Response to Mayor's response

Following the Mayor's letter to the editor over the Chron pension fund story, today we have a response from David Long, the executive director of the Houston Municipal Employees Pension System. This is a long one, so I'll put it beneath the fold. The crux of it is this:

The issue is not whether the mayor or his administration stated they would pay an amount required by state law, but why they have ignored our repeated requests for discussions about it, and why they are just now disputing an amount they have known about for almost three years.

It's a good question, one that I'd guess is answered by one part hoping things would be better by the time they really had to deal with it (kinda like this; note that according to the letter, things are in fact a little better, just not that much better), one part denial, and one part playing hardball. Obviously, the Mayor needs to follow the law and meet the obligations to which the city is bound. I have faith that this will happen, but we'll see what's in the budget. Here's Director Long's letter:

UPDATE: See also today's Chron editorial, which among other things says:

When he championed boosting the pension benefits in 2001, Long cited figures from his actuarial consultant that they would not cost more than 15 percent of the city payroll, roughly what the city is paying now. Two years later, that figure had swollen to 42 percent, a potential cost to taxpayers of $100 million annually. The pension board also underestimated the unfunded liabilities of the system by half.

With that kind of track record on fiscal accuracy, Long is hardly in a position to critique efforts of others to clean up the mess the pension board helped create.

Isn't this fun?

MAYOR Bill White, in his May 15 letter, said he does not plan to pay the city of Houston's full pension obligation to its municipal employees because he believes the statutory rate is unrealistic. But it is the law. State law requires the city to contribute an actuarial determined amount to the Houston Municipal Employees Pension System. If the mayor doesn't like the law, he could have worked through the process to get it changed.

In 2004, the HMEPS agreed, at Mayor White's request, to a three-year period of structured cash contributions ($66 million, $69 million and $72 million) in order to accommodate the city's budget requirements. It was clearly stated at that time that the cash contributions, based on the actuarial rate, would increase to $115 million on June 30, 2007, but because of HMEPS' outstanding investment returns, that number is down to $109.6 million.

HMEPS clearly understood that when the three-year funding schedule ended on June 30, 2007, the city would pay the amount required by state law. Based on the meet and confer negotiations we had, we believed the city understood that, as well.

In fact, in 2004, HMEPS sent to the city contribution rate projections for fiscal year 2008 and several years thereafter, and the actual rate and dollar amount are even less than projected. Also, the city received annual updates of the projected contribution amount for next fiscal year, and the actual rate is right in line with the projections.

The issue is not whether the mayor or his administration stated they would pay an amount required by state law, but why they have ignored our repeated requests for discussions about it, and why they are just now disputing an amount they have known about for almost three years.

Since the 2004 Meet and Confer Agreement, HMEPS has kept the city apprised of the increased funding requirement through written and oral communications, and has initiated attempts to meet for discussion.

At public pension meetings, City Council members have expressed concern about this issue and even asked, as far back as 2004, how it was being addressed. The city's pension official, Craig Mason, also acknowledged almost a year ago that this issue should be addressed.

The mayor is now speaking about a new pension plan, with even more options, as if that would be a good thing. However, giving more options is not meaningful to people if the options create a reduced benefit package. He also mentioned benefit proposals, but no specific proposals or associated cost breakdowns have been initiated by the mayor through the meet and confer process. Besides, these benefit issues were dealt with thoroughly when Mayor White's administration and HMEPS negotiated the 2004 Meet and Confer Agreement, which was approved by our board and the City Council. This agreement reduced the unfunded liability by about $1 billion, primarily through reducing future benefits by $850 million. We jointly reduced the unfunded liability.

The mayor's letter referred to "the Pension Board's 2001 mistake or outright fraud." In 2001, the Pension Board included five city representatives to ensure that the city's interests were dealt with. The city had a full voice on the board.

Regarding his referring to fraud, it is irresponsible for Mayor White to make such an allegation as this matter was fully investigated and reviewed more than three years ago with no finding of wrongdoing. Mayor White's staff has stated on numerous occasions that the funding shortfall is due to a mistake by the actuary.

I believe it is important to emphasize that HMEPS negotiated the Meet and Confer Agreement in good faith and has met its obligations under the agreement.

The city leadership should recognize the importance of this issue and make every attempt to work with us to meet the city's obligations under the law.

DAVID L. LONG executive director, Houston Municipal Employees Pension System

Posted by Charles Kuffner on May 16, 2007 to Local politics