and council are both adamant that the first priority is to replenish [reserves] as we go along during the year,” Pearson said.
Moody's released a statement Nov. 15 addressing the city's budgetary issues, stating that the city is likely to make amendments to minimize any impact on the city's reserve position.
"While the $10 million in reduced property revenue for the general fund and debt service fund marks a significant shortfall, the city's strong liquidity will be able to support any short-term budget imbalances," the statement from Moody's reads.
In response to the email from Robuck, Council Member Alex Kamkar called for a 90-day freeze on the city’s hiring and contracting. He also continued his call for a third-party audit investigating the circumstances leading to the city’s taxable value discrepancies.
“The sooner the audit and the discussions are had, the faster we can get back to the regular order of business at the city,” Kamkar said in a statement.
