Ryan Holeywell and Leah Binkovitz | January 4, 2017
1. What’s next for the Houston economy?
The city’s economy continued to struggle in 2016 amid oil prices that remained dramatically lower than recent peaks. What will be in store for 2017? It’s not a clear picture, but there are signs of hope.
The good news for Houston: Oil prices — around $53 per barrel (as of December) — are at their highest level since summer 2015. And the Greater Houston Partnership just projected that the metro area will add nearly 30,000 net new jobs in 2017. “The worst of the energy downturn is now over and Houston’s economy will see some growth in 2017,” said Patrick Jankowski, GHP’s senior vice president of research. The Dallas Fed reports that Houston job growth of 1.7 percent in the second half of 2016, a notable turnaround following a 1.0 percent decline in the first half. “Houston,” it suggested, “may have turned a corner.”
The bad news: Oil prices are still nowhere near the level they were in summer 2014, when prices were well-above $100 per barrel. Though Houston’s economy is diverse, it’s still driven by oil, and that means the explosive growth of recent years still — for now — isn’t poised to return imminently. Houston is still seeing signs of trouble. It had an office vacancy rate of 19 percent in the third quarter, according to the Dallas Fed. And Houston’s sales tax collections are still down, according to the latest financial reports. That means Houston’s economy may be gradually improving, but it doesn’t appear to be out of the woods quite yet.
2. How does immigration policy affect Houston’s future?
The country might have elected a president who campaigned largely on an anti-immigrant platform. Yet Houstonians, overall, have warmly welcomed immigrants. Today, 79 percent of area residents say undocumented immigrants living here are not a “very serious” problem, according to the Kinder Houston Area Survey. That’s up from 50 percent just six years ago.
That means Houston could be on a collision course with federal policy that may have implications on its residents. Houston Mayor Sylvester Turner, for example, is one of the mayors who this month co-signed a letter to President-Elect Donald Trump urging him to continue the Deferred Action for Childhood Arrivals (DACA) Program, which is designed to protect young people who were brought to the U.S. illegally as children from deportation.
Houston’s new police chief, Art Acevedo, says he will maintain the department’s policy of not asking about residents’ immigration status; meanwhile, Turner says he’s creating an Office of New Americans to help refugees and immigrants more easily access city services. But Turner stopped short of calling a Houston a “sanctuary city,” despite calls from some activists. The position comes at a time when Texas Gov. Greg Abbott says he intends to ban sanctuary cities in Texas and cut their funding.
3. Will flooding be the “new normal?”
In 2015 and 2016 a series of flooding events hit Houston neighborhoods, with residents suffering massive damage in communities they say never experienced serious flooding in the past. That’s left many flooding experts wondering whether Houston is experiencing a new era in which regular, severe floods are the norm, and more importantly, whether policymakers will address the problem.
Kinder Institute Fellow Sam Brody, for example, blames much of the flooding on explosive growth in the area, which has covered the ground with impervious surfaces, leaving floodwaters with nowhere to go. Though the city and some developers have relied on retention ponds and other drainage fixes to try to mitigate flooding, it hasn’t been enough to undo the damage caused by paving over wetlands, he says. “Houston is now spending millions of dollars to fix the symptom, not the problem,” said Brody of the retention ponds. Notably, some policymakers aren’t so quick to blame development on the flooding.
Meanwhile, a Houston Chronicle investigation published in April found that in many instances, flood mitigation that was supposed to be done by developers never actually occurred. And while Mayor Turner appointed a “flood czar” to help address the issue, as the Texas Tribune recently noted, he “has had no budget, staff or firm timeline.”
4. What happens with the city’s finances?
Mayor Turner potentially faces two big battles in 2017 involving the city’s finances.
First, there’s the need to reform the city’s pension system, given its skyrocketing expenses. The Kinder Institute calculated that the city’s unfunded pension liability grew from $0 to $4 billion in just 15 years. That growth is expected to continue in the absence of reform. Turner says all three of the city’s pension funds have signed on to his reform package. But Houston can’t enact all the reforms on its own; he’ll need the state legislature’s support to move forward with the plan.
Turner also said this fall that he doesn’t expect city employees to “shoulder the burden” of increased pension contributions on their own, and he intends to ask Houston voters in 2017 to lift the city’s revenue cap, which limits property tax growth. That cap was enacted in 2004.
The Kinder Institute estimates that lifting the cap could generate $40 million to $60 million in extra revenue for the city annually. Turner will likely make the case that lifting the cap is the fiscally responsible thing to do, but he could get pushback from voters who may not be receptive to the idea of higher taxes at a time when the local economy is still sluggish.
5. How will the state address education issues?
The Texas Legislature is set to examine a slew of education issues this session, and each of them will effect the Houston Independent School District (HISD), the largest district in the state.
Many advocates and school districts were hopeful that this year the Supreme Court of Texas might demand an overhaul of the way schools are funded. But those hopes were dashed in May when the court ruled that although the state’s school funding system was imperfect, it was not “imperfectible.” In other words: Funding reform will need to come from lawmakers, not a judge. That will put extra pressure on the legislature to address a school funding system that critics say is outdated.
Legislators will also likely address a controversial benchmark set by the Texas Education Agency that effectively resulted in many school districts simply shutting out students with special needs, according to a recent investigation by the Houston Chronicle.
Finally, Houston residents this November sent the district into “uncharted waters” when they voted against sending $162 million in required property tax dollars from HISD district to the state. That means the state can detach about $18 billion in commercial property from the district and hand it to another jurisdiction. So what will happen? It remains to be seen. Essentially, the district (and Houston voters) are playing chicken with the state education agency and are hoping the state will blink.
6. How will Houston address calls for fair and affordable housing?
A Kinder Institute report published in 2016 found that “there is a declining number of middle-class neighborhoods in the region, and Greater Houston is experiencing an increasingly stark division between the ‘haves’ and ‘have nots.'” One 2016 study found that a third of all households in Greater Houston are finding housing costs to be a burden, meaning they eat up more than 30 percent of a household’s income. For the poorest of Houstonians, the situation is even more vexing. Case in point: when the Houston Housing Authority last year opened up its housing voucher waiting list for one week, nearly 70,000 people applied for just 30,000 slots.
Yet Mayor Turner finds himself in political battles over Houston’s approach to affordable and fair housing. Last year, after months of vocal debate, he said the city won’t move forward with a proposal to build a mixed-income, 233-unit public housing development in the city’s upscale Briargrove area. The project would have been the Houston Housing Authority’s first in what’s considered a “high opportunity” neighborhood, with access to well ranked schools and community amenities.
That decision prompted federal housing officials to launch an investigation of whether the city violated the Civil Rights Act. The whole battle takes place against the backdrop of a new presidential administration and a new HUD secretary who has no experience in government or housing, which further clouds the affordable housing picture after what was a major victory for fair housing advocates from the Supreme Court in 2015.