This doesn’t look good.
Short of layoffs, the city won’t meet its full obligation to the municipal pension fund in the next fiscal year, Mayor Bill White says, citing rising public safety and health care costs that are expected to strain resources.
In the next budget, expected to be unveiled Wednesday, White’s administration will propose paying only two-thirds of the statutorily required pension contribution — an arrangement that still would need approval from a skeptical pension fund board.
The employee retirement plan continues to be a challenge for White, who inherited a $1.9 billion unfunded liability in the pension fund when he took office in 2004.
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Facing the prospect of having to make huge annual contributions to comply with state law, the city got the fund’s board to agree in 2004 to reduced payments for the past three years. The contribution was to increase in this year’s budget.
Douglas Benton, a vice president and senior credit officer with Moody’s Investor’s Service, said the city has in recent years contributed “low” amounts to its municipal pension.
“The trend in underfunding of pensions is something we’ve seen in other cities across the country,” he said. “To say one concern or challenge would outweigh a decision on the rating assignment would not be fair.”
In February, Moody’s assigned Houston an Aa3 rating, a strong indicator, and assigned a positive outlook. Still, the analysis said the city’s long-term expenditure challenges for pensions and other retirement benefits would require “close surveillance” in the future.
Controller Annise Parker said she’s concerned the city hasn’t started negotiations with the pension fund, but she said the statutorily required contribution — roughly 24 percent of payroll — isn’t supportable.
I’m going to wait and see on this. For some background on the 2004 pension opt-out referendum, see here, here, here, and here. And by the way, if you think what the city of Houston is going through is fun, at least it’s trying to confront the problem. That stands in stark contrast to the State of Texas and our official Rubber Stamp, Comptroller Susan Combs, whose head is firmly buried in the sand regarding the state’s future pension liabilities. There’s a future legislative session that will make all previous ones look like a kindergarten picnic once this puppy comes due.