Michael Shedlock of Mish’s Global Trend Analysis flags up a rather worrisome review by some concerned retired auditor folk on the situation facing the City of Houston in Texas, USA.
Indeed, according to Bob Lemer, CPA, Retired Partner at Ernst & Young; Aubrey M. Farb, CPA, Retired Partner at Grant Thornton and Tom Roberts, CPA, Retired Partner at Fitts Roberts, Houston may be bankrupt.
Here’s a portion of the letter they sent on October 22 to the City of Houston’s incumbent mayor, city controller, and city council members — among others:
October 22, 2009
Name, Title and Address
Subject: Finances of the City of Houston
Dear :
Enclosed is our partial analysis of the very serious financial situation at the City of Houston.
We would be derelict if we failed to share this financial analysis with you. This financial heads up will assist you in meeting your fiduciary responsibilities to Houston voters, taxpayers, readers, viewers or investors—as the case may be. We feel a public discussion of the City’s financial situation is necessary and firmly believe that addressing the City’s financial condition is in the best interest of the Houston economy and Houston taxpayers. We believe the sooner the City of Houston addresses the financial shortfall the better.
Please bear in mind that the Houston City elections are on November 3, 2009, with early voting having commenced on October 19, 2009. Recent history has shown a large portion of voting occurs during early voting.
We trust that the attached article is of significant assistance to you.
We may be reached at boblemer@sbcglobal.net.
You can view the whole correspondence here.
According to the retired accounting sleuths the City faces major financial troubles because its two principal sources of fund revenues — sales taxes and property taxes — are choking up. The state, meanwhile, continues to overspend at an unsustainable rate, as it has done since 2004. Forcing the balance on the backs of taxpayers, however, will not be tenable, according to the writers.
The problem has remained undetected because the City does not use the full accrual basis of accounting, say the writers.
Adding pressure to Houston’s fiduciary troubles, no doubt, will also be the recent underperformance of one the City’s top industrial sectors, the refining and petroleum industry — a major employer in the state of Texas.
This was evidenced on Tuesday by results from one of the City’s top independent refiners Valero, which reported much deeper-than-expected quarterly losses of $489m on ongoing weak refining margins. Valero shares tumbled more than 4 per cent on the news.
Houston’s Stallion Oilfield Services, another independent oilfield services company with 1,700 employees nationwide, meanwhile filed for Chapter 11 bankruptcy protection on October 19.
And on October 2, Houston-based independent energy company Edge Petroleum also filed for Chapter 11 bankruptcy.
Related links:
Petroplus, still praying for a distillate recovery – FT Alphaville
Distillate hangover – FT Alphaville
Independent refiner downgrades imminent? – FT Alphaville
Valero points to difficulties in US energy sector - FT Energy Source