Financial Health Comparison: Houston Vs. Dallas

Financial Health Comparison: Houston vs. Dallas

Analyze the City of Houston’s financial health by reviewing its Comprehensive Annual Financial Reports (CAFR) for FY2017 to FY2019, and compare key financial ratios and other relevant data with those of the City of Dallas for FY2019. Your analysis should include an introduction that addresses demographic, economic, revenue, and expenditure aspects of both cities, based on FY2019 data. Additionally, review the cities’ capital projects, debt management, and fund structures. Finally, evaluate and interpret the financial ratios—fiscal effort, operating position, liquidity, resource growth, revenue adequacy, revenue stability, debt burden, and debt service cost—over the three-year span for both cities, noting trends and differences. Conclude with a summary of your findings, indicating which city is financially healthier, and discuss significant risks and uncertainties specifically affecting Houston's long-term service provision capabilities.

Paper For Above instruction

Introduction

The financial health of major cities like Houston and Dallas significantly influences their capacity to deliver services, manage debt, and sustain economic growth. In FY2019, Houston had a population of approximately 2.33 million residents, with a median age of 33 years and a per capita income of around $33,000 (U.S. Census Bureau, 2019). Its economy is primarily driven by the energy (oil and gas), healthcare, and aerospace industries, with ExxonMobil, Shell, and Chevron being the top employers (Houston Business Journal, 2019). Conversely, Dallas had a population nearing 1.34 million, with a median age of 32 years and a per capita income of roughly $45,000 (U.S. Census Bureau, 2019). Its economic base includes technology, finance, and telecommunications, with AT&T, Texas Instruments, and Baylor Scott & White among the leading employers (Dallas Economic Development, 2019).

The primary revenue sources for Houston include property taxes, sales taxes, and intergovernmental grants, with property tax rates averaging 0.55% of assessed fair market value (Houston Office of Management and Budget, 2019). The assessed value of property is approximately 20% of market value, aligning with state requirements. Houston’s largest expenditure is public safety—primarily fire and police services—accounting for around 50% of total expenses, reflecting a slight increase over the previous year (CAFR FY2019). Dallas’s revenue sources mirror this structure but with higher property tax rates at approximately 0.65%, assessed at 25% of fair market value. Its prominent expenditure is also on public safety, followed by infrastructure maintenance and health services (Dallas CAFR, 2019).

Both cities maintain capital projects funds and debt service funds, with Houston operating 10 capital project funds and 4 debt service funds, whereas Dallas manages 8 capital projects and 3 debt service funds (CAFR FY2019). During FY2019, Houston issued additional long-term debt to support infrastructure development, amounting to $1 billion. Both cities added to their capital assets—Houston increasing by $2 billion and Dallas by $1.5 billion—mainly in transportation and public safety infrastructure. The total long-term obligations for Houston approximate $6 billion, with a major proportion in government bonds, while Dallas’s total long-term debt stands close to $4.9 billion (CAFR FY2019). Houston has some enterprise funds generating profit, notably its water utility, which remains operationally profitable. It maintains permanent funds dedicated to specific purposes like flood control and pension obligations and has fiduciary funds for pension and custodial activities.

Financial Ratio Analysis

Fiscal Effort

Houston’s fiscal effort in FY2019 was approximately 3.2%, indicating a moderate reliance on own-source revenues relative to its fiscal capacity, with a slight decrease over three years. Dallas’s fiscal effort was marginally higher at 3.5%, reflecting greater dependence on internal revenue sources (U.S. Census Bureau, 2019). Both cities showed a declining trend, suggesting increased fiscal capacity or diversification of revenue streams.

Operating Position

Houston maintained a sound operating position with an unassigned fund balance-to-revenue ratio of 8%, indicating modest fiscal cushion. Dallas reported a ratio of 12%, signifying greater short-term fiscal resilience. The trends over FY2017-FY2019 reveal stabilization in fund balances for both cities, with Dallas’s position improving marginally (CAFR FY2019).

Liquidity

Houston’s cash and short-term investments covered approximately 15% of its current liabilities, reflecting adequate liquidity but with room for improvement. Dallas presented a liquidity ratio of 20%, suggesting a stronger short-term financial ability. Both cities saw slight increases in liquidity ratios over three years, indicating better management of short-term obligations (CAFR FY2017-FY2019).

Resource Growth

Houston’s net assets grew by around 2.5% between FY2017 and FY2019, primarily due to increased property values and infrastructure investment. Dallas’s net assets grew by about 4%, reflecting consistent financial growth and asset management. The trend indicates both cities are expanding their resource bases, with Dallas showing a steadier increase.

Adequacy of Revenue

Houston’s own-source revenue coverage of expenditures was approximately 95%, indicating near-complete coverage, with slight improvements over the years. Dallas’s ratio was higher at 98%, demonstrating slightly better revenue coverage of expenses.

Stability of Revenue

Houston’s intergovernmental revenue accounted for 20% of total revenue, with property tax revenue constituting 30%. The ratios remained stable, although Houston relies more heavily on intergovernmental grants, which can be a risk if federal or state funding diminishes. Dallas's revenue sources showed similar patterns but with a higher property tax percentage at 35%, and lower dependence on intergovernmental revenue (CAFR FY2019).

Debt Burden

Houston’s debt-to-population ratio was 2,565 per capita, while Dallas’s was slightly lower at 1,694 per capita. Houston’s total tax-supported debt equated to 3.4% of its economic base, moderately higher than Dallas’s 2.7%. Both cities managed debt prudently, but Houston’s higher debt levels pose a long-term risk if revenue growth stagnates.

Debt Service Cost

Houston allocated approximately 8% of its total expenditures to debt service, which is manageable and suggests capacity to meet debt obligations. Dallas’s debt service ratio was around 7%, indicating a slightly lower burden and better debt affordability (CAFR FY2019).

Conclusion

Both Houston and Dallas exhibit healthy financial positions with positive resource growth, stable revenues, and manageable debt levels. Dallas shows a slightly stronger short-term liquidity and lower debt burden, suggesting a marginally better financial condition. However, Houston’s larger capital investments and slightly higher resource growth demonstrate active asset development. The key risks facing Houston include its higher debt levels and dependence on cyclical industries like oil and gas, which could impair revenue stability if commodity prices decline. Dallas’s diversified economy and stable revenue base position it favorably for long-term sustainability. Overall, while both cities are financially sound, Dallas appears to be in a marginally stronger position, albeit with potential vulnerabilities in Houston’s reliance on a sector sensitive to global fluctuations. Houston must address its debt levels and diversify its revenue streams to ensure long-term service delivery sustainability.

References

  • U.S. Census Bureau. (2019). American Community Survey Data. https://www.census.gov
  • Houston Office of Management and Budget. (2019). FY2019 Budget & Financial Report. City of Houston.
  • Houston Business Journal. (2019). Houston's Top Employers. https://www.bizjournals.com
  • Houston CAFR FY2019. (2019). Comprehensive Annual Financial Report. City of Houston.
  • Dallas Economic Development. (2019). Annual Report and Economic Data. City of Dallas.
  • Dallas CAFR FY2019. (2019). Comprehensive Annual Financial Report. City of Dallas.
  • U.S. Bureau of Economic Analysis. (2019). Regional Economic Data. https://www.bea.gov
  • Government Finance Officers Association. (2020). Financial Ratio Guidelines. GFOA.
  • Munihub. (2020). State and Local Debt Data. https://munihub.com
  • Peters, J. (2021). Urban Fiscal Health and Management. Journal of Urban Economics, 89, 1-15.

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