Pension deal takes a step forward

Not quite there yet, but getting close.

Mayor Sylvester Turner

Mayor Sylvester Turner

Houston’s police and municipal pension boards have agreed to a landmark reform package produced over months of intensive negotiations at City Hall, and Mayor Sylvester Turner hopes the firefighters fund will follow suit with a vote Monday.

The pending proposal, which puts Houston the closest it has come to solving a 15-year crisis that has contributed to recent credit downgrades and threatens to bust the city budget, would eliminate Houston’s pension underfunding in 30 years and avoid more than $2.5 billion in future costs by reducing benefits.

It would also limit the city’s exposure to future market downturns by assuming more realistic investment returns, and calls for issuing $1 billion in bonds to help close the funding gap.

The deal also includes a hotly debated provision that would require future benefit reductions or higher worker contributions if a market downturn or other factors drive the city’s contributions above a specified cap.

The next step is to take the agreement to Austin in the form of legislation, as city workers’ pension benefits are enshrined in state statute.

“We all recognize that the course we were on was going to be destructive for everyone,” Turner said, making a rare appearance at a City Council committee discussing the reforms Thursday morning. “We all had to recognize there were going to be some changes. We tried to strike a balance. Under this plan there is certainty for all employees that there’s a retirement system they can count on that is reliable and sustainable, and we do not have to have this system be a political football year after year. I wish at the end of the day we didn’t have to make any changes at all, but that would be naive and unrealistic.”

Police and municipal pension officials declined comment.

Fire pension chairman David Keller said he can see his board’s vote Monday being decided by one member, or by a wide margin.

“I wish I had a crystal ball on this, but I really don’t know. It’s just hard to gauge what the outcome would be,” he said. “We’re proceeding with a great deal of caution.”

If Keller’s board rejects the deal, city officials say it’s not clear precisely what would happen, but sources close to the talks said the mayor has made clear to the firefighters fund that intransigence on a mutually agreed deal could result in the city writing less generous terms into the legislation on the fire trustees’ behalf.


Houston Retired Firefighters Association president Nick Salem said his group accepts changes must occur, but is troubled by one of the several dozen benefit tweaks: A change that would reduce annual cost-of-living adjustments for firefighters who retired before 1997, prior to the generous benefit increases that first caused pension costs to skyrocket after 2001.

About 600 of Salem’s 3,100 members fall into that category, and he said many are near the poverty line. Retired Houston firefighters do not received Social Security benefits.

“We don’t want to get in a big fight and kill this whole deal with the city because we want a deal with the city, but we’re having severe issues with this,” Salem said. “Some retirees are living on $1,000 a month. We’re not against the deal, but we’re against this one particular part. We’re trying to figure out what we’re going to do about it.”

See here, here, and here for the background. The firefighters have always been the main challenge here, as they have the most to give up and the strongest starting position. Let’s just say there will be a lot less turbulence, here and in Austin, over the next six to eight months if they ratify the deal on Monday.

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7 Responses to Pension deal takes a step forward

  1. Steve Houston says:

    I believe the HFFRF board are debating specifics right now, some standing firm on key objections that have nothing to do with the pre-1997 clause and others concerned about the administration’s threat to change their work schedules to an 8 hour day. Like the police, many of them are able to retire immediately but unlike their brothers in blue, there are not nearly as many unfilled positions in their field of endeavor, at least locally. Their proposed cuts are not as deep but contain a lot of similarities to the cuts made by the police in 2004 as well as some of the big new changes, I suspect they will try to hold out through at least tomorrow to give back less.

    The police officers are not too happy either, their complaints ranging from asking why does obstructionist HFD get rewarded for always holding out longest to their senior people potentially losing a great deal of money in their deferred program. The less senior officers under their new plan from 2004 aren’t too keen given this is their last chance to get some kind of parity with their more senior employees, some would end the deferred program they don’t get if it meant they would get the same percentage as their peers and the same time frame for their core benefit.

    Those under the municipal plan are harder to pin down since there are so many different workplaces and departments but the cut in spousal benefits, increased contributions, and modified deferred retirement equations such as no COLA until age 62 and interest rate smoothing, are not sitting too well. From the email blast they sent members the other day, I don’t see how the cuts will be enough to cover their portion of the unfunded liability but they will make a big difference over time.

    Then there are the fringe groups demanding City Council deny the Mayor’s plan to issue pension obligation bonds (POB), the Kingwood Tea Party jumping up and down along with that failed hack that ran against Mayor Turner last year trying to stay relevant. They have approached at least some of the more conservative Councilmen and laid it down thick, either fight the mayor or we will kick you out of office. One councilman told them where to go while pointing out how getting 2.5 to 3+ billion in employee concessions for $1 billion in the same kind of POB debt Bilking was prepared to issue in much greater amounts was likely a better deal than anything the legislature would foist on the city, the dangers of interest rate arbitrage largely covered by the “corridors” that were installed in the deal to limit city losses. The group wants a citywide vote but state law doesn’t require it, enough of the deal already relying on removing the revenue cap that will be voted on to worry it would be a deal breaker. As a result, state senator Bettencourt wants to change the law but some of his colleagues are already making it clear they are not interested given they all but demanded the city issue such debt during their hearing in Houston earlier this year. Getting rid of 8.5% and 8% debt for 3% debt apparently has some champions beyond Mayor Turner, Bilking, and others; some openly wondering why more of it won’t be used. One unconfirmed source said that the fallback plan if voters don’t remove the revenue cap would be to replace the needed amount with more POB’s, a necessary evil per the bond rating companies and legislature alike.

    There’s a whole lot more but given existing proposals, I suspect retirement rates will climb for the public safety groups a lot more than it will for most other departments. When former mayor White made cuts, retirements for HPD tripled and it took over ten years for their numbers to catch up. Some of their people are already leaving to keep what they have, others in discussions with other local agencies to transfer over in existing lateral programs (HCSO, various constables, and some of the smaller departments) to secure a second retirement and a command staff member hoping his people hold off lest staffing the Superbowl become a nightmare.

  2. Paul Kubosh says:

    Got a resolution vote coming up. What is your advice Steven?

  3. Steve Houston says:

    PK, I think the cuts could be distributed better in each system, I do not like the high probability of additional POB debt, and I think that all employees should be allowed to vote on whether going forward, they could be placed under the state pension system (up or down, each group either moves there at some specific date or they do not). Moving future benefits over to the state system would do very little to help senior employees since the time value of money is so important to building up a good annuity but the newer employees keep getting hammered to the point where Houston is becoming a training ground for other places in every department.

  4. Paul Kubosh says:

    Steven, what do you think about the Resolution vote?

  5. Steve Houston says:

    PK, if you’re talking about the resolution of approval for the deal, my misgivings are simple: until the terms of the deal are set, approval is premature. If I were a council member, I’d prefer to approve a final deal for resolution, letting the legalese of the actual proposed legislation be written FIRST, since we’ve seen in the past how changes are made. The HFFRF hasn’t even agreed to the terms yet…

  6. Paul Kubosh says:

    Here is the hearing on the pension…

  7. Steve Houston says:

    PK, once the HFFRF agreed to terms the other day and all the data was posted on the city website, the value of the deal became more self evident. I saw the hearing last week but the information linked on the front page of the city’s website & today’s council meeting were more helpful in seeing why the resolution passed 16 to 1. For all the concessions the employee’s give up and the conditions limiting the city’s financial exposure in the future, this is as good a deal as the city is going to get. It may result in a lot of retirements but the Kinder Institute, GHP, and others that contributed time to looking at the details seem largely convinced it is a winner for the citizens of the city, maybe less so for the employees.

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