Dominic Anthony Walsh / Houston Public Media
Mayor John Whitmire listens to a public speaker on March 31, 2025.
This week, the city of Houston’s credit rating was upgraded for the first time in years.
Moody’s Ratings, one of several global financial rating services, increased Houston’s bond rating from Aa3 to Aa2 — the third-highest rating available. The rating upgrade comes almost exactly 10 years after Moody’s downgraded the city’s rating, citing low oil prices and high debt at the time.
In a statement, Houston Mayor John Whitmire said the rating increase is a sign the city is “moving in the right direction” financially.
Sign up for the Hello, Houston! daily newsletter to get local reports like this delivered directly to your inbox.
“Improving our financial position has been a priority of this administration, and this upgrade reflects the progress we have made,” Whitmire said. “We will continue building on this progress by eliminating waste, duplication, conflicts of interest and corruption.”
Speaking Thursday on Houston Public Media’s Hello Houston show, professor John Diamond of Rice University’s Baker Institute for Public Policy said the rating increase could potentially benefit residents.
“The positive is that when your city is on a firmer financial footing, you have more room to invest in the things that city residents love: infrastructure and improvements in the service we get from city government,” Diamond said. “The negative side of … all of this is someone still has to pay, and this is all going to come from wastewater and water rate increases eventually and so the city’s taxpayers are still on the hook.”
RELATED: No tax hike despite budget headache, Whitmire says in State of the City address
Moody’s cited “meaningful changes made during the fiscal 2027 budget process” as part of the reason for the upgrade.
“Through a combination of revenue enhancements and expenditure realignments, including a new right-of-way fee equal to 5% of combined utility system gross revenues and the transfer of solid waste costs to the combined utility system, the city reduced its projected fiscal 2027 budget gap to $26 million,” Moody’s said. “These actions materially reduced budgetary gaps and strengthened the city’s forward-looking financial flexibility.”
In June, the Houston City Council approved Whitmire’s $7.5 billion budget with a vote of 15-1. The budget’s sole new source of revenue is a $5 per-residential-unit fee related to solid waste services.
RELATED: City of Houston to provide financial assistance for garbage-related fee
Diamond said the new budget and previous financial investments contributed to the upgraded credit rating.
“It’s basically just saying, ‘Good job on creating some recurring revenues. Also, good job on allowing the pension system to improve,'” he said. “Basically the gamble we took in 2017 where we borrowed a billion dollars and put it in the asset funds of the municipal and police pensions, we’ve won that gamble so far.”
Having a stable pension system signals to financial institutions that the city itself is more financially stable, Diamond said.
“So the bondholders are loaning money to the city, and they just want to see a stable financial system,” he said. “If they’re looking at a city that has recurring expenses that are much larger than recurring revenues, they’re going to be concerned that at some point in the future, this could go bad.”