HOUSTON – For the first time in about 12 years, Moody’s Ratings has given the City of Houston a better “report card” on its finances.
Last week, Moody’s upgraded Houston’s general credit rating to Aa2 from Aa3, the city’s first ratings upgrade from the agency in about 12 years. Moody’s also kept a stable outlook, meaning it expects Houston’s finances to stay on a steady track for now.
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Houston’s credit rating matters because the city borrows money to pay for big, long-term projects — and a better rating can help Houston borrow at lower interest rates, saving money over time.
Why Moody’s says Houston is in better shape
Moody’s said the upgrade is tied to budget decisions the city made for fiscal year 2027.
The rating agency said Houston made changes that bring in more ongoing revenue and shift certain costs — steps it says narrowed a projected budget gap.
Moody’s said the city reduced its projected fiscal 2027 budget gap to about $26 million (about 0.83% of revenues) from an earlier estimate of $209 million.
Among the moves Moody’s cited:
- A new right-of-way fee equal to 5% of combined utility system gross revenues
- Moving solid waste (trash) costs into the city’s combined utility system
Moody’s also pointed to Houston’s improving long-term cost picture, including declining pension-related liabilities, as a sign the city has more breathing room than it did a few years ago.
Houston’s massive economy also works in its favor. Moody’s estimates the city’s economy at about $760 billion — roughly a quarter of Texas’ economic output — and said Houston has become more resilient as industries such as health care, transportation, logistics and tourism have grown alongside energy.
City controller has warned Houston isn’t out of the woods
The Moody’s upgrade comes after months of public debate over Houston’s budget and financial stability.
City Controller Chris Hollins has repeatedly warned that Houston’s finances are under strain and has criticized the city’s approach as relying too much on fees and assumptions that could fall short.
In June, Houston City Council passed a $7.5 billion budget that included a new $5 monthly solid waste administrative fee and a proposed utility-related right-of-way charge. Hollins criticized the plan, arguing it lacked transparency and relied on what he called “gimmicks” and “hidden costs.”
Hollins also certified the mayor’s budget proposal ahead of the council vote, fulfilling one of the controller’s duties under the City Charter. He stressed that certification was a legal determination, not an endorsement of the spending plan. Hollins previously said the administration’s plan to raise more than $100 million annually through a combined utility system right-of-way fee could be uncertain and unsustainable over time.
Earlier this year, Hollins warned the city could be facing a large shortfall — a claim Mayor John Whitmire disputed.
The upgrade does not mean Houston’s budget challenges have disappeared. Credit ratings primarily measure a government’s ability to repay debt, and Moody’s noted that the city still faces financial pressures. Hollins’ criticism has focused more heavily on whether the city’s new budget strategies are sustainable over the long term.
Moody’s also cautioned that the city could face a future downgrade if its projected budget improvements fail to materialize and Houston returns to persistent structural budget gaps.
Another ratings firm recently moved Houston’s outlook to stable
Moody’s isn’t the only ratings agency following Houston.
In June, S&P Global Ratings revised Houston’s financial outlook from negative to stable, a change Whitmire said reflected progress. In prior reports, S&P cited pressure from rising debt costs, salary obligations and Houston’s limited ability to raise revenue under the city’s property tax cap.
What Moody’s said about reserves
Moody’s also pointed to Houston’s sizable financial cushion. The agency said the city ended fiscal 2025 with an available fund balance equal to about 44% of annual operating revenue. Moody’s expects that cushion to remain around 40% through fiscal 2027, even as Houston uses some reserves to cover higher public safety costs and slower revenue growth.
A separate upgrade tied to hotel tax money and the convention center
In a separate action, Moody’s also upgraded Houston’s Convention and Entertainment debt backed mainly by hotel occupancy tax revenue — money connected to tourism and convention business — to A1 from A2.
Moody’s said the rating reflects improved debt-payment coverage following a $1.1 billion debt issuance and restructuring earlier this year to fund improvements to the George R. Brown Convention Center.
Moody’s expects hotel-tax collections to decline about 5% in fiscal 2026 before rebounding 6.4% in fiscal 2027, supported in part by Houston’s seven FIFA World Cup matches this summer.