A day of reckoning has arrived in Houston, the city’s financial stewards say, to choose between pensions and pothole repairs.
Days after voters in two California cities curbed public employee retirement benefits and voters in Wisconsin rejected an effort to recall a governor who required state workers to pay more for their pensions, Mayor Annise Parker last week said she plans to unveil a plan late this summer to “address our pension problems.”
Asked if her plan could set Houston on a course to become the next Wisconsin, where a yearlong battle has raged over collective bargaining rights and other public employee benefits, Parker said she hoped not.
“I think it is possible to craft a retirement plan for our retirees that is affordable for us, secure for them, but doesn’t put me in the dilemma as I was last year of, do I keep active city employees on the job or do I pump money into a pension system over which I have absolutely no control,” Parker said.
To pit pensions that amount to less than 10 percent of the general fund budget against active employees presents a false choice, argues Todd Clark, chairman of the Houston Firefighters’ Relief and Retirement Fund.
“We do not have a pension problem,” Clark said. The firefighters’ pension has banked nearly all of the money it needs to cover current and future retiree benefits, has agreed to relax the city’s payment schedule to defer the payment of tens of millions of general fund dollars during tough budget times, and has managed its money so well that investment income covers most of the retiree benefits, Clark said.
“The mayor is pushing reform to be able to spend that money on special pet projects, and because she has a personal grudge against the firefighters for never supporting her,” Clark said.
I fully expect this to be a soul-crushing exercise that leaves everyone involved unhappy with the outcome. I expect to be surrounded by sound bites, unreconcileable “facts”, and fatally compromised self-proclaimed “experts” with disclosure issues. Here are the two principles I plan to keep in mind as we slog our way towards a conclusion.
1. Whatever you think of the current system and its sustainability, it represents a deal negotiated in good faith with past and present employees. Any change made to this deal will have a significant, almost certainly negative effect on the lives of thousands of people who had every reason to expect that the deal they had would be honored. If you want to make a change that will only affect future employees, remember that a key aspect of the current deal is that employees have agreed to accept less pay now for more pay later. If the new deal you propose includes less pay now and less pay later, how will the city be able to attract good employees in the future?
2. Claims about “waste” in the budget without specifying what that “waste” is are meaningless. Supporters of the current system such as Todd Clark maintain that pension payments make up less than ten percent of the city’s general revenue. This is correct, and I have noted that fact myself plenty of times, but if that’s part of your argument for maintaining the status quo, you undermine your position by pointing at “special pet projects” – whatever they are; Clark never says – that for all we know don’t even amount to one percent of the city’s general revenue. If you’re going to play the game of how big a piece of the budget thus-and-such is, I will say again that two thirds of the budget is consumed by public safety, and there is no one in City Council, nor anyone who has run for Council in recent years as far as I can tell, who has advocated for a review of that spending to see if we could get by with less of it. If the lion’s share of the budget is off limits, then the scraps are all that’s left to fight over.
I have a strange premonition this will not be the last time I will feel compelled to say these things. Houston Politics has more.
From an employee’s point of view, we have deferred pay, benefits, and taken cuts repeatedly only to be told our pensions are the sole fault of the city’s economic woes. Our watered down unions are the cause of all evil in the city and we’re all a bunch of lazy bums according to the most vocal advocates of reform. We are now being told we make more when we retire than when we are actively employed per the unpublished accounts continually referred to in the Chronicle, this imaginary charge picked up as the norm to fuel the fires of reform.
It was pointed out in 1996 that the deferred retirement program (DROP) would snowball over time yet Lanier insisted it was better than any pay raise he would support. For HPD employees, it worked out great for those with enough time to take advantage of it right away but those since 2004 do not get the benefit or any raises to make up for the loss. It has since been striped of many provisions that made it so lucrative too. The city and union leaders point their fingers at HFD’s pension which never took a hit at all, the city merrily funding it all along while shorting ours and the municipal fund extensively, their claims of 93% funding levels resulting from the city paying in what it was supposed to.
Most of the municipal employees I know or have met are in the non contributory plan. This means they get a far smaller percentage when they leave, their plan forcing them to stay until they turn 62 for the smaller benefit. If asked, they would probably scrap together enough to contribute the same amounts as public safety but not for this modest pension. Plenty of them could not afford city insurance if they left because it goes up so drastically when they leave (reports that it is free are crazy and based on what other cities provide employees, not ours).
HFD’s plan, when compared to the other two, looks great. They get to cherry pick their top paychecks, include overtime, include assignment pay (their unique organizational structure is far more top heavy than the other two so this is common), and their optimum career length is 33 years since their DROP is limited to 13 years. They get 50% at 20 years and 80% at 30 years, and due to the way they handled Bill White, they have been untouched so they are well funded. In their favor, the city pays them poorly compared to other departments across the country and the GOP remembers its friends.
I predict that little will happen in Austin this session since none in the GOP are going to want to toss Parker a bone for higher office, nor will those in her party want to position her better than their own ambitions while attacking their base supporters. The municipal and police pension systems will not take another hit without HFD losing spiking attributes like they did and making new members receive less. HFD will flip them all off as it has in the past (and get away with it yet again). The easiest thing for all three to do would be to modify DROP in terms of years or amounts but the two systems that lost it for new employees will be put in the position of having to do so for vested employees for it to matter so I don’t expect it to happen.
Suggested cuts/reductions:
All of them cut DROP to 8 years or cut the benefit to a percentage of what it is now.
All of them require employees stay longer, bringing current PD and FD to 55 years old as well as newcomers for FD, all municipal to 62 like their newcomers.
Base all COLAS, if kept, to returns; in years when returns are higher, the markets are more likely to be impacted by inflation so it is needed more. Otherwise only apply them every other year until all three systems are fully funded.
Suggest all three systems share the same financial advisers which would save millions each year (go with HFD since they average the best returns compared to the higher but more wild HPD returns).
Suggest all employees pay in more, even if only a few percentage points.
From the city side:
Finish privatizing the zoo
Stop art funding
Collect past due amounts owed
Dissolve the TIRZ zones
Stop corporate welfare
Examine common practices to find cheaper ways, knowing it will impact some services
Stop the crime lab and join the county project
Drop the drunk tank measure
Be willing to say “no” to special interest groups more often
Send Helena Brown to Siberia on a one way fact finding mission
I’ll throw in on CM Brown’s ticket to Siberia.