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Towers Watson

Turner’s 2019 budget

Here’s the plan for making ends meet for next fiscal year.

Mayor Sylvester Turner

Mayor Sylvester Turner’s proposed budget for the fiscal year that starts in July would close a shortfall of $114 million without employee layoffs by drawing down the city’s reserves, transferring money from special accounts to the general fund and cutting spending.

In a proposal unveiled Tuesday, Turner plans to spend $2.5 billion from the general fund, which is supported primarily by property and sales taxes and funds most core services, such as the police and fire departments, parks, libraries and trash pickup.

That is $83 million, or 3.5 percent, more than the current budget. The increase chiefly is driven by a $42 million increase in debt service, related mostly to the issuance last year of $1 billion in pension obligation bonds as part of the mayor’s pension reform package. Also driving the increase is $14 million in previously agreed to raises for police.

“This is a very, very tight budget,” Turner said. “I have scrubbed this budget, every line item that exists. I invite anyone to take a look underneath the hood. Because there are two departments that will always drive this budget: Police and fire.”

About 57 percent of the general fund, or $1.4 billion, goes to public safety – the police and fire departments, the municipal courts and emergency operations. Another $400 million goes to debt service. Parks, libraries, health services, trash pickup and most other city functions get the rest, about $672 million.

[…]

Turner acknowledged two key developments helped prevent layoffs in the proposed budget, providing most of the $84 million the mayor intends to pull from the city’s reserves to spend in the upcoming budget.

First, the city settled a lawsuit it had filed against Towers Watson, an actuarial firm it blamed for contributing to the city’s pension crisis, saying city officials’ reliance on the firm’s advice led them to boost benefits in 2001 and saddle taxpayers with unaffordable pensions costs. That settlement, which was approved by city council last month, injected $29 million into the general fund.

The city also, as it routinely does, conservatively estimated the sales tax revenues it would receive in the current budget year. As a result, the city collected an “extra” $28 million that will be available for the upcoming budget year.

Yeah, that pension projection lawsuit settlement sure came in handy. I don’t know what rabbits there will be to pull out of next year’s hat, however. We’ll see what Council makes of this when it comes to them for a vote.

City reaches settlement in pension projection lawsuit

Old story, new development.

Houston has agreed to settle a lawsuit it filed four years ago against an actuarial firm whose predictions it blamed for contributing to the city’s multi-billion-dollar pension crisis for $40 million.

The city’s outside counsel, Susman Godfrey, would collect $11 million, and $29 million would be deposited into the city’s general fund. City Council must approve the settlement.

City Council approved the filing of the lawsuit in July 2014, saying Houston officials’ reliance on the advice of Towers Perrin, now known as Willis Towers Watson, led them to boost workers’ retirement benefits in 2001 and saddle taxpayers with unaffordable pensions costs as a result.

The city alleged negligence and malpractice and sought damages of $832 million — a figure later revised to $432 million.

See here, here, and here for the background. That first link is from 2004; it and the second link have most of the relevant information. Getting $29 million in cash doesn’t suck, but boy it would have been nice to have gotten better information in the first place. Nothing more to be done about it now.

Council votes to sue over bad pension projections

Game on.

BagOfMoney

Houston City Council on Wednesday paved the way for city attorneys to sue an actuarial firm the city claims gave inaccurate pension estimates that spurred costly changes to firefighters’ retirement benefits in 2001.

[…]

Houston’s contribution rate to the fire pension skyrocketed soon after the changes were approved, despite an actuarial report from Towers Perrin, now Towers Watson, that predicted the payment rate would remain flat for a decade. This year, the city is contributing 33 percent of payroll to firefighters’ retirements, more than double the rate prior to the changes.

In the event of a payout in the proposed lawsuit, the money would be used to reimburse the city for the Susman Godfrey’s fees and expenses up to $970,000, and the firm would get a third of the remaining cash, with the city keeping the rest.

See here and here for the background. Based on past history, the city would have a decent chance of winning. How much they might stand to collect remains to be seen, but it likely would fall in the “not nothing, but not going to make a big dent in the unfunded liability” bucket.

Another pension-related lawsuit coming?

Here’s a little blast from the past.

BagOfMoney

The city of Houston may sue a company whose advice it relied upon in making changes to firefighters’ retirement benefits in 2001, saying the firm’s inaccurate predictions left the city on the hook for pensions it cannot afford.

Houston’s contribution rate to the firefighters pension skyrocketed soon after the changes were approved, despite an actuarial report from Towers Perrin, now Towers Watson, that predicted the payment rate would remain flat for a decade. This year, the city is contributing 33 percent of payroll to firefighters’ retirements, more than double the rate prior to the changes.

Former Mayor Lee Brown’s administration also based its support for 2001 changes to municipal workers’ pension benefits on a separate Towers Perrin report that projected the city’s contributions to that fund would not top 14 percent of payroll; by 2003’s end, the rate was 42 percent.

Both reports were commissioned by the employee- and retiree-controlled pension boards; the city did not seek second opinions.

City Attorney David Feldman said the proposed lawsuit is targeted at the actuary’s fire pension projections because the specifics of the situations make the fire report a “cleaner” case; he did not rule out bringing suit based on the flawed municipal estimates.

“When we were closely studying how we got to where we are today, I started collecting all the historical information, and I came across this and said, ‘Wait a minute, look at these projections. What happened?’ ” Feldman said. “Even if we weren’t in the ditch we’re in, if I came across that information I’d have a duty to my client to say, ‘You have a cause of action here.’ ”

[…]

While relatively rare, disputes between local governments and pension actuaries do occur, and have yielded damages.

In Alaska, where state pensioners have their retirement and health care benefits covered, the state sued its actuarial firm, Mercer, for allegedly projecting rising health care costs incorrectly; the firm ultimately settled for $500 million.

Mercer also was sued by Milwaukee County, Wis., which accused the firm of underestimating the cost of new benefits offered in 2001; the firm settled for $45 million.

I had to go back ten years to find the last mention of Towers Watson (née Perrin) on the blog. The fact that some other governments have collected for crappy pension forecasts in the past is intriguing, but suffice it to say we’re a long ways off from any kind of settlement. If we do ever get to that point it’ll be nice, but probably not transformative. I figure it can’t hurt to at least explore this, but we’ll see how it goes.