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The pension deal

Not sure yet how I feel about this.

Mayor Annise Parker

Mayor Annise Parker

Mayor Annise Parker and Houston’s firefighter pension trustees have reached a deal that would lower the city’s payments for three years, a move that would mark an abrupt reversal for the mayor.

The announcement came late Thursday from the fire pension board, whose leaders for years have fought any mention of changes to benefits as Houston’s enormous pension burden has continued to grow. The pension fund estimates the city would pay $77 million less over the next three years.

In a memo Thursday to the City Council, Parker said the agreement is a “modified version” of a proposal the pension board pushed last fall.

“The terms will deliver significant budget relief to the city of Houston,” Parker wrote. “As with any true compromise, both sides have surrendered hard positions to realize a mutually beneficial outcome.”

Craig Mason is a pension consultant who represents the city on the police, fire and municipal pension boards. Mason, who followed the talks but had not seen the final deal, said the deal would see firefighters contribute more of their pay toward their retirement and have the city contribute less, for a term of three years.

Mason and other pension reformers have said, however, that without changing pension benefits the city will not be solving the problem long term.

“I’m opposed to people calling that a savings,” Mason said of the deal. “It’s a temporary reduction in contributions, but it’s going to increase contributions in the future. It’s a short-term focus, which is typical for city administrations.”


Parker’s support for the deal is curious, given that she said the pension trustees’ proposal from the fall “reflects no true pension reform” and repeated the same stance as recently as Wednesday, saying, “There’s no reform in that … we’re just putting more money into a system that I think needs help.”

The announcement said that as part of the deal the city would drop two lawsuits against the fire pension, one that seeks more data to better predict future costs and another that challenges the constitutionality of the city being on the hook for payments over which it has no control; the pension and the city’s contributions are set by the Legislature. The city would agree not to lobby the Legislature for pension reforms for the three-year duration of the deal, Mason added.

The fire pension trustees’ plan from last fall that Mason said forms the basis of the deal would not touch current or future firefighters’ benefits, but would have them contribute 12 percent of their paychecks into the pension fund, up from 9 percent. In that proposal, the fire pension projected the city’s contribution rate would drop from 33 percent of firefighter payroll to 24 percent.

Before I say anything about this myself, let me quote from the reactions I received in my inbox to this, in the order I received them. First, from CM Stephen Costello:

“Our firefighters deserve to have their pensions covered in full and this deal, negotiated without City Council input or approval, not only leaves their pensions cut short but continues to put the city’s financial well-being at great risk over the long haul. This agreement simply continues the damaging cycle where the City of Houston fails to fund the pension, racking up tens of millions of dollars in new debt in the future. The ultimate solution in the long term is local control. Houstonians should have the authority to craft their own solution rather than continuing to leave our fate in the hands of politicians in Austin.”

From Bill King:

The proposed agreement regarding the Houston Fire Fighter pension plan announced yesterday represents a further abdication of fiscal responsibility. The parties to this deal owe taxpayers an explanation how borrowing $77 million at 8.5 percent is a good deal, or saves the City money. This deal does absolutely nothing to contain the costs to Houston taxpayers, but instead pushes off millions of dollars of pension obligations to the next administration.

I do not believe the City should incur this kind of additional liability without a full and open debate — and approval — by City Council especially when the City’s pension debt has soared by $1.2 billion over the last five years.

From Controller candidate Bill Frazer:

Once again, Houston’s taxpayers have been left holding the bag while its pension issues get kicked down the road for another 3 years. The City Controller stands idly by while the Mayor, a candidate for Mayor and a candidate for City Controller craft a backroom deal based purely on political expediency.

While kicking the can down the road, the Mayor has borrowed another $77 million at “credit card interest rates”, leaving the taxpayers with more debt and no solutions. Houston deserves a higher standard.

From HFRRF Chairman Todd Clark:

Today Houston Firefighters’ Relief and Retirement Fund (HFRRF) and Houston Mayor Annise Parker agreed on a set of legislative provisions that will save the City $77 million over three years while assuring soundness of the pension and putting a halt to the City’s lawsuits against the Fund. Mayor Parker supported the plan which increases firefighters’ contributions by 3% of their salaries and will reduce Houston’s General Fund expenses to the HFRRF by $21.4 million in Fiscal Year 2016 alone.

“The proposal protects Houston’s citizens by keeping and recruiting the best firefighters we can get,” said HFRRF President Todd Clark. “We are pleased the Mayor supports our proposal because it protects promises made to our firefighters and avoids reduction of benefits to new hires, which would be harmful to all parties.”

The Firefighters’ proposal, as accepted by the Mayor, provides a sustainable plan for the City while avoiding additional costly litigation and discontinuing current litigation while not impacting retirees at all.

And finally, from Mayor Parker:

Under the terms of the arrangement, which still needs legislative approval in Austin, firefighters will contribute three percent more to the pension system for the next three years. Correspondingly, the City’s payroll contribution to the fund will be locked in at 25.8% for Fiscal Year 2016, and 24% for both Fiscal Years 2017 and 2018. This represents a more than $70 million decrease from the amount the city would have to pay in the absence of this arrangement.

The HFRRF board proposed that the firefighters who benefit from the system should pay more. “This protects taxpayer interests and provides budget certainty for the next three years,” said Mayor Parker. “The agreement was achieved through good faith negotiations by both parties. While it is not the pension reform I have sought, it is a step forward. The work must not end here.”

The agreement is the result of informal discussions between the City and HFRRF over the last several months. State law gives the city the ability to meet and confer with the police and municipal pensions, but no such mechanism exists for HFRRF.

“Despite our differences, both of us came together to do what is best for the City,” said Parker. “This doesn’t change my position. I still strongly believe that those who fund our employee pensions should have a say in how we pay for them. These are decisions that must be made here at home, not in Austin.”

The Mayor’s full press release is here. Clearly, one’s view of this deal is dependent on how one views the overall pension situation. Also, if one is running for Mayor and one is not Sylvester Turner, who was credited by the firefighters for helping to broker this deal, one doesn’t like it. My view is that while this is clearly a kick-the-can-down-the-road proposal, the fact is that Houston is facing a (hopefully short term) fiscal crunch in the next few years, and will have to make cuts somewhere to cover those bills. Reducing the amount that the city will have to cut by $77 million over the next three years is nothing to sneeze at, especially if one is unwilling to try to lift the stupid revenue cap as a means of helping to mitigate those cuts. If this is a loan that needs to be paid back, or if there is a gap between what the city would have contributed and what the firefighters will wind up kicking in, then this deal doesn’t look as good. I’d like to see an analysis from a disinterested third party before I sign off on any interpretation, but the prospect of having to make $77 million less in cuts over the next three years counts for something to me. Campos and PDiddie have more.

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  1. Bill King says:


    The City’s budget shortfalls are not short term. The current 5-year projection has significant deficits for all years. And these projections assume 5% year over year revenue growth, which is probably optimistic at $50 oil.

    Even if the revenue cap were to be lifted (which it will not be considering Council committee unanimously voted not to put any change on the November ballot) that would only cover about 20% of shortfalls projected.

    The City has been running a structural deficit, due primarily to the rising pension obligations, since 2000, even in recent years when revenues have been rapidly rising.

  2. Steven Houston says:

    I don’t pretend to be a disinterested party to all this but consider that without this deal:
    1) nothing was going to happen for at least two years as the state legislature will only be in session during Parker’s time in office for two years and it was made clear that the city was not going to waste resources on a dead issue with them,
    2) it saves both the pension system and the city an untold amount in legal fees for battles neither side would clearly win, removing a lot of risk;
    3) it amounts to a direct wage cut to employees of 3% while they still don’t have a pay contract, done willingly by the employees
    4) it most certainly DOES help out the next three budgets in a significant fashion by cutting spending when most needed, those who believe they will find a single item to cut to fix things as simplistic as an out of touch billionaire;
    5) property valuations in many key areas have greatly exceeded the ten 10% yearly cap so revenues will increase for years as the resulting taxes “catch up” even with $50 oil
    6) increasing numbers of police and municipal workers have been retiring from the “old plan” pensions and are predicted to do so given recent contracts with little in it for the older folks, allowing another budget reprieve as the city transitions to lower paid less senior employees,
    7) anyone who would tie all the city’s structural deficits to pensions for the last 15 years clearly has not been paying attention as the city has repeatedly and routinely spent large sums of money on all sorts of things not mandated by the state, pensions merely one portion of employee compensation in a city that has earned a reputation for paying less than other big cities; pensions a deferred form of payment agreed upon by elected officials since the city opted out of Social Security for many employees back in the 80’s.

    Let’s be crystal clear here and drop the politi-speak for a moment. Bilking is not concerned about converting pensions from defined benefit to defined contribution, he is interested in CUTTING COMPENSATION to employees. If he lacks the balls to come out and admit that, so be it but that is what this is all about. He has no intention of providing the same amount of money to a defined contribution plan and for a budget item that equates to about 10% of the total budget, he sure fixates a lot on that one issue.

    Rather than saving money through restructuring services and prioritize them, finding new sources of revenue, or cutting to core services, his big focus for years now has been to pay the employees less. Further, if he has read the data involved and not just glanced over it as usual (per his columns in the chronicle), he will find that cutting future employee compensation will not impact the debt he wrings his hands over so much, at least not in a significant manner. He can sell the unwashed any line of malarkey he likes but when push comes to shove, he’s going to have to come up with something better than attacking employees.

  3. John says:

    This is 100% an accounting trick and the COH is just deferring payments hitting their books for 3 yrs. To call this a deal is false, nothing was solved/accomplished. They just kicked it down the road for someone else to do with in the future

  4. Paul Kubosh says:

    Steven, don’t hold back. Tell us how you really feel.

  5. Steven Houston says:

    John, there is no “trick” involved. The arrangement is completely up front and while not what the mayor was hoping for, given the cards dealt her by state law and the attitude of the legislature, it gives the city more breathing room when most needed.

    PK, there are times when making dainty arguments using semantics, cherry picked statistics, and lawyer-speak make the most sense and there are times when just coming out with it in a frank manner works best. I can work it either way even without a law degree.

    Even without incentive pays, Austin pays a 3 year fireman over $63k/yr, San Antonio pays about $60/yr at 5 years with longevity pay bringing it up to $70k before most leave, and many smaller departments compensate better while HFD tops out at under $53k/yr for a ten year veteran fireman. They the others get higher percentages of this higher pay in their pensions, the deferred retirement provisions standard in most communities (except Houston got DROP instead of pay raises while these other cities got it in addition). Police pays are similarly higher across the state while much higher out of state, so you can understand where public safety personnel feel like it’s time for the city to find a different scapegoat for poor spending practices.