The storm clouds gathered outside City Hall on Tuesday morning were a fitting backdrop for the City Council's first detailed look at the fiscal problems confronting Houston in the coming years.

The political way to describe the numbers, presented by city budget chief Kelly Dowe, might be to say they present a challenge, or perhaps an opportunity. In plain English, they are bleak.

Beginning next summer with fiscal year 2016, Houston will face a projected $142 million gap between expected revenues and expenses in its general fund, which is fed chiefly by property and sales taxes and funds most basic city services. That exceeds the $137 million budget gap Houston had to close during the economic recession, when Mayor Annise Parker laid off 776 workers in making numerous cuts in 2011.

And the projected gap will widen in the years to follow. By fiscal year 2018, the budget deficit is expected to top out at a projected $205 million.

The calculations resulting in those projected deficits assume no raises for city workers or added investments in vehicles and technology that cannot be put off forever, said Councilman Stephen Costello, meaning the actual deficits could be higher.

"There's still not enough attention directed toward the next four years, which is really the problem that we have," said Costello, who chairs the council's budget committee. "We need to start looking long-term."

Council members have been presented with projected deficits before, only to see conservative estimates turn into surpluses as property and sales tax revenues came in stronger than expected.

Growing out of the problem is no longer an option, however, because booming property appraisals are expected next year to run Houston smack into a revenue cap put in place by voters a decade ago that will force a cut in the property tax rate and carve millions of dollars from the budget.

Layoffs or amendment

Parker has said if the cap stands and the city finds no new revenues, there will be layoffs. She has floated the idea of asking voters to amend the cap, as former Mayor Bill White did in 2006 in asking voters to allow more spending on public safety. The earliest such a referendum could be held would be May 2015, though sources said Parker is leaning toward a November 2015 vote.

Some council members welcomed the discussion the city's collision with the cap will bring.

"I think there's some merit of holding those of us around this table to fiscal responsibility," said Councilman C.O. Bradford. "From a fiscal standpoint, we need to establish why we exist as a local government. Let's define core services."

Councilman Dave Martin questioned why Parker's proposed budget for the 2015 fiscal year, which starts July 1, increases general fund spending by more than 8 percent over the current fiscal year when the outlook in the coming years is so dire.

"We should either pay off some of our debt, keep the excess revenue in a rainy day fund, or give a property tax rate decrease," Martin said, adding that money also could be put toward the city's underfunded pensions.

About 51 percent of the increase in the proposed budget is driven by employee contracts, 18 percent represents dollars transferred to specific funds and not available for spending, and another 17 percent is an increase in debt service, Dowe said.

The revenue cap cannot alone be blamed for the looming crisis. The cap will allow revenues to rise, after all, but they will rise at the combined rates of inflation and population increase, not at the breakneck pace of property appraisals many homeowners have seen this year.

Pension payments

Driving the problem are soaring pension payments and a spike over the next four years in the cost of servicing debt.

The single largest expense increasing in the proposed 2015 general fund budget is a 21 percent hike paid into the city's three pension funds, to $261 million. That's more than what is spent on libraries, parks, trash pickup and municipal courts combined.

And pension payments are only projected to increase. Next year, Dowe said, the city expects to cough up $50 million on top of its scheduled payment to the police pension thanks to a contractual trigger that requires the account to maintain a funding level of at least 80 percent.

In refinancing debt, Dowe added, past mayors put off principal payments for future leaders to pay, creating a debt bubble that now is coming due. General obligation debt payments will jump from $297 million this fiscal year to $355 million by fiscal 2018, before falling.

Dowe said he will return to the council monthly with more details on the Parker administration's ideas for how to manage the coming deficits. On Tuesday, he said the broad strategies would be to seek cost cutting, reduce or eliminate services, ensure fees Houston charges are enough to cover the cost of providing services and continue what have thus far been fruitless attempts at seeking pension reform with the Legislature, which controls the city's three pensions.

"While we've all been working on efficiencies, we've been working on pensions in the long run, we've been working on a number of different areas, it's a matter of timing: How quickly can we address this?" Dowe said, adding that he did not expect the city to reach the revenue cap this quickly. "A lot of those things are not things you can address overnight. But there's no time like the present to sort this out."