Plano, Arlington, Texas among most fiscally sound cities in U.S.; Houston, Fort Worth among worst

Plano, Texas, ranks fifth-best in the 4th annual “Financial State of the Cities” report published by the nonprofit financial watchdog Truth in Accounting (TIA).

Arlington also made the top 10, ranking 9th; and in the top twenty, Corpus Christi ranked 13th and San Antonio 17th.

Twelve of the largest cities in the U.S. counted surpluses in 2019, while 63 cities don’t have enough money to pay their bills, according to the report’s findings.

The 188-page report provides the most comprehensive analysis of city finances nationwide using previous years as comparisons. It surveys the fiscal health of the 75 largest municipalities in the U.S. drawing from audited Comprehensive Annual Financial Reports on file. TIA grades them according to how city officials balanced their respective budgets, and whether they include the true costs of the government in their budgets, among other measures.

No cities received A grades. Twelve received B’s, 27 received C’s, 32 received D’s, and four cities received failing grades. A city government receives a “C,” or passing grade, if it “comes close to meeting its balanced budget requirement,” which is reflected in having a small taxpayer burden. TIA divides the amount of money needed to pay bills by the number of city taxpayers to calculate the taxpayer burden.

A “B” grade was given to governments that have met their balanced budget requirements and have a taxpayer surplus. “D” and “F” grades apply to governments that “have not truly balanced their budgets” and have significant taxpayer burdens.

Plano, the only city in Texas to earn a B grade, is classified as a “Sunshine city” because of its $2,800 taxpayer surplus and well-funded retirement benefits.

“Most cities handle their retiree health care benefits essentially on a pay-as-you-go basis by not setting any money aside to pay these earned and promised benefits,” TIA notes. “Plano is an exception to this rule with 87 percent of its promised retiree health care benefits funded.”

Plano’s officials “have truly balanced their budgets,” TIA says. “Unlike most cities, Arlington’s city government has enough resources available to pay all of its bills, including public employees’ retirement benefits.”

Arlington also received a B grade because its officials “have truly balanced their budgets,” reporting a surplus equivalent to $2,100 for each Arlington taxpayer.

Corpus Christi, ranking 13th, San Antonio 17th, Austin 31st, and El Paso 34th, all received C grades. Dallas, ranking 54th, Houston 60th and Fort Worth 61st, all earned D grades.

The financial problems of the cities primarily stem from accumulated unfunded retirement obligations and failure to balance budgets. In the two worst cities, Houston and Forth Worth, taxpayer burdens are highest.

“Houston’s elected officials have made repeated financial decisions that have left the city with a debt burden of $7.9 billion,” the report states. Every city taxpayer would owe $11,600 to pay it off. Of the $19.1 billion in retirement benefits promised, $4 billion in pension and $2.4 billion in retiree health care benefits remain unfunded.

Fort Worth is in a similar situation, with a debt burden of $3.2 billion, or $12,300 for every city taxpayer. Of the $6.4 billion in retirement benefits promised, $3.1 billion in pension and $883.3 million in retiree health care benefits remain unfunded.

According to the Government Accounting Standards Board (GASB), laws requiring balanced budgets prevent the current generation of taxpayers from shifting the burden of paying for current-year services to future-year taxpayers. By definition, if a city has a balanced budget requirement, then spending should be equal to revenue, TIA explains.

Total debt among the 75 most populous cities amounts to $323.2 billion, excluding restricted assets, capital assets or debt related to capital assets. Most of the debt can be attributed to unfunded retiree benefit promises like pension and retiree healthcare liabilities. In the latest data analyzed, pension debt accounted for $176.2 billion, and other unfunded post-employment benefits totaled $149.8 billion.

TIA’s top five “Sunshine cities” reporting surpluses are Irvine, California, Washington, D.C., Charlotte, North Carolina, Fresno, California, and Plano, Texas. The worst five “Sinkhole cities” who can’t pay their bills are New York City, Chicago, Honolulu, Philadelphia and New Orleans.