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CITY OF HOUSTON, TEXAS OFFICE OF THE CITY CONTROLLER

A REPORT TO OUR CITIZENS

Chris B. Brown City Controller

TABLE OF CONTENTS

Page 1City Information and Demographics

Page 2Key Fiscal Year 2016 Results

Page 3Fiscal Year 2016 Financial Data

Page 4Challenges and Economic Outlook

OUR VISION

The Office of the City Controller is responsible for ensuring that the assets of the City are properly accounted for and expended in a manner consistent with applicable laws, policies, plans and procedures. We will continue to make it our priority to serve the citizens of Houston, Texas, with transparency and integrity.

FISCAL 2016 ? JULY 1, 2015 ? JUNE 30, 2016

The City of Houston

Brothers John Kirby Allen and Augustus Chapman Allen founded the City of Houston on August 30, 1836, near the banks of Buffalo Bayou and incorporated the city on June 5, 1837. Today, Houston is the fourth largest city in the United States and home to more than 2.2 million residents. The City covers a total area of more than 650 square miles of the gulf coast plains. Houston is home to the Texas Medical Center, the Port of Houston, the second largest concentration of Fortune 500 companies in the country, 11 major institutions of higher education, two international airports, 373 developed parks, and more than 220 greenspaces. The City also has a vibrant cultural arts community which includes resident professional companies in ballet, opera, symphony and theater.

City Government

Houston residents elect a Mayor and City Council who meet each week to enact policy. The Mayor is the Executive Officer and responsible for presenting an annual budget for approval, general management, and strategic direction of City of Houston operations. City Council is comprised of 11 district council members and five at-large council members.

The City Controller, also elected, serves as the City's Chief Financial Officer. The Controller manages a $13 billion debt portfolio, a $3.5 billion investment portfolio, and oversees Houston's $5 billion annual budget.

General government services provided include police and fire protection, emergency medical services, pretrial detention services, traffic and municipal courts, solid waste collection, sanitary code enforcement, health and human services, building and maintenance, parks and recreation, library, and cultural activities. Business-focused enterprise services are provided by the airport system through George Bush Intercontinental Airport, William P. Hobby Airport, and Ellington Airport, which are owned and operated by the City; the combined utility system responsible for water production and distribution and wastewater treatment; and convention and entertainment facilities.

Houston's Fiscal Year (FY) 2016 operating budget was $5.12 billion and has a projected FY 2017 budget of $5.07 billion. The City manages revenue and expenditures through General, Special Revenue, and Enterprise funds. General Fund revenues primarily come from property taxes, sales taxes, franchise fees, licenses and permits, fines, charges for services and grant funding. Enterprise fund operating revenue primarily comes from the water utility and aviation. Special Revenue funds are derived from sources such as building inspections, parking management and Houston's animal shelter and adoption facility, BARC.

SELECTED DEMOGRAPHICS

2013

Resident population

2,216,460

Median household income

$45,010

Median price of single family home $180,000

Unemployment rate

5.8%

City of Houston FTEs

18,007

2014 2,256,192 $45,728 $199,000

4.8% 18,078

2015 2,296,224 $46,187 $212,000

4.3% 18,062

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Chris Brown, Houston City Controller

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KEY FISCAL YEAR 2016 RESULTS

Selected Performance Measures

FY 2014 FY 2015

Public Safety

911 Emergency Calls Answered within 10 seconds

98.87%

97.31%

EMS Response Time (minutes)

6.2

7.3

Fire Response Time (minutes)

7.2

7.3

Police Priority 1 Call Response Time (minutes)

5.0

5.2

311 Call Wait Time (seconds)

72.3

72.8

Aviation

Passenger Traffic ? IAH (millions)

39,799

41,239

Passenger Traffic ? HOU (millions)

11,109

11,945

Quality of Life

Dangerous Buildings Demolished

138

134

Drinking Water Distributed (billions of gallons)

166

157

Recreation & Wellness Program Participation 1,926,374 2,350,976

Net Trees Planted (Planted less removed)

14,258

105,556

BARC Spay and Neuter Procedures Completed 8,858

13,869

Number of Animal Adoptions

5,670

6,655

Greenspace De-Littering (thousand cubic yards)

48.3

55.9

Solid Waste Collected (tons)

838,329 778,007

Waste Water Collected and Treated (billions of gallons)

82.3

93.8

Vision Testing and Glasses (2nd graders)

9,903

8,990

Dental Varnishing and Sealants (2nd graders) 7,317

8,641

Home Delivered and Congregate Meals

1,261,131 1,384,861

Consumer food Inspections (schools, restaurants, grocery)

33,601

33,993

General Government and Administration

Vendor Payments Processed

72,803

71,769

Audit Division Reports Completed

7

8

Commercial Paper Program (in millions)

$1,750

$875

Re-Financing activity savings (in millions)

$322

$26

FY 2016

97.26%

7.2 7.4 5.2 92.7

43,023 12,163

127 163

2,363,083 8,144 17,241 7,571 55.9

819,943 94.4

10,585 9,623 1,446,975 33,979

60,090 10

$875 $264

Want more Performance Measures? We want to hear from you. Submit your suggestions to the Controller's Office: controllers@

The Controller's web site has hundreds of pages of useful and interesting information, as well as financial archives. On the home page, take a moment and watch Controller Brown's welcome.

controller Follow Controller Brown on Twitter: ChrisB_Brown

Join our Facebook page: @Chrisbrownforhouston

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Chris Brown, Houston City Controller

FISCAL YEAR 2016 FINANCIAL DATA REVENUES AND EXPENSES

3% 5% 7% 7%

14%

23%

PRIMARY SOURCES OF REVENUE

41%

Revenues by Source* (amounts expressed in thousands) Charges for Services Property Tax Sales Tax Operating Grants and Contributions Other Tax Other Capital Grants and Contributions Total Revenues

2015 Revenue 1,901,410 1,074,070 667,061 316,131 313,685 245,140 113,948 4,722,248

2016 Revenue 2,125,909 1,099,411 640,476 337,034 315,725 162,249

86,766 4,767,570

n Charges for Services n Property Tax n Sales Tax n Operation grants and contributions n Other Taxes n Other n Capital Grant Contributions

*Total includes Business-Type Activities

FUNCTIONAL EXPENSES

2% 1%

2%

1%

3% 3%

4%

7% 39%

8%

11%

19%

n Public Safety n Combined Utility Systems n Airport Systems n General Government n Public Works n Interest on Long-term Debt n Health n Unallocated Depreciation n Convention & Entertainment Facilities n Parks and Recreation n Housing and Community Development n Library

Expenses by Source* (amounts expressed in thousands)

2015 Expenses

Public Safety

1,858,766

Combined Utility Systems

924,793

Airport Systems

556,844

General Government

359,640

Public Works

336,311

Interest on Long-term Debt

158,212

Health

150,931

Unallocated Depreciation

138,016

Convention & Entertainment Facilities 123,371

Parks and Recreation

112,844

Houston and Community Development 65,275

Library

49,374

Total Expenses

$ 4,834,377

*Total includes Governmental and Enterprise Funds

2016 Expenses 1,993,340 942,176 581,022 425,707 343,657 191,025 158,896 143,028 117,906

98,994 61,707 48,691 5,106,149

The entire City of Houston 2016 Comprehensive Annual Financial Report can be viewed online at:

controller/cafr/html

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Chris Brown, Houston City Controller

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CHALLENGES AND ECONOMIC OUTLOOK

THE ROAD TO PENSION REFORM

The City has three defined benefit pension plans, the Houston Municipal Employees Pension System (HMEPS), the Houston Firefighters' Relief and Retirement Fund (HFRRF), and the Houston Police Officers' Pension System (HPOPS). Changes to pension benefit structure implemented in 2001 combined with underfunding of the pension liability created an combined unfunded liability of approximately $4 billion despite subsequent decreases to benefits in HMEPS and HPOPS as of January 2005. In October 2016, the governing boards of the pension organizations worked with City officials to construct proposed changes to their respective pension structures with the intent to provide stability and sustainability for the City and for employees. The proposed agreement includes strict management and investment principles and sets a 30-year payoff date. Houston City Council approved the proposed plan, which cleared the way for it to move to the State of Texas Legislature for review and approval. The State of Texas 85th legislative session convened January 2017.

ECONOMIC OUTLOOK

As of January 2017, the energy industry in Houston appears to be stabilizing. Though the metro area's economy has greatly diversified over the past three decades, the downturn in oil prices in the past two years has had a very real impact on employment and, consequently, income and purchasing. The loss of 70,000 jobs in the energy industry has been offset by employment gains in hospitality, government, schools, wholesale and retail, and health care, for a net gain of about 5,000 jobs in 2016--compared to 98,000 new jobs in 2014. The real estate market has remained steady with the sales of single family homes (SFH) up 1.5 percent over 2015; both median price and average prices of SFHs are at record levels. Houston is a global leader in petrochemical production, and nearly $50 billion in petrochemical construction is currently taking place in east Houston. The City of Houston has felt the effects of the downturn in energy with a decline in sales tax revenue since mid-2015.

STATEMENT OF POSITION

Total assets Total liablities

Governmental Activities

(Amounts expressed in millions)

2016 2015

8,608 8,441

10,940 10,447

Business-type Activities

(Amounts expressed in millions)

2016

2015

12,809 12,528

12,036 11,709

Net Position Net investment in capital asset Restricted Unrestricted (deficit)

Total net positition (deficit)

4,434 43

(5,911) (1,434)

4,251 192 (5,487) (1,044)

629 1,130 (420) 1,339

547 1,132 (489) 1,190

Total

2016 21,417 22,976

2015 20,969 22,156

5,063 1,173 (6,331) (95)

4,798 1,324 (5,976) 146

The new Government Accounting Standards Board (GASB) Standard 68 (regarding the reporting of pension liability) dramatically altered the City's balance sheet, and for the first time Houston shows a negative balance of assets and liabilities. With pension reform in place, this will be corrected in the next fiscal year; the bond rating agencies continue to look positively on the City.

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Chris Brown, Houston City Controller

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