Two Views, One Budget: Why Houston’s Financial Story Isn’t as Simple as It Looks
The city of Houston recently released its Popular Annual Financial Report (PAFR), a visually friendly, public-facing summary of the city’s finances. It tells a story that feels reassuring: revenues are up, the net position has improved, and the city appears to be on solid financial ground. The tone is optimistic, the layout is clean, and the charts tell a short-term story of growth and recovery.
But when we compare this with the deeper, long-term analysis of Houston we shared using the Strong Towns Finance Decoder, the contrast is stark. The same underlying data supports two very different conclusions. And it raises an important question: Are we helping residents understand the city’s true financial condition, or are we simply trying to make them feel good about it?
What the PAFR Shows (and Why It Feels Reassuring)
The PAFR frames Houston’s 2024 financial outlook in glowing terms. It highlights a $1.3 billion increase in the city’s net position, improved bond ratings, strong revenue growth, and renewed investments in infrastructure and services. The message is clear: Houston is not only managing its finances but making measurable progress toward a stronger future.
The city also emphasizes the many awards it has received for financial management, including honors from respected national organizations like the Government Finance Officers Association (GFOA). These accolades commend Houston for its transparency, completeness, and polished presentation—indicators of strong communication, not necessarily financial strength.
There’s no denying that the report presents accurate year-over-year improvements. Revenues did increase. The net position did improve. But these numbers reflect a single year in a much larger trend. While professional recognition for presentation is important, it should not be mistaken for signs of fiscal health. A well-designed document doesn’t necessarily reflect a financially resilient city. What we’re seeing is a snapshot—a carefully composed image that may not capture the full reality of Houston’s long-term trajectory.
What the Finance Decoder Shows (and Why It’s Different)
The Strong Towns Finance Decoder doesn’t just look at this year’s numbers. It tracks long-term trends, evaluates financial sustainability, and helps cities see where their finances are actually headed. By that measure, Houston’s financial health remains deeply concerning.
While the PAFR shows a city's Net Position, it doesn't report on the Net Financial Position, but it should. The Net Position shows total assets, including capital assets such as roads and infrastructure, less total liabilities. The Net Financial Position shows current assets less liabilities, a more accurate indication of a city's ability to meet obligations. This metric captures the total accumulation of surpluses or deficits over time—essentially, a city’s financial report card. For Houston, this number stands at a staggering negative $14.6 billion. That means the city has spent $14.6 billion more than it has the resources to cover, and future revenues are already spoken for.
Ignoring this number leaves the public without the clearest indicator of the city’s long-term fiscal stress. While short-term gains in revenue may sound promising, they don’t resolve the deeper structural imbalance. Including Net Financial Position in a public report would give residents a fuller, more honest understanding of where the city stands and the scope of reform needed to course-correct.
On page 12, the PAFR presents Houston's assets and liabilities over the past three years with an optimistic spin, emphasizing that the city's net position has increased by $1.3 billion.
While these are impressive figures at first glance, they require context. A net position in isolation doesn’t tell us whether the city’s liabilities are growing faster than its ability to pay for them. That’s why we use a more revealing measure: Total Assets-to-Total Liabilities.
This ratio shows how much value the city holds compared to what it owes. Houston remains just barely solvent—its assets are only slightly greater than its liabilities. Although the ratio has improved modestly in recent years, the trend line over the past two decades is far less reassuring. For much of the last 10 years, Houston hovered near or below the threshold of insolvency.
When we compare this to Kansas City—a city we also previously analyzed—the trend becomes clearer. Kansas City’s ratio is steadily declining and is on track to become insolvent. Houston’s ratio, by contrast, has been flat, bouncing around the edge of solvency but never breaking far away from it. This is not a sign of financial strength. It’s a warning that the city’s fiscal position is highly fragile and vulnerable to economic shocks or unexpected costs.
The city reports strong debt ratings from Moody's and Standard & Poor's, presenting them as confirmation of fiscal health (page 16). But those ratings primarily assess the city’s ability to repay debt—not its long-term sustainability.
Meanwhile, the value of Tangible Capital Assets (TCA) continues to decline, a sign that Houston is not keeping pace with necessary infrastructure maintenance.
Declining TCA means the city’s roads, pipes, public buildings, and other core assets are wearing out faster than they are being repaired or replaced. This reflects not only a mounting backlog of maintenance needs but also a growing liability for future budgets. A city with deteriorating infrastructure is a city living off past investments without reinvesting in its future.
The city is still deferring essential maintenance, rolling over debt, and relying on external support. In short, Houston has not reversed course—it’s just catching its breath.
Why the Differences Matter
The PAFR is not dishonest. It’s just incomplete. It tells the short-term story of one year in a way that’s designed to build trust and confidence. But it omits the long-term trajectory—and that’s where the real danger lies.
What’s most troubling is that the city has the data to show this broader context. Houston has tracked financial trends over decades (we used their data for our analysis), but the PAFR chooses to reveal only the most recent three years—years in which federal pandemic relief significantly boosted the city’s financial outlook. This selective reporting gives a more favorable impression than the overall trend justifies. As a result, residents are shown a polished view of progress rather than an honest accounting of risk.
Ironically, the PAFR opens with a statement that its purpose is to "present the City’s financial condition in a readable and accessible format." It also claims to enhance transparency and encourage civic engagement. But transparency requires more than clean charts and upbeat summaries—it requires a willingness to tell the full story, even when the truth is uncomfortable.
Cities don’t collapse from one bad year. They collapse because they misread the warning signs year after year, always convincing themselves that things are improving, that growth will catch up with costs, that next year will be different.
That’s what makes this moment so critical. When residents are told that everything is fine, they’re less likely to support the hard decisions needed to change course. When problems are smoothed over in public documents, the path to reform gets longer, harder, and more politically fraught.
The Bigger Picture
Houston didn’t get here overnight—and this isn’t the fault of any one administration. The city’s financial problems have been building for decades. They are the result of a long-standing development pattern and fiscal mindset that prioritized short-term growth over long-term stability.
We shouldn’t blame today’s public officials for the imbalances they inherited. But we should expect them to confront the reality of where we are now. That means speaking honestly about the depth of the challenge. That means treating residents like adults, not serving them up a feel-good summary while deeper problems go unaddressed.
The PAFR may be a well-meaning tool of communication. But what Houston needs more than anything is a strategy grounded in transparency, realism, and fiscal discipline. That starts with seeing the full picture—not just this year’s.
If you're ready to see your city’s financial reality more clearly, the Strong Towns Finance Decoder is here to help. Sign up here to receive the resource packet when it's ready.
Charles Marohn (known as “Chuck” to friends and colleagues) is the founder and president of Strong Towns and the bestselling author of “Escaping the Housing Trap: The Strong Towns Response to the Housing Crisis.” With decades of experience as a land use planner and civil engineer, Marohn is on a mission to help cities and towns become stronger and more prosperous. He spreads the Strong Towns message through in-person presentations, the Strong Towns Podcast, and his books and articles. In recognition of his efforts and impact, Planetizen named him one of the 15 Most Influential Urbanists of all time in 2017 and 2023.