This deserves more visibility than it’s gotten.
Representatives of Houston’s three employee pension boards told a Houston City Council committee Monday that the sky is not falling and pleaded with council members to be patient in examining the city’s pension obligations.
The presentations from the firefighters’ pension, the municipal employees’ pension and the police pension were organized in response to an informational presentation from the city’s chief pension executive, Craig Mason, before the same Budget and Fiscal Affairs committee last month.
Mason’s presentation had examined how the city’s liabilities would increase or decrease if the pension plans were to change their assumed investment returns, their annual cost-of-living adjustments or made other adjustments. He made no recommendations.
City Councilman Stephen Costello, chair of the budget committee, began Monday’s meeting by saying the city won’t be able to fund the pensions in the future without reform. The city’s unfunded liability stands at $2.5 billion, he said.
“This year alone we will pay $242 million in pension costs and in five years our costs will increase by another $110 million. By the year 2020 it’s projected that the contributions will be between 30 percent to 45 percent of payroll, which in my opinion as a business owner is unsustainable,” he said. “It’s obvious the city cannot sustain this rate of growth without having to cut services, lay off employees, or raise taxes. This is not a problem that is 30 years away. It’s a problem that’s within 3 to 8 years.”
Pension representatives responded that pensions are long term and stressed that the majority of retiree benefits are paid from investment returns and employee contributions, not city contributions. Cutting or threatening to cut benefits could spur waves of retirements from the city, they added, as changes to the police pension did in 2004. They noted Houston’s economy is strong and improving, and will allow the unfunded liability to be reduced over time.
Go give a listen to that interview I did with Todd Clark and Chris Gonzales of the firefighters’ pension fund if you haven’t done so, it helped me clear up some of my own confusion. I think the broad outlines of this debate are fairly well known by now, but the one factor I haven’t see discussed much is how the improved economy has affected the city’s short to medium term budget outlook. I would venture to say that if we hadn’t had the collapse of 2008 and the lean years that followed we would not have spent nearly as much time talking about pensions at any level as we’ve done. I’m very much looking forward to seeing the city’s budget numbers for this year to see how things stand now. I do think there will need to be some action taken to ensure that the city’s pension liabilities don’t become unmanageable, but I suspect there’s less we have to do now than there was a year or two ago.