Houston City Elections - Bill Frazer Discusses Houston's Debt Issues in Race for City Controller

Bill Frazer - CPA for Houston City ControllerFresh off of his major endorsement from the Houston Chronicle last week, I sat down again with Bill Frazer, conservative candidate for the City of Houston Controllers Office. As the only certified public accountant in the race, Frazer is already hard at work on digging into and shining a spotlight on some of the City of Houstons biggest financial issues - pensions and debt.

In this interview with Frazer, we drilled down specifically into the City of Houstons debt problems and the City Controllers role in shining light onto these problems. The current Controller, Ron Green, has done a poor job of exposing the debt problems of the city. And the Controller before Ron Green, none other than the current Houston mayor, Annise Parker who also failed in her duties to sound the alarm of Houstons financial condition. That will not be a problem under the watchful eye of CPA Bill Frazer.

In this interview Frazer offered an overview of Houstons debt related issues and how those debt items impact the citys budget. "Weve got an appropriate amount of bonded debt," Frazer stated, "which is debt supported by our tax dollars. About two billion dollars from the general fund. Then theres other debt related to the airports and the combined utilities system and those are supported by fees and stuff like that."

"The general fund also has some other debt thats not related to the tax roll and thats primarily related to our pension funds," Frazer continued. "We have 600 million dollars in pension obligation bonds that we issued in 2007-2008 over a period of years. 600 million dollars that we then contributed to the pension funds. Instead of owing the pension funds, we owe the bond holders. That money was put into investment accounts right before the market crash. So we got a real good bang for our buck on that. Then over a number of years, we have failed to make the annual contributions to our pension funds. That totals a little over a billion dollars now. So weve got about 1.6 billion in debt related to our pension obligations."

In preparation for this campaign, Frazer became aware of just how difficult it is to get a window from the Controllers Office into how the city is performing from a financial perspective, so he took action on his own to research some key measurables related to the citys financial condition and compiled them into a series of charts illustrating our city in comparrison to other major cities across the country.

Houston - Change in Net Assets

Change in Net Assets Since 2002 - Click for full size chart

"The first chart is a comparison of the city of Houston and their change in net assets," he explained. "The change in net assets every year is something like in the private sector your net income or net loss. Its the extent that our revenues exceed expenses or vice versa. For the last 10 years, Houstons expenses have always exceeded the revenues. For 10 years going, the total over the last ten years was 2.5 billion dollars. That averages 250 million dollars a year on a two billion dollar budget. So its pretty significant. The disturbing thing is that its a constant trend. Weve not had any periods of positive net assets. Theyve always been negative. "

Houston - Changes in Unrestricted Net Assets

Change in Unrestricted Net Assets Since 2002 - Click for full size chart

Frazer continued, "The [next] chart that we have is a chart that shows the amount of changes of unrestricted reserves. So if I get a question like Whats Houston going to invest in? We dont have any money to invest. Its all taken somewhere else. Its a call on future tax dollars and it shows the extent to which we fund our current obligations by issuing debt or liabilities. Thats a very disturbing trend."

Houston - Revenue vs Expenses compared to population growth and inflation

Revenue vs. Expenses compared to population growth and inflation - Click for full size chart

"The other chart is just a general economic chart that shows the change in population and inflation over the last ten years, and then whats happened to our revenues and expenses. Our revenues have always exceeded the growth in population inflation and our expenses have for the most part exceeded those revenues like I just said for the past ten years. Expenses are growing faster than revenues and revenues and expenses are growing faster than the rate of population and inflation. Our debt is way off the charts. Our debt has been growing about ten percent year after year or more," Frazer concluded.

As you can see from these charts, the City of Houston is performing very poorly in comparison with other major cities (with the exception of Chicago). "Chicago is the lead on both charts," Frazer stated. "Weve been reading a lot about Chicago recently. Theyre having a lot of trouble with their pensions as well. Then Houston outpaces Detroit a little bit. Again Detroits got less population and in terms of gross dollars, Houstons 2.5 billion dollars is worse than Detroit. Youve got Philadelphia. Youve got some other cities in there that are in the negative. Most of the cities that Ive studied across the country are either at break-even or in the positive. Houstons always been negative."

Bob Price interviews Bill Frazer, candidate for Houston City ControllerFrazer went on to discuss other forms of "off the books" borrowing the city participates in. One of these is simply slow paying vendors. The other is tax abatements. While I hadnt really thought about tax abatements as a form of borrowing, Frazer explained, "Think about this. If you have a company thats going to come in and they want to do a development in a certain area, youre trying to entice them in, you say that if youll do all the infrastructure, if youll build the sidewalks and the streets and the drainage and all of that, then well give you a tax abatement."

"If you think about that," he continued, "theyre spending the money and so thats an obligation for the city to put in the infrastructure. So theyre spending the money upfront and youre going to pay them back later. Its as if instead of abating the taxes, its as if they pay you the taxes and you turn around and pay them off for the money that they spent for the infrastructure.

One thing is clear from all of this. Houstons financial house is a mess and it needs a good CPA to come in and clean things up. Frazers endorsement from the Houston Chronicle is a key indicator that change is needed in the City Controllers Office. Now it is up to you to come out and vote to make a difference.

Early voting begins Monday, October 21st and continues through November 1st. Election Day voting is on November 5th. Come out and vote! Bring a like minded friend or three! And dont forget your photo ID...

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TRANSCRIPT OF INTERVIEW:

Bob Price: As were looking deeper into the city controller race for the city of Houston, were getting closer to the election. Were getting back with Bill Frazer, CPA, and candidate for city controller of the city of Houston. Welcome back to Texas GOP vote, Bill. 

Bill Frazer: Thank you, Bob. I appreciate you having me back. 

Bob Price: When we talked last time, we mentioned a little bit, comparing Detroit and Houstons financial situation. Lets drill down into that a little bit now, and talk about whats going on in the city in terms of its debt. How bad off are we in the city of Houston. 

Bill Frazer: Weve got an appropriate amount of bonded debt, which is debt supported by our tax dollars. About two billion dollars from the general fund. Then theres other debt related to the airports and the combined utilities system and those are supported by fees and stuff like that. So those funds are doing pretty good. The general fund also has some other debt thats not related to the tax roll and thats primarily related to our pension funds. We have 600 million dollars in pension obligation bonds that we issued in 2007-2008 over a period of years. 600 million dollars that we then contributed to the pension funds. Instead of owing the pension funds, we owe the bond holders. That money was put into investment accounts right before the market crash. So we didnt real good bang for our buck on that. Then over a number of years, we have failed to make the annual contributions to our pension funds. That totals a little over a billion dollars now. So weve got about 1.6 billion in debt related to our pension obligations. 

Bob Price: Now, on your website, you have a couple of charts that address some of things. Well show them to the readers while were talking here. Tell us a little more about those charts and what they reflect. 

Bill Frazer: The first chart is a comparison of the city of Houston and their change in net assets.  The change in net assets every year is something like in the private sector your net income or net loss. Its the extent that our revenues exceed expenses or vice versa. For the last 10 years, Houstons expenses have always exceeded the revenues. For 10 years going, the total over the last ten years was 2.5 billion dollars. That averages 250 million dollars a year on a two billion dollar budget. So its pretty significant. The disturbing thing is that its a constant trend. Weve not had any periods of positive net assets. Theyve always been negative. The other chart that we have is a chart that shows the amount of changes of unrestricted reserves. So if I get a question like whats "Houston going to invest in?" We dont have any money to invest. Its all taken somewhere else. Its a call on future tax dollars and it shows the extent to which we fund our current obligations by issuing debt or liabilities. Thats a very disturbing trend. The other chart is just a general economic chart that shows the change in population and inflation over the last ten years, and then whats happened to our revenues and expenses. Our revenues have always exceeded the growth in population inflation and our expenses have for the most part exceeded those revenues like I just said for the past ten years. Expenses are growing faster than revenues and revenues and expenses are growing faster than the rate of population and inflation. Our debt is way off the charts. Our debt has been growing about ten percent year after year or more. 

Bob Price: Now in these charts, youre reflecting several different cities in here, and Houston seems to be one of the poorest performing in every single category there. 

Bill Frazer: Thats correct. Chicago is the lead on both charts. Weve been reading a lot about Chicago recently. Theyre having a lot of trouble with their pensions as well. Then Houston outpaces Detroit a little bit. Again Detroits got less population and in terms of gross dollars, Houstons 2.5 billion dollars is worse than Detroit. Youve got Philadelphia. Youve got some other cities in there that are in the negative. Most of the cities that Ive studied across the country are either at break-even or in the positive, and thats kind of where you want to be. You want to able to manage your expenses according to what your revenue base is. You dont want to have too many revenues. You dont want to have too many expenses.  Houstons always been negative. 

Bob Price: You mentioned earlier that the Houston Chronicle had an article a couple weeks back about the city not paying its vendors on time. Which is a direct function of the city controllers office. Why would the city not pay its bills on time? 

Bill Frazer: Well, Ive been asked by some contractors when Im out interviewing with them and talking to them. Theyve asked me directly are you going to be able to pay your bills on time because evidently there has been some problems with the current system. My statement is that I dont think its a problem per se in the controllers office, although it could be, but I do believe that according to the Houston Chronicle, theyre purposely slowing down payments to vendors because of lack of financial resources. They just dont have the money. Thats a little disheartening to know that when you dont pay your vendors on time, you stretch those payments out, thats just another form of borrowing. 

Bob Price: So sad. A sharp turn, no interest loan that puts a lot of small business owners in jeopardy because they depend on that cash to pay their bills. How could the city handle that differently? 

Bill Frazer: Well they need to pay their vendors on time. I think part of the reason is that if I were a vendor and I knew the city wasnt going to pay me, Im going to not bid as many times or Im going to bid a little bit higher to cover the fact that Im not going to paid as fast. These contractors have subcontractors that need to get paid too. To the extent thats happening where theyre slowing payments down, I think we need to stop that. I think we need to pay our vendors on time. 

Bob Price: Another form of borrowing that Ive heard you talk about is when we give tax abatements to companies that are going to come in. A new Wal-Mart comes in or another new company comes in or something and we give them tax abatements. How is that borrowing? 

Bill Frazer: Think about this. If you have a company thats going to come in and they want to do a development in a certain area, youre trying to entice them in, you say that if youll do all the infrastructure, if youll build the sidewalks and the streets and the drainage and all of that, then well give you a tax abatement. If you think about that, theyre spending the money and so thats an obligation for the city to put in the infrastructure. So theyre spending the money upfront and youre going to pay them back later. Its as if instead of abating the taxes, its as if they pay you the taxes and you turn around and pay them off for the money that they spent for the infrastructure. 

Bob Price: Now the election is coming up pretty quick. Tell us about early voting. 

Bill Frazer: Early voting on October 21st, and that goes for two weeks. Then Tuesday November 5th is voting day. 

Bob Price: And the people that want to find out more about you and your candidacy, where can they get more information? 

Bill Frazer: They can go to my website, FrazerForController.com. Thats F-R-A-Z-E-R for controller dot com. 

Bob Price: We want to definitely encourage all conservatives in Harris County that live in the city of Houston to go and vote and to vote for Bill Frazer. I think youre going to make a tremendous impact in the citys financial future. I want to come back and talk to you one more time before the election and really drill down into this pension thing and talk about what the citys doing with that. 

Bill Frazer: Alright. Thank you very much. 

Bob Price: Thanks.

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