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Mayor Sylvester Turner

Source: Sylvester Turner / Sylvester Turner

Fitch Rating Agency has affirmed the City of Houston’s ‘AA’ credit rating and stable outlook. The decision follows Mayor Sylvester Turner’s announcement that he has closed a $160 million budget gap for the next fiscal year and started working on a long-term solution to the City’s pension funding issues.

“We have worked hard to make fiscally responsible decisions for today, tomorrow and the years ahead,” said Mayor Sylvester Turner. “We combined cost savings from efficiencies and shared sacrifice to close the largest budget gap the city has faced since the Great Recession. We are beginning to address long-standing structural issues that have contributed to a cycle of financial shortfalls. Today’s announcement affirms that we are heading in the right direction. It is a victory, but there is much more work to be done.”

In affirming the ‘AA’ rating, Fitch commended City management for demonstrating an “ability and willingness to adjust spending levels to counter revenue limitations and weakness and to maintain satisfactory reserves.” The agency views Houston’s overall, long-term economic prospects as positive but foresees some tests ahead given the combination of increasing pension costs, voter imposed limitations on revenues and ongoing weakness in the energy sector. The Fitch rating follows last month’s rating downgrades by both Moody’s Investor Services and Standard and Poor’s Rating Service.

“I know the rating agencies are continuing to watch Houston,” said Turner. “We are institutionalizing a new way of running City government. We will maintain the services our residents want and need while also maintaining a healthy savings account, meeting our long-term employee pension obligations and continuing to identify cost savings and efficiencies.”

The ratings from Fitch, Moody’s and Standard and Poor’s are similar to the credit scores that impact the interest rates we all pay when taking out a loan to buy a house or a new car. A credit rating downgrade translates into slightly higher interest rates when the City borrows money for big projects like the Bayou Greenways Initiative.

City Council will vote on Mayor Turner’s budget by the end of May, a full month ahead of the normal schedule to send a strong message to the credit agencies about how serious the City is about addressing its fiscal challenges. The mayor has warned council members that tinkering with his budget plan will upset the delicate financial balance he has struck and put the city at risk for another credit rating downgrade.