Off the Kuff Rotating Header Image

HFRRF

Endorsement watch: The bonds

Endorsement season has officially begun.

The key referendum, Proposition A, is a solution to Houston’s potentially disastrous pension problem. A complex deal ushered through the Texas Legislature by Mayor Sylvester Turner would reduce the $8.2 billion unfunded pension burden now carried by Houston taxpayers to $5.2 billion. Union leaders representing police officers and municipal employees have agreed to sacrifice benefits worth roughly $1.8 billion. But the whole arrangement depends upon voters approving a $1 billion bond issuance, 1 of 5 city bonds on the ballot.

The pension bond wouldn’t raise taxes, nor would it increase the public debt. Houston already owes this money to its retired employees; this deal will take care of a debt that’s already on the books. The bonds will be paid off over the course of three decades. By coincidence, this happens to be a good time for the city to borrow money. This is like refinancing your mortgage when interest rates are low.

On the other hand, Turner bluntly and accurately told the Chronicle’s editorial board, if the pension obligation bonds go down, “it’s worse than the financial impact of Harvey.” Before this deal was struck, our city government was staring at the grim prospect of laying off more than 2,000 employees, about 10 percent of its workforce, a cut that would almost certainly impact police and firefighters.

[…]

Meanwhile, four other bond proposals would pay for facilities and equipment at everything from police and fire stations to city parks and libraries. At a time when our police officers are driving around in cars that are more than a decade old, we voters need to pass these capital improvement bonds.

The campaign for the bonds is underway, and I do expect them to pass. But this is a weird year, and turnout is going to be well below what we’re used to – and we ain’t used to particularly robust turnout – so anything can happen. The big task in this election for all campaigns is just making sure people know they need to go vote. If you’re reading this site, you already know that much. I say vote for the bonds as well, for all the reasons the Chron gives.

Firefighters sue over pension reform law

I suppose this was inevitable.

Mayor Sylvester Turner

Houston’s firefighters pension fund has sued Mayor Sylvester Turner and numerous city officials over the pension reform plan Gov. Greg Abbott signed into law Wednesday, putting up another potential hurdle in Houston’s efforts to solve a 16-year fiscal crisis.

The Houston Firefighters Relief and Retirement Fund argues in the lawsuit filed Tuesday in state district court that the reform plan undercuts the board’s legal authority to “select legal counsel and an actuary and adopt sound actuarial assumptions,” in violation of the Texas Constitution.

The pension board also is asking the court to permanently block the city from acting as though the reforms will become law July 1.

If successful, the lawsuit could throw a wrench into the city’s plan to pay down its $8.2 billion pension debt over 30 years by issuing $1 billion in pension obligation bonds, cutting retiree benefits by $2.8 billion and capping future costs, even if the market dips.

“Our board is already being asked to knowingly violate its duty to the Texas Constitution through provisions contained in SB 2190,” pension board Chairman David Keller said in a statement. “We will not collude in an act we believe to be illegal.”

Turner was confident the pension board, which lobbied unsuccessfully against the reform plan in Austin, also would fail to block the reforms in court. Turner added that he finds it interesting the pension board did not sue the state.

State lawmakers, who control the fire pension, had to approve Houston’s pension reform plan.

“I think at some point in time you’ve just got to stop digging a hole,” Turner said. “I think they need to do what’s in the best interest of the people they claim to represent, firefighters both active and retired. But it’s their call. We feel very comfortable about the legislation.”

The injunction the fire pension board seeks presumably would extend not only to the reform package, the cornerstone of Turner’s policy agenda thus far,but also to the city budget for the fiscal year that starts July 1, which City Council passed Wednesday.

[…]

Charles “Rocky” Rhodes, a constitutional law professor at South Texas College of Law Houston, said it is difficult to say whether the fire pension’s challenge will be successful.

“This case is bringing issues of first impression regarding what benefits are guaranteed to pensioners by the Texas Constitution,” he said. “There are just some very novel issues that are involved that make it hard to predict what the final outcome will be.”

The suit was filed before Abbott signed the bill, not that that really matters. As we know, I Am Not A Lawyer, so I can’t give an educated opinion about the merits of this lawsuit. I can say that with some lawsuits, I feel like I have a fairly clear understanding of what the suit is about. With this one, I guess the HFRRF is saying that the pension reform law is in conflict with other state laws and/or some provisions in the Constitution? It must be something like that, because otherwise I don’t see how the HFRRF board’s authority can override state law. The fact that I don’t really get this doesn’t mean the firefighters won’t prevail – the Lege is hardly immune from writing bad or sloppy laws. More to the point is whether or not they can get an injunction, which would put the city in a bad position while the suit is being litigated. Here, I think the city has a pretty damn convincing argument that the harm to the city and its employees and the taxpayers would greatly outweigh the harm to the HFRRF, but this is what they pay the actual lawyers for. I figure we’ll have an answer to that sometime before the July 1 implementation date.

Houston pension reform bill passes

It’s done.

Mayor Sylvester Turner

The Texas House on Wednesday approved the controversial Senate version of a bill that aims to overhaul Houston’s failing pension funds — over the passionate objections of current and former firefighters.

Senate Bill 2190, which passed in a 103-43 vote, now heads to Gov. Greg Abbott’s desk. But the months of rancor between firefighters and Houston officials promise to linger long after the legislative session ends Monday.

[…]

The Houston bill passed Wednesday without two amendments the House had previously added in an apparent attempt to appease firefighters. One amendment would have prevented the bill from impacting current firefighter retirees. The other could have allowed the firefighter pension system to bear a smaller burden in paying down unfunded liabilities shoring up billions in shortfalls in three city employee retirement funds.

That drew the anger of firefighter pension members, dozens of whom sat in the House gallery Wednesday. Some shouted down to representatives as they walked out after the vote. One woman could be heard yelling, “Shameful!”

After the vote, Houston firefighter pension board chairman David Keller said he was disappointed in the vote. During the session, pension officials had suggested such legislation could be unconstitutional because it determines the financial boundaries the fund should stay within. Keller said the Constitution says that power is left solely to the pension board.

Keller said it was too soon to determine if the pension board will file a lawsuit.

“We will explore every option available to us,” he said.

But state Rep. Dan Flynn, who carried the bill in the House, said that killing the bill because firefighters remained unhappy would have exasperated the dire financial situation the city and the retirement funds are experiencing. The bill addresses pensions for firefighters, police and municipal employees.

“If we don’t pass it, there won’t be any pensions,” the Canton Republican told The Texas Tribune earlier this year.

Rep. Dan Huberty, R-Houston, authored the amendment that could have helped the firefighter pension fund bear less of the burden shoring up the city’s shortfalls. The amendment would have given pension officials more time to provide data showing that financial forecasts estimate the fund will be in better shape than Houston officials estimated.

But on Wednesday, he urged his colleagues to vote for the bill without the amendment.

“We’ve done everything we can to work hard in good faith,” Huberty said.

Keller, the pension chairman, said the pension board offered to provide the data under licensing agreements that included confidentiality provisions. He said the city never responded.

When asked if firefighters would campaign against any Houston-area state officials who backed the bill, Keller said “it’s hard to say.”

“But I know the firefighters are having a lot of emotions right now: loss, anger,” he said. “And they’ve been shown to be politically active.”

See here for the background. The firefighters are gonna do what the firefighters are gonna do. I get they’re unhappy and to an extent I don’t blame them, but this is where we are, and it took a lot of effort to get here. At this point, the main thing I’ll be looking for is who will be campaigning against the pension obligation bonds. It’s one thing to say we need to vote on those things (even if we hadn’t voted on them before), it’s another to say we should vote against them. Until then, kudos to all for getting this done, and congratulations to Mayor Turner for doing what once seemed to be impossible. The Mayor’s press release is here, and the Chron has more.

UPDATE: Here’s the longer Chron story.

House and Senate concur on pension bill

One more vote in each chamber, then it’s on to get a signature.

Mayor Sylvester Turner

The Legislature is expected to take its final votes on Houston’s pension reform legislation within days after a group of House and Senate lawmakers Sunday night hashed out the differences between their chambers’ versions and produced a final bill.

Stripped from the proposal that emerged Sunday evening were three amendments backed by firefighters and opposed by City Hall, said state Sen. Joan Huffman, a Houston Republican who carried the measure in the upper chamber and who was among the 10 lawmakers tasked with reconciling the bills. The excised amendments had been added earlier this month when the House followed the Senate in approving its version the reform package.

“It’s a great bill that’s good for the taxpayers, for retirees and for the employees,” Huffman said late Sunday. “I think it is a good solution.”

The development puts Mayor Sylvester Turner on the doorstep of a landmark achievement that he has made the central focus of his first year and a half in office and that aims to end a 16-year crisis that has increasingly imperiled the city’s finances.

“There is only one step left for the Legislature to take,” the mayor said late Sunday. “Houston needs their support for our police officers, municipal employees, firefighters and Houston taxpayers. We cannot afford to fail. I believe the Legislature won’t let us down.”

See here and here for the background. Basically, it sounds like the original Senate version of the bill was restored. The firefighters aren’t happy with the loss of the House amendments, all of which benefited them, but that’s the way it goes. There are no guarantees in this world, but this looks pretty set for passage.

House passes pension reform bill

One step closer, though there are still issues to be worked out.

Mayor Sylvester Turner

The Texas House gave early approval Monday to a bill that would reform Houston’s three problematic pension funds, which have caused financial woes and spurred political battles for years.

The 112-28 vote for Senate Bill 2190 came after lawmakers made some key changes to the bill, including a provision that could let the firefighter pension fund bear a smaller burden for shoring up billions in shortfalls.

But State Rep. Dan Flynn, R-Canton, who authored the House version of the bill, worried that the Senate may not like the changes.

“This is an amendment that could very well derail the bill,” Flynn said Monday from the House floor.

[…]

State Rep. Dan Huberty, R-Houston, successfully got his House colleagues to amend the bill so that the firefighter pension fund has an opportunity to lower what its members give up in order to help close a large funding gap.

For months, city and state leaders have accused the firefighter pension fund of withholding actuarial data that would prove it could shore up its shortfall with fewer cuts to members’ benefit features. In the absence of such data, city leaders and state lawmakers put together SB 2190 and a House companion — authored by Flynn — that the firefighters opposed.

Keller said the retirement system wants to protect individual members’ information and has offered the city data under licensing agreements that included confidentiality provisions. He said he was surprised that became an issue on the House floor considering all firefighter salary information goes through City Hall.

“They know what each of us makes,” he said. “There’s nothing surprising in our data we hold.”

Huberty’s amendment will give the firefighter fund a deadline to provide the data to the city. It passed 90-42 over the objections of Flynn, who said the firefighter fund had months to help reach a compromise and that such a change could sink the bill when it goes back to the Senate.

“At this point it’s really too late to change the critical aspects of this bill,” Flynn said.

Flynn could have brought his House bill to the floor but chose instead to have a vote on the Senate version. I’m guessing he thought it might be easier to get it through, as if it had been passed unamended that would have been it. It will now go through a conference committee, so we’ll see what the final version says. At this point, I’d say it’s looking pretty good for passage, though it remains to be seen who will wind up being less happy about it than they were going in. The city’s press release is here, and the preliminary Chron story is here. I’ll link to the full story in an update.

UPDATE: Here is the full Chron story.

Pension reform bill passes House committee

Two for two.

Mayor Sylvester Turner

Houston’s pension reform bill will now move to the floor of each legislative chamber after a Texas House committee joined its Senate counterparts in passing the measure 6-1 Wednesday.

With Rep. Roberto Alonzo, D-Dallas, opposed, the pensions committee adopted House Bill 43, which will now head to a scheduling committee to be set for its next hearing.

“I am thankful to the committee members and Chairman Dan Flynn,” Mayor Sylvester Turner said in a prepared statement, referencing the Dallas-area Republican who oversees pension discussions. “Our solution continues to make historic progress in Austin. I am happy to see that our state lawmakers understand how important this is to Houston’s future. We are going to keep up the pressure until our plan becomes law.”

Houston Republican Sen. Joan Huffman’s committee passed the bill last month by a similar margin of 7-1. The main difference between the bills is that Huffman’s version seeks a referendum on pension bonds such as the $1 billion in bonds that are a key part of the reform package; the House version does not include that language.

See here and here for the background. The easy passage in the House committee, coupled with the passage of the Huffman bill in the full Senate, bodes well for the reform effort despite the opposition from the firefighters. Assuming HB43 does pass the full House, either it will need to go through the Senate or Sen. Huffman’s SB2190 will have to pass the House. The matter of whether or not to require a vote on the pension obligation bonds will be worked out one way or the other, and then we’ll go from there.

Firefighters will oppose pension reform bill

So it goes.

Mayor Sylvester Turner

Hopes that Houston’s firefighter pension board might agree to a compromise set of benefit reforms and end their opposition to Mayor Sylvester Turner’s landmark reform package proved too optimistic, after the two sides passed a Thursday deadline without a deal.

It remains unclear what effect counting the firefighters as confirmed foes will have on the bills now working their way through both chambers of the Legislature.

The Houston Firefighters Relief and Retirement Fund had joined police and municipal worker groups in backing preliminary terms last fall, but did not join their counterparts in agreeing to final legislative language.

Fire pension board chairman David Keller reopened the door to an agreement in testimony before a state House committee on Monday, saying recent talks with Sen. Joan Huffman – the Houston Republican whose committee approved the reform proposal last week – had been productive and that he was “hopeful” his board could agree.

Keller acknowledged he verbally agreed to a compromise Turner offered that included more than the estimated $800 million in benefit reductions the board had approved last October but less than the nearly $1 billion in cuts currently reflected in the legislation.

After the final numbers were crunched, however, Keller said the proposal cut too deep.

Things had looked more positive for consensus earlier in the week, but these things happen. I feel like we have come along far enough that success is more likely than failure, but failure is always an option. The question I have at this point is if the Senate version of the bill makes it through, will the firefighters oppose the pension obligation bond issue, in hopes of scuttling the deal by whatever means they can? This is the part of requiring a vote that makes me nervous, precisely because it’s another opportunity for people who don’t like this plan for whatever the reason to kill it. But first we need a bill to pass in the House. Look for the arguments made by opponents there as a preview of what we may get in November.

House hearing for pension bill

Another step in the process.

Mayor Sylvester Turner

Houston’s pension reform plan got its first hearing Monday in the state House, where rows and rows of current and retired firefighters appeared to voice opposition to the plan.

Municipal and police leaders testified in support, however, as did representatives of the Greater Houston Partnership and, of course, Mayor Sylvester Turner, who spent most of his first year in office negotiating the package.

“It is not the perfect pension bill, because, quite frankly, I don’t know if you can get the perfect pension bill, but it is a very good bill for all parties concerned,” Turner said at the hearing.

Even the opposition of the firefighters was tempered somewhat by the testimony of their pension fund chairman, David Keller.

He said a series of talks since the bill cleared a Senate committee by a 7-1 vote last week have produced “great movement” in better aligning the current proposal to the general terms Keller’s board approved last October, before negotiations lagged and his group failed to reach agreement with the city on final legislative language. Disputes over sharing information led the city to propose deeper cuts than initially had been agreed to; Keller said those issues have been resolved in the last week.

Rep. Dan Huberty, a Houston Republican, said he had even heard Monday morning from some firefighters who seemed to be in support of the bill. Keller said that was not quite right, but he was “hopeful” his board might ultimately wind up in agreement.

“Firefighters are not immovable,” Keller said. “We heard loud and clear that we should not expect status quo, and we did not expect status quo.”

That’s decidedly less contentious than the firefighters’ previous statement, so that’s good. No one has to love this bill, but everyone has to be able to live with it. The House bill (HB43 by Rep. Dan Flynn, who is the Chair of the Pensions Committee) differs from the Senate bill in that it does not require a vote on the pension obligation bonds. Hard to say at this point which version will prevail, but I’d expect both will have some changes made before all is said and done. HB43 was left pending in committee, so it’s not ready to advance to the House floor just yet.

Pension reform bill passes Senate committee

A major step forward.

Mayor Sylvester Turner

Houston’s pension reform plan cleared a state Senate committee in its initial hearing at the Capitol on Monday, despite the fact that all those who testified – including Mayor Sylvester Turner – opposed at least some portion of the omnibus package.

Retirees were concerned about benefit cuts. Some conservatives said the only path to true reform wold be to move new hires into defined contribution plans similar to 401(k)s, which the bill does not do. Firefighters, who never agreed to final language with the city, are opposed in part because the legislation would cut their benefits by what the state Pension Review Board estimates to be $970 million, up from about $800 million the firefighters agreed to in approving initial reform terms last fall.

Turner says those deeper cuts are to ensure the city gets the savings it needs in spite of the fire pension not providing comprehensive data to predict future costs; fire leaders say an ongoing lawsuit prevents them from complying. For his part, Turner – along with the city’s police and municipal worker groups – opposes the bill as written because Sen. Joan Huffman, R-Houston, added a requirement that the public vote on pension bonds that are a key piece of the proposal; the mayor has called the clause a “poison pill.” Ultimately, city officials hope the provision could be excised at some point in the legislative process. Turner also listed seven technical changes he wants that he said appear to be drafting errors in the bill; Huffman took no issue with those, but defended her decision to call for a public vote on the pension bonds.

The provision is a pet project of another Houston Republican, Sen. Paul Bettencourt, whose standalone bill to require a vote on any Texas municipality’s pension bonds also passed the committee on Monday.

“It’s important that voters have input,” Huffman said, adding that she believes voters would approve, that she would campaign for the bonds’ passage, and that the underlying math of the proposal would work without the bonds.

See here for the background, and here for the Mayor’s press release. The Huffman bill is SB2190; the House companion bill, which will have its hearing next Monday, is HB43. You know I’m not philosophically opposed to voting on the pension bonds, but as I said before, elections have winners and losers. I’ll be very interested to see who joins Mayor Turner and Sen. Huffman in campaigning for that bond issue to win, and who will join with the sore losers in campaigning for it to fail.

No one ever said pension reform was going to be easy

The firefighters’ pension fund isn’t happy with the way things are going.

Mayor Sylvester Turner

The plan to reform the City of Houston’s pension system is running into opposition from the Houston Firefighters’ Relief and Retirement Fund (HFRRF).

In a recent letter sent to its members, the HFRRF criticized Houston Mayor Sylvester Turner for ending the negotiations on the final version of the pension reform bill, which is being drafted in the Texas Legislature.

Turner has told the staff working on the bill’s final version to roughly match the terms for the firefighters to those that the Police pension fund has agreed to.

The HFRRF says it will oppose that option.

David Keller, the HFRRF’s chairman, notes that some of the adjustments firefighters wanted to see in the bill included “changes to the cost of living adjustments.”

“It would include changes to the deferred retirement option funding, it would change age of retirement for new hires,” Keller adds.

The Mayor said last week the unwillingness of the firefighters to fully abide by the terms he is proposing, for instance, increasing employee payroll contributions, would result in bigger benefit cuts than they tentatively agreed to last fall.

The Chron adds on.

Turner had said at last Wednesday’s City Council meeting that he was making good on earlier hints that the fire pension trustees’ failure to agree to reform terms would see the fund receive deeper benefit cuts than it had tentatively agreed to last fall. Turner said he had instructed legislative attorneys drafting the bill to roughly match the firefighters’ terms to those agreed to by the police pension.

“Our mayor, the former state legislator, has decided to use the insider’s game of the legislative process to pursue his own one-sided plan,” Houston Firefighters Relief and Retirement Fund chairman David Keller wrote in a letter to members released late Friday. “If the mayor’s plan for us is the version we last saw or worse, we will absolutely oppose it.”

In explaining his reason for breaking off negotiations this week, Turner had said that Keller’s board had not provided comprehensive data on plan participants to enable the city to accurately predict future costs under the reform plan. As a result, Turner said, the city was forced to propose deeper cuts to ensure the originally projected cost savings are achieved.

“Even in this message, there is no indication they are going to provide the data we have asked for repeatedly,” Turner said Friday evening, responding to Keller’s letter. “Without those numbers, we are unable to verify the cost of the reforms they have offered. I have been very patient throughout this entire process, but the time has come to move forward, and I am doing so in the best interest of the city.”

The do-nothing option has always been fine for the HFRRF, because the city has no control over how much it pays in, which includes cost of living adjustments. That’s always been the main sticking point, and was the focus of reform efforts by Mayors Parker and White, as well as the reason why their relationship with the firefighters was rocky. I don’t blame the firefighters for defending their position, but from the city’s perspective there’s no path to reining in costs that doesn’t include some control over COLAs. This has always been the fight, and it will continue to be the fight, probably even after a reform bill is passed, whenever that may be.

Year Two for Mayor Turner

Year One was busy, but a lot of what was done this year depends on what happens next year.

Mayor Sylvester Turner

Tasked last year with distinguishing himself from a crowded field of mayoral candidates, Sylvester Turner styled himself as a progressive with expansive policy goals.

He pledged to boost wages, improve educational opportunities and implement a new road repair job training program, stressing that Houston’s future depends on pairing such initiatives with core services improvements.

“I am bullish on Houston,” Turner would repeat, radiating optimism in the face of a tight budget and looming pension crisis.

A year into office, however, the mayor has set aside much of that to-do list in favor of an ambitious but moderate “back to basics” approach.

Pension reform – a topic he shied away from on the campaign circuit – now is the linchpin in Turner’s two-year plan, and he is loath to discuss much else.

That focus has paid off in the form of a reform package that he says will eliminate the underfunding of Houston’s three retirement systems in 30 years and limit the city’s exposure to market downturns.

Crucially, the plan has received buy-in from the fire, police and municipal pension boards, as well as praise from experts.

“When you look at where we were on Jan. 1, 2016, on pensions and look at where we are today,” Turner said recently, “there is no question that we have come a long, long way from where we started.”

The deal now must earn approval from the Texas Legislature, which controls Houston’s pension systems.

[…]

If Turner is successful, however, he intends to spend his political capital – earned, principally, from pension reform and closing this year’s $160 million budget gap – on campaigning to lift Houston’s limit on property tax collections.

The voter-approved revenue cap was instituted in 2004 and limits the increase in the city’s annual property tax collections to the combined rates of inflation and population growth, or 4.5 percent, whichever is lower.

Turner is not shy about pitching projects he would take on, absent the revenue cap, such as expanding the Houston Police Department by 540 officers by 2020. This plan may take on even more urgency, as HPD has seen a sharp spike in the number of officers filing papers indicating they plan to retire in the first half of 2017.

“We need more police officers. We need more equipment. We need more EMS units. We need more training,” Turner said in September, after a southwest Houston shooting wounded nine. “You can’t keep lowering the property tax rate because of this revenue cap and expect the city to be fully equipped with all of the assets that are needed.”

I’m pretty sure there’s more than one person on Team Turner who is grinding their teeth at the “back to basics” usage, since that was very much not Turner’s campaign slogan. Be that as it may, the general formulation is correct. Turner spent a lot of time this year working on a pension deal, and what he does next is tied to his success at getting the necessary legislation passed to implement that deal. And if he is successful, then the rest of 2017 will largely be focused on amending the revenue cap. If he can get both of those things done, then the sky is the limit and anything he wants to do is on the table. If not, it isn’t fatal, but it does leave him stuck. How much time can he spend on other things if he still needs to work on getting these things done? I’m sure he’d rather not have to find out.

How likely is Turner to get the pension legislation through? I have no idea, but if there’s anyone in a position to do it, it’s Turner. This is one of those times when experience really matters. No guarantees, because the Lege doesn’t work that way, but if anyone knows how to navigate these waters, it’s Turner. I should note that the pension bills aren’t the only thing on the city’s legislative wish list for 2017. Most of the specific items are pretty narrow and wonky, but the overriding principles laid out in the first few pages will keep the lobbying team busy, primarily I fear on defense. But if you want to know what the city does and doesn’t want from Austin next year, there’s your reference guide.

One more thing:

[Bill] King, last year’s mayoral runner-up, said he is considering challenging Turner, depending on his health and how pension reform plays out.

“If he ends up not solving the pension problem – which he promised he would do – then I think somebody needs to step in and save the city from going bankrupt,” King said.

King, who would like to see Houston switch from defined benefit to defined contribution plans similar to 401(k)s, has gotten under the skin of Turner and his staff by sending regular email blasts criticizing the city, including on inauguration day, and holding occasional press conferences.

“The campaign is over, and the total focus should be on meeting the needs of all Houstonians in their moment of crisis,” the mayor tweeted in April, after King criticized the city’s flood response.

I get those emails, too. You can probably guess what my level of interest in them is. King is certainly able to be the next Ben Hall if he wants to – he’s got the money for it, and apparently the lack of anything better to do. The question is, what has Turner done so far to lose anyone’s support? Based on how things have gone so far, I’d say not much. But hey, keep hope alive.

Council ratifies Turner’s pension plan

From the inbox:

Mayor Sylvester Turner

Mayor Sylvester Turner

On a 16-1 vote, Houston City Council has endorsed Mayor Sylvester Turner’s historic package of pension reforms. The vote clears the way for the City to move forward in partnership with the pension systems to seek legislative approval of the reforms.

“I am bubbling over on the inside,” said Mayor Turner. “I am thankful to everyone who has helped get us to this point. That includes City Council, the pension systems, our City employees and many others. This plan is historic, transformative and budget neutral. We are solving our pension problem permanent and we are doing it without needed a tax rate increase. There is no other plan out there offering the same benefits. The Houston solution can be the model for other cities with similar challenges.”

The police, fire and municipal pension systems all signed off on the package of reforms prior to today’s City Council vote, marking the first time that the City and all of the pension groups have been united.

The plan immediately reduces the City’s nearly $8 billion pension debt by over 30 percent and then sets a 30-year fixed payoff schedule for the remaining $5.3 billion of debt. This immediate reduction is accomplished through a combination of benefits changes that include scaling back cost-of-living adjustments, higher employee payroll contributions and phasing out of the Deferred Retirement Option Program, known as DROP, which allows employees to accept retirement benefits while continuing to work for the City. In return for the concessions, the City has agreed to issue $1 billion in Pension Obligation Bonds to make up for years of prior underfunding of the pension systems.

“It is a big deal that employees have agreed to these benefit changes,” said Turner. “I know this has not been easy, and I thank each of them for their patience, understanding and service. This plan will provide stable and sustainable retirements at an affordable cost to the taxpayers who foot the bill. Retirees won’t have to worry if the check will be there.”

Moving forward, predictions about the anticipated performance of pension system investments will be based on a more conservative seven percent assumed rate of return. If there are market changes that cause costs to exceed pre-agreed limits, there is a mechanism to force additional changes in benefits to bring everything back in line. A requirement that both sides share information will ensure compliance with the required 30-year payoff schedule.

State Senator Joan Huffman and State Representative Dan Flynn are expected to carry the Houston pension legislation. Bill filing for the 2017 legislative session begins mid-November 2016.

See here and here for the background. CM Mike Knox was the lone No vote, saying he couldn’t support it without there already being a bill written. The Chron story fills in a few details.

Turner secured the political chip of a prompt and lopsided endorsement by using an impassioned speech to persuade Councilman Michael Kubosh to remove his “tag,” a parliamentary maneuver that would have delayed the vote. Kubosh had said he initially tagged the measure at the request state Sen. Paul Bettencourt, a Houston Republican who has called for a delay until more information was available on the reform plan.

“Either you all are going to represent the people of the city of Houston or – I’m going to borrow your term Councilmember Kubosh – are you going to represent political interests? I stand with the people of the city of Houston,” Turner said. “I was voted (in) to represent their interests, not some party affiliation or some political interest or somebody who wants to be mayor.”

Turner’s comments plainly were directed at Bill King, who was runner-up in last year’s mayoral race and who joined Bettencourt at his news conference. The duo said the detailed reform proposals were public for too short a time and too vague to be properly vetted, particularly a key “corridor” provision that would force benefit cuts in the future if a market downturn led the city’s payments to increase above a specified threshold.

King and Bettencourt say the city should switch new hires to retirement savings plans similar to 401(k)s, but acknowledged a well-written “corridor” provision could offer the same benefits to the city.

[…]

Most council members, however, referenced the briefings they had received on the plan and echoed Turner’s point that no public speaker in the six weeks since the reform outline was first announced had appeared before City Council to criticize it.

“I want to make sure the public understands we have been briefed, and it wasn’t a 24-hour-ago briefing,” Councilwoman Brenda Stardig said.

Councilman Dave Martin, like Stardig, a conservative, offered even stronger comments.

“I did not vote for you. I did not support you. I’m supporting you 100 percent on this,” Martin told Turner. “I think it’s ridiculous for people to criticize this plan. It’s been transparent; it’s been thorough. We’ve been diligent. We don’t need any more information. Maybe the state does, but do your homework.”

Yeah. Just as a reminder, the Kinder Institute has analyzed the plan, so we are not operating in an information vacuum here. I’m sure if Sen. Bettencourt had called the Mayor’s office and asked for a briefing, he’d have gotten it. But it’s easier to preen than it is to prep, so here we are. My guess is we’ll see bills get pre-filed for this, probably in November, so we’ll know soon enough what that will look like. The next question is who will support it and who will try to kill it. The games have just begun.

Pension deal approved by firefighters

It’s a big deal, though it’s hardly a done deal yet.

Mayor Sylvester Turner

Mayor Sylvester Turner

For the first time ever, the Houston firefighters’ pension board agreed Monday to accept benefit cuts for current workers and retirees, potentially paving the way for a solution to a 15-year-old crisis that has threatened to bust budgets and weaken the city’s financial stability.

By a 7-2 vote, the firefighters panel joined the police and municipal pension boards in agreeing to give up some benefits in exchange for certainty in a complex deal that would eliminate underfunding of Houston’s three retirement systems in 30 years.

The reform package, which Mayor Sylvester Turner heralded as a “historic turning point,” heads to City Council for approval on Wednesday, then to the Legislature, which controls city workers’ retirement benefits.

Although passage of the reform in Austin is far from a foregone conclusion, Turner was optimistic the deal would survive any legislative turbulence.

“For the first time ever, all three pension systems have been willing to work with the city in a very productive manner. We’re all on the same page and moving forward as a united front,” Turner said at a press conference. “We are closer than ever to solving what no one else has been able to solve over the last 15-plus years. The finish line is certainly within reach.”

The mayor’s declarations were firmer than those of fire pension chairman David Keller.

“I think it substantially moves it forward, but there’s still a lot of road to go,” Keller said. “It’s certainly no end. It’s kind of a beginning.”

A statement released by the fire fund after the vote called the agreement a “non-binding framework,” and no trustees elected by active or retired firefighters appeared at Turner’s press conference.

See here for the background. There’s a lot of talk later in the story about maybe filing a lawsuit over this – by Andy Taylor, of course, who has never turned down a possible payday – but the more immediate concern is about ensuring a bill passes through the Lege to ratify this. I have been of the opinion that if the city made a deal with the pension funds, the Lege will be willing to ratify it. That was under the assumption that none of the stakeholders would lobby against it, which may not be the case here. For now, though, I’ll stick with what I said up front – this is a big deal. Now it’s on Mayor Turner and the city’s lobbyists to finish it. The Mayor’s press release is here, and an easy-to-read executive summary of the changes to all three plans is here. The Urban Edge has more.

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.

Kinder Institute analyzes Mayor Turner’s pension reform plan

From the inbox:

Mayor Sylvester Turner

Mayor Sylvester Turner

Rice University’s Kinder Institute has done the preliminary math on Mayor Sylvester Turner’s historic pension reform plan and determined the numbers appear to add up if all of the components are implemented as envisioned. The institute is one of several agencies to analyze the mayor’s proposal since it was unveiled last week.

“I welcome scrutiny of this plan by experts because it helps address the unfounded arguments being made by others who have no financial background,” said Mayor Turner. “There is no doubt this plan relies on a complex package of reforms. Without implementation of each piece, we will not achieve the anticipated results. Thankfully, the pension systems are sharing more data than ever before and are committed to continue working on information sharing so we can manage costs going forward.”

According to Kinder Institute Director Bill Fulton, the mandatory cost containment provision in the mayor’s plan, if executed properly and consistently over time, could provide a way for both sides to share in the upside and sacrifice when times are tough. Fulton said the plan outline seemed to show “shared sacrifice” on the part of both the city and its workers.

[…]

The Kinder Institute did the initial analysis in a blog post the day of Mayor Turner’s announcement based only on information that is publicly available. Mayor Turner did not request the analysis. A more detailed analysis is expected later.

The Kinder Institute’s analysis can be found here: Kinder Institute Pension Analysis.

Here’s that URL again, and more on the pension deal itself can be found here and here. The KI piece basically says that if everything works out as planned and envisioned, then the long-term funding gap can be erased. If you’re thinking that’s a pretty big “if”, you’re right, but the bottom line remains that the plan is plausible. Some legislation will need to be passed next year – I have no idea what Plan B is if that fails to happen – and before we get to the point of writing a bill and finding a sponsor, we need buy-in from the firefighters. That’s a non-trivial amount of work to be done, but at least there is a roadmap that may be used by all the vehicles in the procession.

More on the pension deal

The full version of the Chron story adds a lot of detail.

Mayor Sylvester Turner

Mayor Sylvester Turner

Under the tentative deal, the funds would assume more realistic investment returns – 7 percent rather than 8 percent to 8.5 percent – and would recognize all recent market losses on their books at once. The city also would erase the plans’ underfunding within 30 years and make its full annual payment to all three funds.

These changes would help ensure the pension problem does not linger for decades to come, but they first make the hole deeper, increasing the underfunding to $7.7 billion.

To dig back out of the hole created by more realistic funding calculations, Turner asked the funds to reduce benefits enough to slash the underfunding by roughly a third, or $2.5 billion. That would put the unfunded liability at about $5.2 billion.

Turner stressed that he has left it up to each pension fund to decide how precisely to adjust benefits to achieve those cost reductions.

However, he said there is no way to achieve meaningful reform without reducing annual cost-of-living increases for retirees, workers and new hires, and changing the city’s deferred option retirement program, or DROP, which lets current workers eligible for retirement stay on the job and earn a salary while accruing the pension payments they would have received in retirement, with interest.

He also said employees would need to contribute more of their paychecks toward their pensions.

To further reduce the funding gap, Turner plans to issue at least $1 billion in bonds and invest three quarters of the money into the police pension fund and the remaining quarter into the municipal pension fund. The idea, common among governments with pension shortfalls but also deeply controversial among finance experts, is that the city would pay less interest on these so-called pension obligation bonds – say, between 3 percent and 4.5 percent – than it would pay at the pensions’ new 7 percent assumed rate of return.

Turner said this would lower the city’s pension payments so that the combination of funding retiree benefits, paying down past underfunding and paying down the pension bonds would cost the city the same amount it is paying today.

Arnold Foundation pension expert Josh McGee said he thinks the plan is a step in the right direction, but he worried about issuing so much in pension bonds.

“Pension obligation bonds are troubling, especially pension obligation bonds of this size, $1 billion,” McGee said.

If the interest the city must pay on the bonds exceeds the investment returns on their proceeds, McGee said, “you could end up in a situation where you cost the city more than if you’d just paid the money into the pension plan over time.”

The Government Finance Officers Association and the Society of Actuaries both oppose the use of pension obligation bonds.

Houston still has roughly $600 million in pension debt outstanding from former Mayor Bill White’s 2004 reforms that sought to shore up the funding while cutting benefits for new hires.

See here for yesterday’s post. We are still awaiting the specifics, and just because there is a plan doesn’t mean it will work out the way we want it to. The contingencies for when things don’t go as expected will be crucial. This is still a big step forward, one that has been very elusive in the past. I look forward to the council discussion when Mayor Turner brings it all to them. Campos has more.

Mayor Turner announces pension fund deal

From the inbox:

Mayor Sylvester Turner

Mayor Sylvester Turner

Negotiators for the City, the Houston Police Officers’ Pension System, the Houston Firefighters’ Relief and Retirement Fund and the Houston Municipal Employees Pension System have developed Preliminary Points of Understanding on a structural approach to long term, sustainable, defined benefit pension reform. Detailed formal plans continue to be developed and will need to be presented to the governing bodies of the three pension systems, City Council and the state legislature for approval.

“This reform accomplishes the objectives I set at the beginning of this process,” said Mayor Sylvester Turner. “The plan I am outlining today immediately reduces and later eliminates the unfunded pension liability, controls costs going forward, allows us to retain employees and allows us to present to the state legislature a much more united front. It is a budget neutral, 30-year fixed payoff plan that includes significant cost avoidance from what the City would need to pay in the absence of reform. No other plan does this and takes the issue off the table permanently. We will have fully funded, secure, sustainable and affordable defined benefit pension plans that our employees can rely on and our taxpayers will find fiscally responsible.”

With implementation of the changes, the City’s unfunded pension liability immediately drops by $2.5 billion and continues dropping for the next 30 years, at which time it will be paid off. This approach replaces the present practice of restructuring the liability every year with a 30-year closed amortization model that is a pension best practice and a requirement of the City’s financial policies. Just like a fixed rate consumer mortgage, the liability will be paid off at the end of 30 years.

To substantially reduce risk related to market performance and in keeping with the national trend for pension systems, the assumed rate of return on pension investments will be reduced to 7%.

To further stabilize the pension funds, the City will be required to make the full annual contribution to all three pension systems. Payroll contribution rates will be fixed over the 30-year period, providing more predictable budgeting. The proposal cuts the City’s annual obligation to a manageable level and, most important, is budget-neutral while significantly reducing what the City would need to pay to cover the full annual contribution without reforms.

The plan also employs $1 billion in pension obligation bonds for funds that have not received the full annual required contribution from the City in recent years. This will increase the City’s debt, but earnings from pension investments are anticipated to more than offset the borrowing costs.

To ensure the City does not find itself in the same place again, there is a cost-management component. If future market changes cause costs to exceed specified limits, the City and the pension systems will return to the negotiating table to work out adjustments to bring costs back in line. Mayor Turner characterizes this as a cost management corridor that contains a thermostat that must be kept at a set temperature. The thermostat concept is the only point on which all of the parties lack unity. The police and municipal pension systems have gotten comfortable with it, but the firefighter pension system has not, so far. Talks are continuing.

“These points of preliminary understanding are historic in nature because of how impactful they are,” said Mayor Turner. “I have discussed them with numerous stakeholders and key members of the state legislature. The response has been very positive. To my knowledge, no other city in the nation has crafted a plan that addresses the problem in quite the same way. We have a way to solve our pension issues for good, and our approach can serve as a model for other cities.”

There will be changes in employee benefits. They are different for each pension system but, basically, will affect one or more of the following: cost of living adjustments, future benefit accrual rates and the DROP program. More details will be forthcoming once the finer points of negotiation are finalized and the governing bodies of the pension systems consider these agreements.

“These changes are being made in a manner that minimizes the impact on the thousands of police, fire and municipal workers eligible to retire today,” said Turner. “We must retain these employees to continue to serve the residents of this city. I appreciate the pension system representatives who have recognized the status quo must change and have been willing to move away from previously held fixed and non-negotiable positions. The pension systems have also shared more data than ever before and are committed to continue working on the right way to share the data we need to manage our costs going forward. There is still much work to be done, and I know there will be disagreements along the way, but we have come so far since we first began talking seven months ago.”

Mayor Turner has never wavered from his promise to accomplish pension reform while still maintaining defined benefit plans. However, he did have his financial analysts study implementation of defined contribution plans. They found that option would increase immediate costs and provide no financial relief for at least 30 years.

This contribution from City employees is step one of the shared sacrifice model Mayor Turner is asking everyone to help with. He does not expect City employees to shoulder the entire burden. Once pensions are fixed, he intends to ask voters to repeal the revenue cap that handicaps the City’s ability to keep up with the needs of a growing population. No other governmental body in the state has such a restraint.

“I took this job knowing that our City faced difficult public policy challenges,” said Turner. “I promised pothole repairs in record time, and we delivered. We followed that achievement by closing Houston’s biggest budget gap since the Great Recession. We delivered a budget built on sustainable, recurring improvements, and it was adopted by City Council unanimously and in record time. Now, we bring you a solution to Houston’s pension challenge that meets the needs of our City, its employees and its taxpayers. To all concerned, I say you can trust this solution to deliver on our promise of pensions that protect our employees’ retirement security while remaining affordable and sustainable for the City and its taxpayers”

The proposed pension reforms announced today have been discussed with numerous stakeholders and key members of the state legislature with very positive results.

The annoucement of the press conference for this came out just after midnight last night. ABC’s Miya Shay posted news of it on Facebook a couple of hours before then. The actual press release shown above hit may mailbox at 3:45 PM. As the Chron story notes, representatives of the police and municipal employees’ pension funds were there, but no one from the firefighters’ pension fund was in attendance. This press release, which I received maybe ten minutes after the one above, explains why:

The Houston Firefighters’ Relief and Retirement Fund (“the Fund”) is continuing to work with the City of Houston, but as yet, no agreement has yet been reached on adjustments to the Fund’s current plan “We have discussed economic changes that would fit within the guidelines set forth by the Mayor. We have also presented issues that are important to us. However, no resolution has been made,” says David Keller, the Fund’s Chairman.

“This has been a challenging process for numerous and various reasons along the way. The HFRRF became the strongest of the three Houston pension funds and one of the most successful in the State by careful deliberation and due diligence. We have been applying the same approach here. Every adjustment proposed was considered based on the impact it would have on the various populations of the membership.”

The Fund began discussions with the City of Houston with the purpose of helping to shape reforms rather than having them imposed by the Legislature. It is the Fund’s goal to resolve issues with no threat to the earned benefits to Houston firefighters. The Fund believes these benefits are part of the total compensation of its members.

The statutes that govern the Fund are thorough and reasonable, employing a sound formula that determines contributions and solid funding. The Fund is one of the best funded public pension plans in the State of Texas. The City of Houston pays only about 20% of the cost of benefits going to retired firefighters with the remaining 80% or so coming from the Fund’s investments over the long term of the Fund’s existence and the firefighters’ own contributions to the Fund.

Still a few things to be worked out, I guess. Even without that, there are still plenty of details to be filled in about how this will work and what legislation will be needed to enable it. As for the pension obligation bonds, Mayor White floated some of them while in office. It would be nice to know whether the experts think that was a good idea or not. In this case, interest rates are sure to be lower than they were then, and this time there will be an overall plan in place for paying down the long-term liability. If this is everything Mayor Turner claims it is, and if all three funds and the Legislature are on board, it’s a huge win and a big item to cross off his to-do list. As always, the devil is in the details, and we’re waiting on those. But it sure does sound promising.

City loses in appeal against firefighters’ pension statute

Here’s a pension fund-related litigation update for you.

Houston can’t overhaul a state-governed firefighter pension system that the mayor claims is pushing the city towards insolvency, a Texas appeals court ruled.

Houston sued the Houston Firefighters’ Relief and Retirement Fund in January 2014, seeking a declaration that a state law setting how the fund is operated, and giving the city no control over the amount of its contributions, is unconstitutional.

The city paid $350 million in pensions to firefighters, police and city workers in 2015, but its unfunded pension debt is $6 billion and growing.

A state judge sided with the fund in May 2014 and granted it summary judgment.

The city appealed, pressing its argument that the subject state law, passed in 1997, gives too much power to the pension fund’s board that is comprised of a majority of firefighters who are beneficiaries of the fund, and thus are inherently self-interested in maximizing firefighter pension benefits to the detriment of the city’s financial health.

The 10-member board is made up of six active or retired firefighter fund members who are elected by other firefighters, the mayor or an appointed representative of the mayor, the city treasurer and two citizens who are elected by the other trustees.

Houston claimed on appeal the state law violates the separation-of-powers principle in the Texas Constitution by delegating authority to a nonlegislative entity, the fund board.

The city cited Texas Boll Weevil Eradication Fund v. Lewellen. In that case, the Texas Supreme Court ruled in 1997 that a foundation established by the Texas Legislature to exterminate boll weevils that were threatening to destroy the Texas cotton industry unconstitutionally gave too much authority to the foundation to tax private farmers to pay for weevil killing.

But the 14th Texas Court of Appeals decided Thursday that the boll weevil foundation is fundamentally different from the pension fund board because the board includes public employees.

“The purpose of that [boll weevil eradication] foundation may be construed as protecting a private industry from a blight, albeit with an indirect benefit to the public. In contrast, eight of the 10 trustees of the fund’s board are current or retired public employees…We would have difficulty classifying the board as a private entity when the mayor and city treasurer also serve as trustees in order to administer benefits to public employees,” Judge John Donovan wrote for a three-judge panel.

The panel also rebuffed Houston’s argument that the state law is unconstitutional because it only applies to incorporated municipalities with a population of at least 1.6 million and a fully paid fire department. Houston is the only Texas city that qualifies.

The city claims the special treatment violates the Texas Constitution’s ban on the Legislature meddling in local affairs.

But the appeals court agreed with the fund’s contentions that Houston is uniquely dangerous for firefighters compared to the other four big cities in Texas—Austin, San Antonio, Dallas and El Paso—so sweeter pension terms are necessary to attract and retain firefighters.

See here for the background, and here for the ruling. There have been multiple lawsuits related in one way or another to the firefighters’ pension fund; it’s hard to keep track of them all because they go multiple months without any news. The city could appeal this to the Supreme Court, but I don’t think they will, for two reasons. One is that I doubt they’ll get a different outcome, and two is that while this lawsuit was filed by the Parker administration, the Turner administration has a much less contentious relationship with the firefighters, and is working on a pension fund deal with them. It would be a show of good faith, if not a bargaining chip, for the city to quit pursuing this lawsuit, and seek to settle or drop any other ongoing litigation for which the HFRRF is an opponent. The Chron story says the city “continues to believe the state statute is unconstitutional because it allows the firefighters’ pension fund to determine contribution levels”, and that the city intends to “seek further review”. We’ll see what happens.

UPDATE: Woke up this morning, and the following announcement was in my inbox: “Mayor Turner will unveil preliminary points of understanding with the Houston Firefighters’ Relief and Retirement Fund, the Houston Police Officers’ Pension System and the Houston Employees Pension System. The proposed plan will form the basis for a package of pension reforms that will be submitted for approval to the governing boards of the pension systems, City Council and the state legislature.” That’s happening today at 2 PM. So maybe this won’t have any effect on the negotiations one way or the other.

Pension reform update

Things are happening.

Mayor Sylvester Turner

Mayor Sylvester Turner

Longtime firefighters pension fund chairman Todd Clark has retired from the department and resigned his post, a move City Hall observers interpret as perhaps the clearest sign yet that Mayor Sylvester Turner’s push for pension reform may succeed.

The municipal pension also is in upheaval, having bought out former director Rhonda Smith’s contract for nearly $438,700 and replaced her with David Long, a controversial figure who played a central role in the 2001 benefit changes that created the city’s pension funding shortfall, a gap that has now reached $5.6 billion.

The mayor last week sidestepped questions about whether Clark or Smith’s departures were harbingers of reform, saying the results of his negotiations matter more than who is at the table. Though sources with knowledge of the talks say they have intensified in recent months, Turner gave a cautious assessment of his progress.

“We’re having conversations, and I think the conversations have been constructive,” Turner said. “This is not an easy subject matter, and I’m under no illusions. I mean, it’s hard. It’s hard. Since 2002, no previous mayor has resolved it, especially on a long-term basis. But we shall see. I’ll take it one day at a time.”

[…]

Sources with knowledge of the talks said Clark was upset when he put forward a reform proposal earlier this year that went further than any of his previous offers, only to have Turner seek further changes.

Seeking more optimistic news from Austin, Clark then met with state Sen. Joan Huffman, R-Houston. But the sources said Clark came away from that discussion having concluded that hoping for the best in Austin during next year’s legislative session would be even riskier.

Confronted with the choice of agreeing to unpalatable changes or risking an even less palatable outcome in Austin, the sources said, Clark chose to step down.

Huffman said she learned of Clark’s retirement, which came shortly after their meeting, only when he announced it publicly. But Huffman said in her meetings with all three pension boards she has urged them to strike a deal with Turner.

“I’ve made it clear to them that I strongly urge them to sit down and to work this out, that the politics-as-usual was not going to work and that it was only fair to their members and to their people that are going to retire one day that this system be sound,” Huffman said. “I was firm about it and will continue to be firm about it, because they have to work it out.”

Huffman said she has tried to act as an arbiter, saying she would prefer the funds “fix what they have” rather than switching to a 401(k)-style system abhorred by workers as much as it is loved by some conservative lawmakers.

“There is a feeling that there will be good-faith efforts to get something done. The tough part, of course, is always bringing along the membership of these groups,” she said. “I understand that’s the tough part, but they need to, given the facts – and the facts are that the system is unsustainable. It hurts to fix it, but it would hurt a lot more if the system were to collapse.”

Todd Clark was a strong defender of the status quo for the HFRRF, so his departure could indeed be an indicator of how the wind is blowing these days. That probably suggests that the firefighters themselves are – ready for? resigned to? some other verb? – change as well. Mayor Turner seems to keep things like this close to his vest, so we’ll know more when he’s ready to make an announcement. In the meantime, this is your Conventional Wisdom Update for the week.

Pension progress report

Our favorite subject, back in the news.

Mayor Sylvester Turner

Mayor Sylvester Turner

Mayor Sylvester Turner and the leaders of the city’s three pension boards made clear to a visiting group of state lawmakers on Monday that they agree a fix to the city’s growing pension burden must be found, perhaps by the mayor’s deadline of year’s end.

The state House committee on pensions set up camp at City Hall Monday to hear testimony from the mayor, his rival in last fall’s mayoral contest, Bill King, city workers and various pension experts about the challenges presented by Houston’s retiree benefits.

[…]

The chairs of the municipal (Sherry Mose), police (Terry Bratton) and fire (Todd Clark) pension boards all stressed their commitments to continuing to work with Turner in the coming months.
Even Clark, who rarely missed an opportunity to accuse former mayor Annise Parker of “attacking firefighters,” struck a conciliatory tone.

“We will continue the dialogue going forward, and we do believe by the end of the year we will have an agreement,” Clark said. “We agree that the city should be healthy and we’re willing to do our part.”

Granted, the pensions’ leaders pushed back a bit. Municipal and police leaders stressed that the city must be forced to meet its obligations, since the city’s failure to make its full payments has helped create those plans’ poor funding levels.

Both also stressed that they already have sacrificed by cutting benefits for new hires, with Mose saying, “Reform plus time equals success.” Bratton, for his part, pointedly noted that firefighters have not been similarly accommodating. Clark declined comment on that.

Clark, for his part, noted that firefighter retirement costs amount to only a few percentage points of the $2.3 billion general fund budget.

In general, however, it was clear the pension boards planned, at least publicly, to embrace “change” at the hearing.

“We see this as an opportunity. We really don’t want to come back in 2019,” Bratton said. “Our members have worried too long about the most important benefit they have and it’s time to allow them peace of mind in knowing that their benefits are secure and the plan is sustainable.”

There are plenty of people of varying degrees of trustworthiness out there who are happy to get into the gory details of this and tell us all just how DOOMED, DOOMED we are, so I’ll leave that to them. What I know is that politically speaking, Mayor Turner has staked an awful lot on his ability to get the pension funds to agree to some fundamental changes to help ease Houston’s short-term fiscal problems while ensuring the long-term future of these funds that will then be ratified by the Legislature. This is obviously a very narrow and perilous path to walk, though just getting everyone to the table to talk was a big achievement. I don’t want to say that Mayor Turner’s term in office will be judged a success or failure depending on the outcome of all this, but I think it’s fair to say that a significant part of his grade is riding on it. We’ll see what we get later this year.

Yet another report on pensions

Yippie.

BagOfMoney

Some city leaders have spent years standing in the town square, hollering themselves hoarse that Houston’s financial footing is unstable, that huge pension costs threaten the city’s future ability to police the streets, pick up trash and maintain parks.

In recent weeks, they’ve been joined by two others with bullhorns: The Greater Houston Partnership and the Arnold Foundation.

The region’s most influential business group and one of its best-funded think tanks each has released a formal paper focusing on city finances and pensions, arguing in varying degrees that action – or at least an honest discussion of the way forward – is urgently needed.

Marc Watts, who chairs the GHP’s Municipal Finance Task Force, acknowledged some city leaders long have sought the partnership’s help in addressing their budget struggles.

“There were efforts in the past that were aborted because it can be such a contentious issue. But I think the issue now has got to be addressed, and we’re willing to be a partner to help solve the problem,” Watts said. “We’re going to push this to a solution to the maximum extent of our capacity. We can’t wait.”

Both groups’ initial papers were largely informational, covering few facts unfamiliar to those who have followed public discussion of city finances. Each organization plans to release more detailed reports in the coming months.

Watts said the partnership’s goal, for now, is voter education. He said his group views itself as most effective in a “fair arbiter” role.

“It’s not because we’re afraid to put forward a solution. It’s because we think that would make us less effective,” he said. “The partnership is not normally comfortable in a role of being out front on an issue that could be considered controversial. We’re only here because we feel like for the good of the city of Houston, for our families, for the future of all of us, somebody has to do it.”

[…]

The GHP’s report explains how dollars flow into and out of the city’s $2.4 billion general fund, which draws mainly on property and sales taxes to pay for basic services such as police, fire, trash pickup, parks and libraries. It also focuses on the rapid growth of pension payments and, because even these rising payments have not kept up with the growth in costs, the $3.2 billion unfunded liability that has built up in the police, fire and municipal pension funds.

The Arnold Foundation’s report accuses city leaders of mismanaging the pensions, in part by using risky assumptions about future investment returns to artificially depress the annual payments required from the city. Despite this, the city still has failed to cover these lower payments to fund the benefits being promised.

The report advocates for moving control of pensions from the Legislature to local leaders, for implementing what the authors argue are more prudent policies guiding how the plans are funded, and for paying the full annual amount that policy change produces.

[…]

Todd Clark, who chairs the fire pension board, said the GHP and Arnold Foundation reports do not change his views.

“They have their thought process on what they think needs to be done, but I’ll say it again: Pension reform is not the answer. The city spends their money on all these wasteful pet projects,” Clark said, mentioning hiking trails, bike lanes and dog parks. “They just keep on harping on this, and the bottom line is the city just owes the money and they need to pay what they owe.”

The fire pension has met its 8.5 percent investment return over recent decades, Clark said, and expects to over the long term, as well. The fund was on target to finish the last fiscal year well below its target, however.

Rhonda Smith, executive director of the city’s municipal pension fund, called for any discussion of city finances to include not only pensions but the slowing local economy and the voter-approved cap limiting the revenue Houston can collect in property taxes.

You can find the reports if you want. The GHP’s may be worthwhile, but I don’t trust the Arnold Foundation on this, any more than I trust them on education reform. They’ve got an agenda. Let’s be clear here that there are two issues with pensions. One is with the firefighters’ pension fund, which is well-financed but which is not controlled by the city. The city would like to have control over how much it has to contribute and how much of a cost of living adjustment the pensioners get – this is the short-term problem with pensions, as the city’s contribution amount has increased – while the firefighters point out that the city has this power over the other pension funds and has shortchanged them as a result, causing them to have greater unfunded liabilities – this is the longer term issue. I’m sure the reports make this clearer than the story did, but I trust we’re all familiar with the terms of debate here.

As for Todd Clark, I agree that the firefighters’ pension fund is in fairly good shape, but it’s disingenuous to claim as he often does that pension contributions are a relatively small part of the city’s budget, then blame items that are even smaller for the city’s financial troubles. Like just about everyone else in this debate, he glosses over the fact that public safety is two-thirds of the budget, and it’s been growing as well. Given that a large number of firefighters don’t even live in the city of Houston and thus would be conveniently unaffected by the cuts Clark prescribes, I find the attack on hike and bike trails distasteful. (Not to mention the fact that they’re part of a bond referendum that was approved by the voters.) Rhonda Smith is on the right track in calling for a broader discussion of finances than just pensions. I’m still waiting for this subject to come up.

I guess what really frustrates me about this issue and the discussion around it is that it seems to take it for granted that if the next Mayor just doubles down on trying to get a bill through the Legislature to wrest control of the firefighters’ pension fund back from Austin that all of this can be neatly solved. I’ve yet to see anyone explain what the next Mayor ought to do that Mayor Parker didn’t try, and I’m still waiting to hear how this solves the long-term underfunding issue for the other two pension funds that the city already controls. Maybe – I know this is crazy talk, but stay with me – there are ways to improve this situation without waiting till 2017 to do once again what we haven’t been having any success at doing in the past several years. Maybe offering a higher base salary in return for some cost certainty might entice the firefighters to negotiate. I’ve seen it suggested elsewhere that maybe the various TIRZes could be made to chip in a few bucks towards the pension funds each year. Maybe there are some other possibilities – I wouldn’t know, since that just doesn’t seem to be part of the discussion. And maybe this really is the most viable alternative. It would just be nice to have some confidence in that rather than have to accept it as an article of faith.

I should note that Steve Costello released his full pension plan yesterday, which claims to address these things I’m complaining about, while still starting with the premise that he can succeed at getting a bill passed; he cites the Murphy bill from last session, which never got a vote in committee, as his basis. I remain skeptical.

The Memphis pension cutting experience

In discussions about Houston’s pension liabilities, the city of Detroit is often trotted out as an analogy and cautionary tale. There’s another city that may be a more accurate comparison, and it’s offering an illustration right now of what might happen if things proceed as many candidates for local office and the Houston Chronicle would like, and that’s Memphis.

Many states and cities are facing pushback from workers as they seek cutbacks on pension entitlements to existing employees—not just new workers or retirees—as they try to control their budgets and fill pension gaps. But Memphis is particularly notable because workers have moved beyond rhetoric and into action. More than 250 police and firefighters have quit and new recruits are proving difficult to attract, after Memphis opted to end its traditional defined-benefit pension and cycle a portion of retirement benefits for many current employees next year into a 401(k)-style account.

[…]

In Memphis, Mayor A C Wharton, Jr. said a widening retirement gap in his city left him with “no other option” than to trim guaranteed payments from an existing pool of employees. Obligations soared to $554 million as of Dec. 31, from a surplus of $94.1 million just six years before.

The Memphis pension’s investments were pummeled during the financial crisis, with its mid-2008 assets of $2.2 billion plummeting by 18% in a year to $1.8 billion. Its funded ratio sunk during that time from 104.5%—a surplus of assets—to 79.8%.

“We couldn’t invest our way out of this,” said Brian F. Collins, the Memphis finance director, who oversees the city pension’s investments.

Some 675 police officers, out of a uniformed force of about 1,300, took a sick day in early July to protest the proposed cuts. After a wrenching political debate, the City Council voted in December to end a defined-benefit plan common among public employers for more than 40% of its 4,100 employees.

In its place, the city installed a so-called hybrid system that moves a portion of worker retirement funds into a 401(k)-style account starting in June 2016. The changes affect workers with 7½ years of tenure or less. Memphis long ago opted out of Social Security, and the pension represents the sole retirement benefits for city employees.

Labor union representatives say they are preparing a lawsuit challenging the overhaul. The mayor said Memphis needs to attract more employers and the city’s poor fiscal health was an impediment.

“Defined-benefit pensions plans are like the dinosaurs now—they’re a dying breed,” said Mr. Wharton, in an interview from his seventh-floor office overlooking the Mississippi River. His retirement benefits with the city won’t be affected by the new changes.

Roughly 3% of the 1,500-person fire department quit their positions and dozens more retired last year amid mounting concerns about how the pension changes would affect them, according to the firefighters’ union. Both the fire and police departments are 10% below their desired staffing levels, according to union leaders, and recruiting efforts to replenish those ranks have failed to meet targets.

If you’ve read this blog for any length of time, you’re probably familiar with the comments left here by Steven Houston, who has had much to say about the pension issue. Steven’s main point is that the salaries Houston pays to HPD and HFD are low – in some cases, quite low – compared to other Texas cities. (This is also true for other municipal employees.) Pension benefits, which are tied to one’s salary level and which are really just deferred salary payments, make up some of that gap. Cutting pension benefits is therefore largely equivalent to cutting salaries and would have a very similar effect on Houston’s ability to attract and retain HPD and HFD staff. That remains true even if, as everyone is promising, any new less-generous “pension” system were only to be imposed on new employees. This should be obvious – jobs that pay less are inherently less attractive. (See the Texas Department of Criminal Justice and its ongoing prison guard shortage for a close-to-home example of that phenomenon.) I don’t know about you, but I haven’t heard much from the cut-the-pensions chorus about the likelihood of this effect, and what if anything they would do about it.

Having said that, there is another factor to consider:

Despite fewer employees, a city spokeswoman said service levels at the fire and police departments are largely unaffected.

That may well be spin, but there are objective ways to measure such things – crime rates and response times, for example. The WSJ story didn’t explore any of that, but it’s worth pursuing. Crime rates continue to be down nationally. A large number of arrests in Texas are for drug offenses, often minor drug offenses, for which there is a push in the Legislature to reduce penalties or even decriminalize them. There are fewer fires these days, thanks to better construction codes and safety mechanisms. We know that in Houston, the vast majority of HFD calls are for emergency medical services, not fires. Maybe a reduction in overall staffing isn’t such a terrible thing. Of course, right now we don’t really know what our staffing levels for HPD and HFD “should” be. There are a lot of issues relating to public safety that are not being addressed right now. When are we going to get around to that?

Police officers’ pension fund speaks up

The firefighters’ pension fund is the one that gets all the attention, but it’s not the only one the city is responsible for. The Houston Police Officers Pension System (HPOPS) has sent a letter to the city reminding it that they have a deal that restricts what the city can request from the Legislature.

Police pension leaders, in a March 11 letter to Mayor Annise Parker and City Council members, asked for documents proving that city officials are complying with a provision of the 12-year deal, approved in 2011, that requires the city to join the fund in opposing legislation that would affect the terms of the agreement.

The letter named no particular official, but it would be hard to miss the recent actions – and accompanying press releases – of mayoral candidates and City Councilmen Steve Costello and Oliver Pennington, who back a bill filed by Rep. Jim Murphy, R-Houston, that would grant the city local authority over its three pension plans. Today, the plans are controlled in Austin, where lawmakers have stymied repeated attempts at reform. The rising cost of pensions has caused stress at City Hall for more than a decade; Houston is paying $353 million into its pensions this fiscal year, almost twice what it spends on trash pickup, parks and libraries combined.

In writing the mayor, police pension officials also sought a meeting, which they got Friday morning. City Attorney Donna Edmundson said the gathering was cordial and brief, and served simply to confirm that pension leaders and the Parker administration view the agreement similarly and will thus jointly oppose Murphy’s bill, despite the mayor having sought related legislation in years past.

The key, Edmundson said, is that when the agreement refers to “the city” it refers to the executive branch – in this case, the mayor, her top staff and legislative coordinators – and not individual council members in the legislative branch.

“Council member Costello has gone to Austin. But in those trips to Austin, he’s not representing the city of Houston, and they just wanted to be clear on that and make sure we’re on the same page,” Edmundson said. “We can’t stop an individual from going to Austin and expressing his or her views or the views of his or her constituents. They have a First Amendment right.”

Police pension representatives confirmed Edmundson’s characterizations, but declined further comment.

On the fund’s website, however, chairman Terry Bratton on Friday posted that he had met with Parker and that their plans aligned.

“The agreement provides that the city and HPOPS (Houston Police Officers’ Pension System) will work together to oppose bills adversely impacting HPOPS. The mayor is aware of the provision and intends to honor the contract,” Bratton wrote.

Just a reminder that there’s more than one dimension to the pension issue, and that if you think Mayor Parker should be supporting Rep. Murphy’s bill, the 2011 agreement with HPOPS – which as the story notes, both CMs Costello and Pennington voted for – says she cannot. Mayoral candidates Costello and Pennington are free to do what they want, but that agreement with HPOPS will bind them going forward if one of them gets elected.

Meanwhile, the chair of the firefighters’ pension fund sent a letter to the Chronicle to point out a few things regarding the recent deal.

Regarding “Missed chances” (Page B8, Friday), last August, during a special subcommittee meeting of the Houston City Council’s Budget and Fiscal Affairs Committee, several members of City Council challenged the board of the Houston Firefighters’ Relief and Retirement Fund (HFRRF) to develop an alternative proposal to Mayor Annise Parker’s plan for newly hired firefighters.

In response to this challenge, HFRRF developed a proposal that addressed several issues. Primarily, it maintained the hard-earned and promised benefits of our active and retired firefighters. Additionally, it addressed the City’s contributions needs during the next three fiscal years and avoids costly litigation for all the parties.

Throughout the months of August and September, members of the HFRRF board, including myself, and staff members personally met with almost all members of the City Council and reviewed our proposal.

During these meetings, each of these members were advised that HFRRF was participating in discussions with the mayor about the proposal. Most members expressed encouragement that we had voluntarily engaged in a discussion with the mayor and hoped that some form of agreement might be reached.

Over the next several months, we participated in many meetings in the mayor’s office. Included in these meetings were the mayor, her staff and some members of Council. The mayor also attended two public board meetings at the HFRRF office.

Traditionally, when two parties attempt to come to mutually agreeable terms, each side receives some benefit for their considerations to the other party.

I believe that both the HFRRF and the mayor recognize that the result of this agreement is a reasonable solution, and it addressed the challenge initiated during the August subcommittee meeting.

Todd Clark, chairman of HFRRF

Here’s a post about that Council meeting in August. Looking for that also reminded me that news of the deal was first reported in September. Clearly, a lot of people, myself included, had forgotten about that. The deal that was agreed to this month doesn’t look all that different from what was proposed six months ago. People may not like the deal, but no one can say they didn’t know about it.

Council’s pension meeting

It was about what you’d expect.

Mayor Annise Parker

Mayor Annise Parker

Many City Council members who attended a special meeting Friday to discuss Mayor Annise Parker’s controversial deal with the city’s firefighters pension called the gathering a success, despite two members walking out and breaking a quorum before a vote could be held to support or oppose the agreement.

The meeting’s unusual ending matched the unusual situation. Typically, the mayor alone calls City Council meetings and decides what items will appear on the agenda for a vote, a power that council members can subvert only by teaming up in a group of at least three to force a special meeting.

Council members C.O. Bradford, Michael Kubosh, Brenda Stardig and Dave Martin did that last Monday, saying the council had been excluded as Parker negotiated the three-year agreement to lower the city’s costs and that the deal must be vetted publicly.

The unrealized vote would not have been binding because the council has no legal authority over the agreement, but organizers hoped the resolution would raise public awareness of the city’s pension situation and send a signal to the Legislature, which controls Houston’s three pension funds. State Sen. John Whitmire and mayoral candidate and state Rep. Sylvester Turner, both Houston Democrats, have agreed to carry the legislation in Austin.

“A vote would have sent a signal to the state Legislature, so I’m disappointed that we didn’t get the opportunity to express our opinion to the state,” said Martin, who opposes the deal, “but I thought the discussion was good, so I leave here pleased.”

[…]

Parker spokeswoman Janice Evans said the administration is moving forward on getting the deal passed in Austin, and stressed that the mayor has never claimed the agreement represents true pension reform.

“The meeting turned out as we thought it would … a lot of talking, but no new solutions offered and no new information presented,” Evans said.

See here for the background. The Wednesday Council meeting at which Mayor Parker presented the plan to Council could be characterized similarly. Of interest is that not only will there be a bill to enact the negotiated deal, but also one to give the city the kind of control over the pension fund that Mayor Parker had been pushing for before. From the press release that CM Costello sent out on Friday evening:

City of Houston At-Large Council Member Steve Costello was extremely instrumental in crafting House Bill 2608 which was filed today by State Representative Jim Murphy of Houston. Local control of pensions is key to the citizens of Houston. H.B. 2608 will allow the mayor and city council to directly negotiate with its pension plans to create the most beneficial structure for both taxpayers and retirees.

Council Member Costello has also written and distributed a letter to the local Houston delegation encouraging them to support the bill, local control and vote against the Parker/Turner plan.

“There’s no way for the city to pay our pension benefits as currently structured without severely limiting the city’s ability to provide basic city services to its citizens. Without showing real leadership and tackling the pension benefits themselves, the amount the city owes does not change,” Costello said.

“This bill will provide for a more sustainable and responsible pension program that is good for our city, our brave firefighters and Houston taxpayers. Fortunately, Representative Jim Murphy has filed H. B. 2608, and I am pleased to have played a key role in crafting a bill that actually moves us toward a solution,” according to Costello.

Costello continued, “I’m going to continue to fight hard for local control. The City must be able to fulfill our promise to our public safety and municipal employees in a way that is also fair to Houston taxpayers.”

There was no mention of a bill like this at the beginning of the session, when everyone seemed to want the city and the firefighters to work this out among themselves. It’s interesting to hear people like Sen. Paul Bettencourt, who was at the meeting and who expressed his support of Rep. Murphy’s bill, talk favorably of local control when he’s busy helping Greg Abbott eviscerate it elsewhere. Be that as it may, I guess this answers my question about what Costello thinks he can do differently than Mayor Parker – if he’s able to help get HB2608 to Abbott’s desk, it would be quite an accomplishment. The politics of this are going to be fascinating to watch, that’s for sure. I just hope that the Mayoral candidates that lobby for one bill or the other in Austin get equally and visibly involved in beating back the many bad bills out there.

Council meeting called to discuss firefighter pension deal

Some Council members are determined to discuss the deal Mayor Parker made with the firefighters’ pension fund.

Mayor Annise Parker

Mayor Annise Parker

Four City Council members have taken advantage of a rarely used provision in city law to call a special meeting Friday to discuss Mayor Annise Parker’s controversial deal with the city’s firefighter pension board that was announced last week.

Typically, the mayor alone controls what items appear on the council agenda to be voted on, a power that can be subverted only when a trio of council members teams up to call a meeting.

Council members C.O. Bradford, Michael Kubosh, Brenda Stardig and Dave Martin did so Monday morning, with one more signer than was required. City officials said this appears to be the first time the legal maneuver has been used in Parker’s more than five-year tenure.

It’s not clear whether enough of the foursome’s colleagues will attend to muster a quorum, but the symbolism of the meeting is more significant than any action that could be taken, given that the group will simply consider registering support for or opposition to the pension deal.

Regardless, Parker’s liaison to council, William-Paul Thomas, said he will work against a quorum. Parker had said she would not put the deal to a council vote because it does not call for the expenditure of city funds.

The three-year agreement would see the city pay a projected $77 million less into the pension fund and see firefighters contribute an estimated $20 million more. Supporters call it a compromise that will free up city funds during a budget crunch, while critics call it a risky missed opportunity that will see $57 million less paid into the system without any changes to the cost of benefits.

Bradford said the aim of Friday’s meeting is for council to discuss the pension deal openly and to send a signal to Austin on the council’s view of the agreement. Firefighters’ pension benefits and the city’s contributions to the fund are controlled by the Legislature, and the mayor’s deal would need to pass in Austin to take effect.

[…]

Firefighters union president Alvin White – whose organization is a separate entity from the fire pension board – early Monday raised his own concerns, saying the union “is the only legally recognized entity authorized to negotiate Houston firefighters’ workplace rights, wages and benefits.” White said he was entering into talks with fire pension chairman Todd Clark to “protect our members’ rights” in the deal, which requires firefighters to contribute 12 percent of their pay toward their pensions, up from 9 percent today.

Those talks yielded progress Monday night, however, with White saying the resolution would allow the union the flexibility it needs to negotiate future contracts. Clark did not return a call for comment Monday; a pension spokeswoman said he was busy working to get the bill filed at the Legislature.

See here for the background. At least this gives me some idea what the fuss is about, since the net effect is that the fund will receive $57 million less in payments over the next three years. The fund is in good enough shape that these underpayments probably won’t cause any issues, but for obvious reasons this is not a sustainable approach. I don’t know what these members have in mind to discuss or what if anything they might be able to accomplish, but I see no reason not to let them have their meeting. Maybe they’ll come up with some good questions to ask, or maybe they’ll agree with the Mayor’s judgment. Let them meet and make up their own minds. Campos has more.

The pension deal

Not sure yet how I feel about this.

Mayor Annise Parker

Mayor Annise Parker

Mayor Annise Parker and Houston’s firefighter pension trustees have reached a deal that would lower the city’s payments for three years, a move that would mark an abrupt reversal for the mayor.

The announcement came late Thursday from the fire pension board, whose leaders for years have fought any mention of changes to benefits as Houston’s enormous pension burden has continued to grow. The pension fund estimates the city would pay $77 million less over the next three years.

In a memo Thursday to the City Council, Parker said the agreement is a “modified version” of a proposal the pension board pushed last fall.

“The terms will deliver significant budget relief to the city of Houston,” Parker wrote. “As with any true compromise, both sides have surrendered hard positions to realize a mutually beneficial outcome.”

Craig Mason is a pension consultant who represents the city on the police, fire and municipal pension boards. Mason, who followed the talks but had not seen the final deal, said the deal would see firefighters contribute more of their pay toward their retirement and have the city contribute less, for a term of three years.

Mason and other pension reformers have said, however, that without changing pension benefits the city will not be solving the problem long term.

“I’m opposed to people calling that a savings,” Mason said of the deal. “It’s a temporary reduction in contributions, but it’s going to increase contributions in the future. It’s a short-term focus, which is typical for city administrations.”

[…]

Parker’s support for the deal is curious, given that she said the pension trustees’ proposal from the fall “reflects no true pension reform” and repeated the same stance as recently as Wednesday, saying, “There’s no reform in that … we’re just putting more money into a system that I think needs help.”

The announcement said that as part of the deal the city would drop two lawsuits against the fire pension, one that seeks more data to better predict future costs and another that challenges the constitutionality of the city being on the hook for payments over which it has no control; the pension and the city’s contributions are set by the Legislature. The city would agree not to lobby the Legislature for pension reforms for the three-year duration of the deal, Mason added.

The fire pension trustees’ plan from last fall that Mason said forms the basis of the deal would not touch current or future firefighters’ benefits, but would have them contribute 12 percent of their paychecks into the pension fund, up from 9 percent. In that proposal, the fire pension projected the city’s contribution rate would drop from 33 percent of firefighter payroll to 24 percent.

Before I say anything about this myself, let me quote from the reactions I received in my inbox to this, in the order I received them. First, from CM Stephen Costello:

“Our firefighters deserve to have their pensions covered in full and this deal, negotiated without City Council input or approval, not only leaves their pensions cut short but continues to put the city’s financial well-being at great risk over the long haul. This agreement simply continues the damaging cycle where the City of Houston fails to fund the pension, racking up tens of millions of dollars in new debt in the future. The ultimate solution in the long term is local control. Houstonians should have the authority to craft their own solution rather than continuing to leave our fate in the hands of politicians in Austin.”

From Bill King:

The proposed agreement regarding the Houston Fire Fighter pension plan announced yesterday represents a further abdication of fiscal responsibility. The parties to this deal owe taxpayers an explanation how borrowing $77 million at 8.5 percent is a good deal, or saves the City money. This deal does absolutely nothing to contain the costs to Houston taxpayers, but instead pushes off millions of dollars of pension obligations to the next administration.

I do not believe the City should incur this kind of additional liability without a full and open debate — and approval — by City Council especially when the City’s pension debt has soared by $1.2 billion over the last five years.

From Controller candidate Bill Frazer:

Once again, Houston’s taxpayers have been left holding the bag while its pension issues get kicked down the road for another 3 years. The City Controller stands idly by while the Mayor, a candidate for Mayor and a candidate for City Controller craft a backroom deal based purely on political expediency.

While kicking the can down the road, the Mayor has borrowed another $77 million at “credit card interest rates”, leaving the taxpayers with more debt and no solutions. Houston deserves a higher standard.

From HFRRF Chairman Todd Clark:

Today Houston Firefighters’ Relief and Retirement Fund (HFRRF) and Houston Mayor Annise Parker agreed on a set of legislative provisions that will save the City $77 million over three years while assuring soundness of the pension and putting a halt to the City’s lawsuits against the Fund. Mayor Parker supported the plan which increases firefighters’ contributions by 3% of their salaries and will reduce Houston’s General Fund expenses to the HFRRF by $21.4 million in Fiscal Year 2016 alone.

“The proposal protects Houston’s citizens by keeping and recruiting the best firefighters we can get,” said HFRRF President Todd Clark. “We are pleased the Mayor supports our proposal because it protects promises made to our firefighters and avoids reduction of benefits to new hires, which would be harmful to all parties.”

The Firefighters’ proposal, as accepted by the Mayor, provides a sustainable plan for the City while avoiding additional costly litigation and discontinuing current litigation while not impacting retirees at all.

And finally, from Mayor Parker:

Under the terms of the arrangement, which still needs legislative approval in Austin, firefighters will contribute three percent more to the pension system for the next three years. Correspondingly, the City’s payroll contribution to the fund will be locked in at 25.8% for Fiscal Year 2016, and 24% for both Fiscal Years 2017 and 2018. This represents a more than $70 million decrease from the amount the city would have to pay in the absence of this arrangement.

The HFRRF board proposed that the firefighters who benefit from the system should pay more. “This protects taxpayer interests and provides budget certainty for the next three years,” said Mayor Parker. “The agreement was achieved through good faith negotiations by both parties. While it is not the pension reform I have sought, it is a step forward. The work must not end here.”

The agreement is the result of informal discussions between the City and HFRRF over the last several months. State law gives the city the ability to meet and confer with the police and municipal pensions, but no such mechanism exists for HFRRF.

“Despite our differences, both of us came together to do what is best for the City,” said Parker. “This doesn’t change my position. I still strongly believe that those who fund our employee pensions should have a say in how we pay for them. These are decisions that must be made here at home, not in Austin.”

The Mayor’s full press release is here. Clearly, one’s view of this deal is dependent on how one views the overall pension situation. Also, if one is running for Mayor and one is not Sylvester Turner, who was credited by the firefighters for helping to broker this deal, one doesn’t like it. My view is that while this is clearly a kick-the-can-down-the-road proposal, the fact is that Houston is facing a (hopefully short term) fiscal crunch in the next few years, and will have to make cuts somewhere to cover those bills. Reducing the amount that the city will have to cut by $77 million over the next three years is nothing to sneeze at, especially if one is unwilling to try to lift the stupid revenue cap as a means of helping to mitigate those cuts. If this is a loan that needs to be paid back, or if there is a gap between what the city would have contributed and what the firefighters will wind up kicking in, then this deal doesn’t look as good. I’d like to see an analysis from a disinterested third party before I sign off on any interpretation, but the prospect of having to make $77 million less in cuts over the next three years counts for something to me. Campos and PDiddie have more.

Appeals court reverses ruling about pension retiree information

So much for that.

Mayor Annise Parker

Mayor Annise Parker

A state district court’s 2013 ruling that Houston’s fire pension board must turn over detailed information on its retirees to help city officials better project future pension bills has been overturned on appeal.

Justices with the 1st Court of Appeals issued the opinion Tuesday, arguing that, in essence, state law protects the city’s ability to request information on its pensioners but not at the breadth and depth the city originally sought when it sued the pension fund in May 2012. At the time Mayor Annise Parker argued she needed better data to project future pension costs.

Todd Clark, chairman of the Houston Firefighters’ Relief and Retirement Fund, cheered the ruling, and said the city has all the information it needs on retired firefighters.

“The city took a run at trying to convert the plain meaning of a statute providing for an independent audit into a license to rummage through a decade of pension members’ personal information,” Clark said. “Both taxpayer and pension resources were wasted by the city’s lawsuit.”

City Attorney Donna Edmundson said she and her staff still are reviewing the ruling and weighing the city’s options, which could include appealing the ruling or narrowing the city’s request for information.

Houston originally sought individual data on each retiree from 2000 forward, and later amended its request to target group data from that period. Edmundson said the ruling suggests state law may protect the city’s access to retiree information if it requests only group data dating back to only 2011.

“I think basically, on our part, we just need to go back in and refine our request a bit, just tweak it,” Edmundson said. “Obviously we’re reaching out to the firefighters trying to come to agreement on numerous issues. We’re just going to sit back on this for the time being since we do have other litigation pending, as well.”

Assistant City Attorney Judith Ramsey added that it was important for the city to pursue the case because state law requires Houston to audit its pension funds every five years, “and we felt that we needed the level of detail we originally asked for in order to do the kind of audit we were required to do.”

See here and here for the background, and here for the court’s opinion. Narrowing the request is probably the shorter path to some kind of resolution, though I suppose the firefighters could still appeal if the First Court of Appeals accepted a revised petition. I’m just guessing – if anyone knows better what the possible paths are, please leave a comment. Barring some kind of settlement agreement, which I would not bet on, I presume this will not be resolved by the end of the year, meaning that the next Mayor will inherit this. I wonder what legal strategy the various candidates would prefer to see Mayor Parker pursue. A statement from the HFRRF is beneath the fold.

(more…)

Don’t look for a meet-and-confer bill in the Lege this year

Buried in this story about the city and the county preparing to play defense during the legislative session is this update on the state of relations between the city and the firefighters.

Mayor Annise Parker

Mayor Annise Parker

In her first two sessions, Houston Mayor Annise Parker failed to gain traction with legislation that would grant the city meet-and-confer powers that give City Hall the legal authority to negotiate changes to the city’s fire pension system. And now that the city and fire pension board are engaged in what appears to be some introductory conversation, the topic already appears to be a non-starter in Austin.

In fact, the city may not even aggressively pursue a remedy in the Legislature unless local talks show signs of dissolving. That resonates with Harris lawmakers who have a clear message for City Hall: Solve this yourself.

“We’re not going to do anything or move anything that doesn’t have an agreement,” said Rep. Garnet Coleman, a senior Democrat who echoed half-a-dozen other area legislators that a meet-and-confer bill opposed by firefighters would languish. “That’s a dead bill no matter what.”

That does not mean that concerns over the city’s unfunded liabilities are fading. Supporters of pension reform characterized the current discussions between the city as healthy and are expressing hope that they could yield a solution the Legislature would never produce.

“This issue is fraught with political risk for elected officials,” said Bob Harvey, CEO of the Greater Houston Partnership, which supports pension reform. “They’re more than willing to give this back to the city if they see any signs at all that the city is willing to take it on.”

I had no idea that the city and the pension board were talking. I always thought one of the sticking points from the city’s perspective is that the pension board didn’t have to talk to them. They got to make their own determination about things like cost of living adjustments, which was one of the things the city had been trying to get a say in, legislatively or otherwise. I’m not sure what led to this conversation, but it’s an encouraging sign. If nothing else, if they can come to an agreement, I’ll never have to listed to Mayoral candidates or newspaper editorial boards talk about pension reform again. I’d be happy to send some pizzas to the negotiations room if that will help facilitate such an outcome.

Firefighter pension board makes an offer to the city

This was unexpected.

Mayor Annise Parker

Mayor Annise Parker

The trustees of Houston’s firefighter pension, who for years have fought the mere mention of changes to benefits as Houston’s enormous pension burden has continued to grow, now are shopping a compromise proposal.

Fire pension leaders say they simply are trying to save the city money as it approaches several years of deep budget deficits.

Reaction to the plan is mixed, however, with skeptics viewing it as a shrewd political maneuver aimed at avoiding broader reforms with an offer of modest savings, and others inclined to applaud any dialogue as progress.

The trustees’ alternative would not touch current or future firefighters’ benefits, but would have them contribute 12 percent of their paychecks into the pension fund, up from 9 percent now. The proposal also would change the way assets in the fund are valued, dropping the amount the city would need to contribute if investment returns are strong – as they have been in recent years – and increasing the city’s costs if returns are sluggish.

The fire pension board projects its plan – which assumes annual investment returns of 8.5 percent and yearly 3 percent raises for firefighters – would save the city $82 million over three years, and nearly $500 million in the next two decades.

Board Chairman Todd Clark would not discuss the details, citing ongoing talks, but said his team is “meeting with the mayor to come up with a proposal that will protect new hires and help the city with their budget issues.”

Mayor Annise Parker called the trustees’ idea “a pleasant surprise” on their willingness to talk.

“The offer from the pension is for individual firefighters to contribute more of their take-home pay toward their pension. That’s a very generous offer and we are appreciative, but it reflects no true pension reform,” the mayor said. “So, we countered back with the things we’ve been talking about since the beginning of my administration, things like caps on cost of living adjustments, the ability to have meet and confer.”

Interesting. The surprise is that they made any offer at all to the city, which has not been their strategy lately. As we know, the city has no leverage over the firefighters’ pension fund, and the the board’s position has been that the city needs to meet their obligations to them. I don’t know if this was motivated by the recent proposal by Mayor Parker to implement a different pension plan for new hires to HFD or by something else, but it’s worth seeing if this goes anywhere. What do you think?

Parker proposes new firefighter pension plan

We’ll see about this.

Mayor Annise Parker

Mayor Annise Parker

With the city of Houston facing huge and rising pension costs, Mayor Annise Parker on Thursday unveiled a proposal to put new firefighters in a separate, less generous plan that would do away with expensive automatic cost-of-living adjustments.

The move would not affect current firefighters covered by the Houston Firefighters Relief and Retirement Fund, long insulated from reform by the Texas Legislature. It would be an unprecedented change to new firefighters’ pensions and would mark the latest chapter in the contentious relationship between Parker and the city’s firefighters. There are two lawsuits pending between the city and the pension fund; the fund is expected to sue the city over the latest proposal.

Creating a separate plan, Parker said Thursday, is her only recourse for reining in pension costs. Though the city long has had the ability to create the separate pension plan for new firefighters, Parker said, she has waited to do so until now because she wanted to attempt broader pension reforms first.

“But if I can’t solve that one – Legislature won’t help, I don’t have the ability to negotiate – let’s set up a separate pension and create one that is fair and sustainable for both sides,” she said.

[…]

Todd Clark, who chairs the fire pension board, told a City Council committee on Thursday that the proposal would “put a firefighter on welfare,” hurt morale and weaken the department’s ability to retain and recruit staff.

Council members Larry Green, Jerry Davis and Jack Christie pushed back, asking Clark whether there was room for compromise.

“I understand that you think the fire pension doesn’t have a problem, but as someone who has just gone through the budget process for the city of Houston, we have a problem,” Green said. “Our objective is not to become Detroit. What’s the solution?”

Clark responded, “The best thing you can do is just come up with the money. It’s not my job to balance the city’s budget. What the city should be doing is finding ways to meet the promises made, not trying to cut the benefits. No changes need to be made to our system. We’re a very strong and healthy pension system.”

The Mayor’s press release, with more details about her proposal, is here. I think Todd Clark is correct that the current pension is well-funded and in better shape than many others, but I think he’s got a tough sell politically to say that the city just needs to suck it up and pay whatever they’re told to pay, over which the city has no control. I’m not commenting on what’s right or wrong here, just saying that’s a tough sell. On the other hand, CM Costello, the biggest pension hawk on Council, wants this applied to current firefighters as well. That would have been the Mayor’s preference too, but she never got anywhere with the pension fund or the legislature, so it’s also a tough sell. There’s a dispute over whether this proposal can be implemented by Council or if it requires legislative action like any change to the plan for current firefighters would, so if it does get adopted expect there to be a lawsuit.

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.

City exploring new pension for new firefighters?

Maybe.

Mayor Annise Parker

Mayor Annise Parker

Long concerned about the cost of Houston’s pensions and stymied in her attempts at reform, Mayor Annise Parker is considering a dramatic step to place new firefighters into a separate, less generous pension plan, sources with knowledge of the discussions said.

Officials acknowledge the existing Houston Firefighters Relief and Retirement Fund likely would sue the city over the idea, which has not yet been formally proposed.

[…]

Houston Firefighters Relief and Retirement Fund chairman Todd Clark said he had not heard of the idea. He was not receptive.

“We would have to look at it and see exactly what it is they’re talking about,” Clark said. “If that’s the case, the pension fund will defend the firefighters and the pension system. That will be a fight that we will definitely get into. We won’t support changing our system for the new hires.”

[…]

Councilman Stephen Costello said the idea of a separate pension fund for new hires arose after the city sued the firefighters pension system in January, claiming it was unconstitutional for Houston to be on the hook for payments over which it had no control.

Lawyers for the pension fund, sources said, argued the Legislature’s control was not absolute, and that the city could create a new pension system if it wished.

The city lost a ruling at the state district court level in that case and is appealing. Costello said the current idea appears designed to invite another lawsuit as a legal test.

“You never know until you ask, so I think that’s what the city is going to try to accomplish,” said Costello, who chairs the council’s budget committee and long has advocated pension reforms. “I think the city is testing the water in terms of the constitutionality of the state regulating our pension system.”

The benefit structure of the new pension plan under discussion, Costello and other sources said, would mirror the pension new police officers get, but without automatic cost-of-living adjustments. That benefit is the single most expensive portion of the city’s pension plans.

See here for the background on the city’s lawsuit. I got a press release from the HFRRF about the ruling in May but never saw a news story about it. There never was one as far as a Google search can find, but you can find the press release here. Not much to say about this since it’s basically vaporware, but I do agree with CM Ed Gonzalez in the story that if you’re going to reduce pension payouts to future firefighters, you’re going to have to pay them more up front, Beyond that, we’ll see what if anything happens.

Firefighters union rejects contract deal

Oops.

The contract rejected Tuesday by 93 percent of the roughly 2,900 firefighters voting would have taken a similar approach, granting a pay raise in exchange for concessions on members’ ability to take leave. With the no vote, as of July 1 members of Houston Professional Fire Fighters Association Local 341 enter an “evergreen” period under their prior contract that would run through 2016 unless a new agreement is approved.

The evergreen situation would provide no raises, but imposes few effective caps on how many firefighters can take time off, raising questions about whether the department’s proposed $507 million budget for the fiscal year that begins July 1 includes enough money to cover overtime costs, and whether HFD will repeat the fiscal woes of recent months.

“Make no mistake about it, this is a resounding statement that the firefighters are together on this. That the concessions are too high, that giving back was enough,” said fire union president Bryan Sky-Eagle, whose team negotiated the deal. “I’m very optimistic we’ll go back to the table and find out what went wrong and try to fix it.”

Parker said the city is willing to return to the bargaining table. She said it is far from clear, however, that the union will be able to win more favorable terms from a city council that opposed hiking HFD’s overtime budget earlier this year and is poised to vote Wednesday on several items that would cut her proposed $2.4 billion general fund budget.

“If they want to come back with the idea of significant pay raises in the next year, I’m just going to have to say it will be seriously impacted by what Council does, and my sense of the mood of Council is they’re not wanting to put a whole lot more money in the budget,” the mayor said.

See here for the background. Sky-Eagle negotiated the deal with the city, so I can only wonder where the disconnect was. The issues with overtime are real and not going anywhere on their own, so one way or another this is going to have to be dealt with. I presume they’ll figure it out eventually. The Chron editorial board has more.