Houston’s credit rating improved Tuesday as the city’s recent budget changes and declining pension liabilities strengthened its financial flexibility, according to the rating agency Moody’s.
The upgrade comes after city council adopted Mayor John Whitmire’s budget for the fiscal year that started July 1, erasing a $180 million budget gap in part by shifting the Solid Waste Management Department into Houston Public Works, charging a new $5 monthly trash fee and pulling utility revenues into the cash-strapped general fund.
Whitmire said in a statement that the ratings are a “signal that Houston is moving in the right direction.”
A higher rating generally lets governments borrow money at lower interest rates, reducing the cost of financing big projects and ultimately saving taxpayers money, said James Thurmond, a professor at the University of Houston’s Hobby School of Public Affairs and a former city manager.
“Rating agencies give a rating to the city so that the investors — the people that buy the bonds — have a good sense of if it’s a good investment or not,” Thurmond said.
Moody’s upgraded the city’s key ratings from Aa3 to Aa2.
“The upgrade … reflects Houston’s swift and recent implementation of recurring and meaningful revenue enhancements and expenditure realignments, which materially reduced budgetary gaps and improved financial flexibility,” the Moody’s report said.
In 2016, Moody downgraded Houston’s credit rating from Aa2 to Aa3 due to low oil prices, declining sales tax revenues and unfunded pension obligations. The agency shifted the city’s credit outlook from “negative” to “stable” following pension reforms in 2017 but left the rating unchanged.
“Improving our financial position has been a priority of this administration, and this upgrade reflects the progress we have made,” said Whitmire, who took office at the start of 2024.
Maintaining the higher rating, Thurmond said, will depend on whether the city’s recent budget changes prove sustainable over time.
While Houston shifted solid waste costs to its utility system, he said the city will likely need additional recurring revenue in the future to fully support those costs.
Advocates also have warned that Whitmire’s budget restructuring places additional costs on the utility system at a time when the city faces significant water and sewer needs — including a federally mandated decree that requires the city to spend billions upgrading aging sewer infrastructure.
The city’s stated plan is to lessen the burden on the utility system by gradually increasing the monthly trash fee from $5 to $25 in the coming years. But Whitmire has not publicly committed to increasing the fee beyond $5 per month.