This story comes from our news partner, ABC13. For more on this story, click here.

HOUSTON, Texas (KTRK) — The City of Houston has cut its $320 million budget deficit by one-third after reaching a deal on a street and drainage lawsuit payout.

On Tuesday, Houston Mayor John Whitmire shared exclusively with ABC13 that he had struck a deal with the suit’s plaintiffs, engineers Bob Jones and Alan Watson.

In 2010, Houston voters approved a charter amendment, which established a drainage fee to fund street and drainage improvement projects. In 2018 voters approved an amendment to the 2010 charter amendment, which mandated 11.8 cents of every $100 in property tax revenue be allocated to such projects.

In 2019, Jones and Watson sued the city, alleging it had illegally manipulated the formula by adjusting it in relation to its revenue cap. Jones told ABC13 this resulted in a misallocation of the money and shortchanged the initiative by approximately 40 percent.

“The previous administration used the drainage fee funding and the revenue coming from it in the general operations of the city,” Whitmire said.

The city dragged the suit through court for years.

“The city fought them every step of the way,” Whitmire, who inherited the legal battle, said. Earlier this year, Whitmire told ABC13 the city would not be taking additional legal action after the Texas Supreme Court denied their motion to appeal in the case. He said he understood the position of the plaintiffs.

“We have got to fix Houston,” he contended.

The decision meant Houston would need to allocate an additional $100 million to street and drainage projects when the 2026 fiscal year started in July.

However, at the time of the decision the city was already facing a $220 million budget deficit. The settlement ballooned that number to $320 million.

Whitmire worked out a deal with Jones and Watson to ramp up to the intended allocation over time. Under the agreement, the city will allocate an additional $16 million, not $100 million, to street and drainage improvement come July – slashing the FY 2026 budget deficit by approximately one-third.

The following fiscal year, FY 2027, an additional $48 million will be allocated. By 2028 the allocation will be made in full, according to Whitmire.

Jones told ABC13 over the phone that he was amenable to the deal, in part, because Whitmire promised to remedy issues with other street and drainage funding streams that were not addressed through the suit. For example, Whitmire promised to immediately correct METRO General Mobility Fund and drainage fund misallocations in exchange for scaling up to the ad valorem tax revenue allocation correction.

Whitmire touted the deal as a “win-win” and “kept campaign promise.”

He said, “We’re out of the courthouse. We’re following the mandate of the voters using property taxes dedicated for infrastructure, and we’re also making a huge step to reduce our shortfall.”

Whitmire told ABC13 his team had crafted a plan to close the remaining $220 million gap. According to his office, about half of that will be closed by structural balance cuts made through an ongoing restructure of city government. A recent Ernst & Young project served as the blueprint for the reorganization.

Jones provided ABC13 with the following statement.

“Allen Watson and I are very pleased with the proposed settlement with Houston over our lawsuit on the 11.8-cent ad valorem tax revenue issue. Our lawsuit victory requires the city to follow the voter-approved charter amendment. Mayor Whitmire approached us with a plan to allow the city to phase in the increased tax funding if he fixed the rest of the funding for the ReNew Houston/Build Houston Forward Program. With the settlement, he will fully restore Metro Regional Mobility funds, Drainage Fee revenue, and add some one-time additional Metro funds to bridge the transition, which provides approximately $100 million for FY 2026. This is a big win for the city and its street and drainage funding.

Our settlement will add over $200 million dollars annually to the street and drainage program. In FY 2028, the total street and drainage funds will exceed $600 million.

It was critical to get the funding fixed because the charter amendment eliminated bond financing for street and drainage projects in exchange for this pay-as-you-go amendment. Houston should have the proper funding stream to handle its street and drainage needs in the years to come. Mayor Whitmire’s approach to resolving this issue is very refreshing.”