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Pension bond lawsuit dismissed

This hit my inbox late in the day on July 3.

Mayor Sylvester Turner

The City of Houston is pleased that a court challenge to the 2017 election on the City’s pension bonds has been decided in its favor.

Today, State District Judge Mark Morefield dismissed the case styled James Noteware, Contestant vs. Sylvester Turner, Mayor of the City of Houston, Texas, and City of Houston, Texas, Contestees, Cause no 2017-83,251.

In December 2017, a voter sued the City to set aside the results of the Nov. 7, 2017 election after Houstonians overwhelmingly approved the pension bonds.

Tuesday’s ruling is important to the City’s pension reform plan.

“These pension bonds are a critical part of our pension reform statute and plan, and I am very pleased with the judge’s ruling,” Mayor Sylvester Turner said.

See here for the background. So far the only news coverage I’ve seen is this Chron story, which is not on the main houstonchronicle.com site and which mostly recapitulates the press release. It does indicate that the plaintiff plans to appeal, because of course he does. I’m hoping there will be more information once the Chron has had the chance to do some reporting on this, but for now this is what we have. Given that the bonds have been sold I’m honestly not sure what there is to adjudicate, but then I Am Not A Lawyer, so there you have it.

Council approves Mayor’s budget

The annual ritual is observed.

Mayor Sylvester Turner

Houston City Council adopted Mayor Sylvester Turner’s $4.9 billion budget by a vote of 13-4 Wednesday, ending three hours of otherwise amiable debate with an impassioned speech from Councilman Jack Christie that concluded with the councilman resigning his post as budget committee chair and voting no.

Christie was joined in opposing the budget by council members Mike Knox, Greg Travis and Michael Kubosh, who said they wanted the mayor to make more of an effort to cut spending.

“I can keep playing politics, go along to get along, or start fighting vigorously for our tax-paying citizens and not waste their money,” Christie said, listing his past ideas for constraining costs or forming commissions to study cost-cutting that were not implemented. “As a political body, we are failing the people of Houston.”

Turner rejected the criticism. He said the budget is “sound,” and noted that Kubosh’s lone amendment would have given each council member an additional $100,000 for staff salaries. Knox submitted no amendments, and Travis submitted amendments that sought cost-cutting recommendations from the administration but listed no specific cuts.

Christie also submitted no cost-reduction amendments, and, in fact, twice admitted one of his items — earmarking $150,000 to fund an external study on the emissions of the city’s vehicle fleet — was “a waste of money” because he already knows a shift to alternative fuels is the right move.

“It’s so easy to just say to the administration, ‘Mayor, you didn’t cut enough,’” Turner said after the meeting. “Every individual that voted ‘no’ put forth no ideas, no amendment to reduce the cost. Not one. Not that they offered it and we voted them down — they didn’t offer any. To the contrary, they put forth amendments that would increase the amount that we were going to have to expend.”

[…]

The general fund budget for the fiscal year that starts July 1 is $2.5 billion. That fund is supported primarily by property and sales taxes and funds most core services, such as the police and fire departments, parks, libraries and trash pickup.

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

Also driving the increase is $14 million in previously-agreed-to raises for police that take effect July 1. About 57 percent of the general fund, or $1.4 billion, goes to public safety — the police and fire departments, the municipal courts and emergency operations.

See here for the background, and here for the Mayor’s press release. The story also notes the $17 million the city may wind up being short thanks to an unfriendly Census estimate and the stupid revenue cap; it’s not clear to me if that would apply to this year or next if the city’s appeal fails. I’m not surprised there were no cost-cutting amendments of any substance. Turns out that’s a hard thing to do, especially in a budget that’s mostly about public safety, trash pickup, parks, and libraries. You know, basic things that people want and need. Good thing talking about it remains free.

Turner’s 2019 budget

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

Mayor Sylvester Turner

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

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

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

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

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

[…]

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

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

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

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

City reaches settlement in pension projection lawsuit

Old story, new development.

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

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

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

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

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

From the “Grab that cash with both hands and make a stash” files

Same song, second verse.

If budget writers don’t come up with money to address a state employee pension shortfall and mounting needs for public schools, health care and transportation, credit agencies are likely to downgrade Texas’ AAA rating in the near future.

That was the warning Comptroller Glenn Hegar gave lawmakers at a Tuesday hearing of the Senate Finance Committee in Austin. Though the Texas economy is growing at a healthy pace, Hegar said, the state’s budget is riddled with enough unfunded liabilities to worry credit rating agencies such as Moody’s and Standard and Poor’s.

“We’re not at a crisis,” Hegar said, but “we’re going in the wrong direction.”

A downgrading of Texas’ credit rating would make it more expensive for the state to borrow money — and perhaps damage state leaders’ credibility when advertising Texas as “open for business.”

“I want to avoid that, because I think that’s a black eye on the state of Texas,” Hegar said.

Rebounding oil prices, natural growth and migration to Texas have led to an increase in tax collections, according to the comptroller’s office. But much of that new revenue is already dedicated to historically underfunded programs such as the state highway fund, meaning that Texas lawmakers likely won’t have more money at their disposal in 2019 when crafting the next two-year budget.

At the same time, lawmakers will need to plug holes in the pension system for state employees, and they’ll face pressure to make solvent a health insurance program for retired teachers. On top of that, big bills coming due for Medicaid, the federal-state health insurance program for the poor and disabled that is perennially underfunded by the Legislature, could put the state budget $2.5 billion in the red before lawmakers even convene in 2019. (The state’s current two-year budget is about $217 billion.)

In addition, state leaders will have to tackle the bills from Hurricane Harvey recovery.

I’ll just say again here what I said in January: The vast majority of these issues are the result of deliberate choices made by our Governor, our Lieutenant Governor, and our Republican-controlled Legislature. Instead of seriously addressing the needs of the state, current and future, our Republican leaders have been obsessed with trivia, from bathrooms to plastic bags to trees. We have gotten by and done all right because times have been good, but we are in a far more precarious position for when the economy goes south than we should be. In the meantime, we are squandering this opportunity to ensure a better future for all of us by making such cavalier and ill-advised fiscal choices. Every Democratic candidate running for state office needs to internalize and articulate that message going forward.

Looking to hire more cops for Houston

We’ll see about this.

The head of the Houston police union announced Wednesday that city leaders had pledged to grow the Houston Police Department ranks by 500 officers over the next five years, far fewer than the city’s police chief said he needs.

“It’s no secret the Houston Police Department has been doing more with less, for far too long,” HPOU President Joseph Gamaldi said Wednesday afternoon at a crowded news conference at union headquarters.

The influx of officers would still be a fraction of the 2,000 new officers Chief Art Acevedo has said he believes the department needs to deal with the city’s growth, but comes as Houston has struggled for years to meaningfully increase the staffing in the department.

Gamaldi’s initiative, which the union is calling the “Drive for 500,” came after union officials visited all of the city’s council members, as well as Mayor Sylvester Turner, and asked them to pledge their support to increase the department that has nearly 5,200 officers on the job.

[…]

Currently, the HPD operates on a yearly budget of $827 million, and it costs the department around $3 million to run each class of recruits through its in-house academy.

The call for more officers comes as the city management last year had to close a $130 million budget shortfall.

The staffing proposal follows a concerted campaign last year to reform the city’s pension system, which officials warned was underfunded and threatened the city’s long-term financial health.

Meanwhile, Chief Acevedo and Gamaldi have stepped up calls for an large infusion of new officers into the department, saying it is dangerously understaffed, particularly compared to other large cities around the country.

Though Houston has fewer police officers per resident than other large cities, I remain unconvinced that we need to go on a hiring spree. At the very least, I’d like to understand what the plan is for a larger force. HPD’s solve rate isn’t so hot, so if the idea is to staff up on investigators with the goal of closing out more cases, then I can be on board with that. If it’s more like hire now and figure it out later, I’ll take a pass.

As the story suggests, hiring more cops would likely be part of the argument to alter or lift the revenue cap. Not my preferred approach, but I admit I’m not representative on this. I am ready for this argument to be fully rolled out, in anticipation of a vote this year.

Houston’s health care costs

Because dealing with pensions wasn’t enough.

Taxpayers also face a $2.1 billion liability for retiree health care costs in the coming decades, and Houston – like many state and local governments – has not set aside a penny to pay for those promises.

This burden is the city’s “next major long-term fiscal challenge,” according to PFM, a financial analysis firm Houston has hired to recommend ways to shore up its long-shaky books.

Turner said any financial hurdle concerns him, but the far-larger pension problem took precedence, as the city’s recovery from Hurricane Harvey will do now.

“That’s one of many issues that we have to address, but I am very much aware of it,” Turner said. “Let’s just say we tackled the biggest item and then we’ll tackle the other ones as we go. One step at a time.”

These costs for what are known as “Other Post-Employment Benefits” – OPEB for short – have become a growing issue for local governments, thanks to rising health care expenses and an aging population and public workforce. In Houston, retirees comprised a third of all the city’s health care beneficiaries in 2012, up from 18 percent in 1994.

A shift in accounting rules also has played a key role. In 2008, the Governmental Accounting Standards Board began requiring governments to report their retiree health care costs, not as an annual operating expense, but in the same manner as pensions: Trust funds fed by payments from the city and workers on which investment earnings accumulate to pay for benefits over the next few decades.

Houston and many of its peers have never stopped treating the expense as simply an annual bill to be paid, however.

I know nothing about accounting, so I don’t understand the reasoning behind that 2008 change in standards. Be that as it may, the city has a lot more flexibility here in that the Mayor can order changes in the health insurance system. Mayor Parker did exactly that a few years ago, raising premiums and ordering retired employees to enroll in Medicare at age 65. That cut costs by quite a bit at the time, but they have since climbed back up, as health care costs are wont to do. Ultimately, of course, this is a problem that is too big for Houston to solve. Any solution to control health care costs necessarily involves controlling how much doctors and hospitals get paid. In the meantime, entities like Houston will do what they can to manage their own costs, but they’re going to need help in the long run.

2017 EV daily report: Day 8, and one more look at a way to guess turnout

Here are the numbers through Monday. Now that we are in the second week of early voting, when the hours each day are 7 to 7, these reports arrive in my inbox later in the evening. Here are the daily totals from previous years:

2015

2013

2011

2009

2007

And here’s a select comparison:


Year    Early    Mail    Total   Mailed
=======================================
2017   24,442   8,201   32,643   21,320
2015   73,905  23,650   97,555   43,279
2011   23,621   4,958   28,579   14,609
2007   19,250   4,353   23,603   13,589

The first Monday of Week 2 was busier than all preceding days, by a lot in 2015 and by a little in 2011 and 2007. Each day after that was busier still. This year, the second Monday was less busy than Thursday and Friday last week. I suspect an Astros hangover from Sunday night may have had something to do with that – Lord knows, traffic on I-45 in the morning and in the downtown tunnels at lunchtime were both eerily mild – in which case we ought to see more of an uptick going forward.

As for the other way of guessing turnout, which would be my third model for thinking about it, we have the May 2004 special city charter election, called by Mayor White to make adjustments to the pension funds, in the immediate aftermath of reports that recent changes had greatly increased the city’s financial obligations. A total of 86,748 people showed up for that election. I seriously doubt we’ll approach that, but my initial guesses on turnout for this year before I started looking at any data were 50,000 to 75,000, so it’s not ridiculously out of the question. Let’s file this one away for next May, when we may have to vote on the firefighter’s pay parity proposal.

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.

More on the firefighters’ pay parity proposal

Here’s that full Chron story I mentioned yesterday:

Houston firefighters delivered over 32,000 signatures to City Hall on Monday in support of asking voters in November to mandate parity in pay between firefighter and police officer ranks, a maneuver that could threaten the city’s plans to sell $1 billion in bonds as part of its pension reform plan.

While the two measures are unrelated, both are tied to firefighters’ displeasure with the Turner administration.

As such, a unified voting bloc of firefighters during what is expected to be a low-turnout election in November could spell trouble for Mayor Sylvester Turner’s signature pension reform plan, and potentially thrust the city back into the fiscal quagmire Turner spent his first year in office trying to escape.

“If one issue is a five-alarm fire, both together are a 10-alarm fire,” said Brandon Rottinghaus, a political science professor at the University of Houston.

[…]

The union originally sought a 21 percent pay raise over three years, according to Turner, but lowered that request to 17 percent. The city, meanwhile, offered 9.5 percent over three years, which Turner said would stretch the city’s financial capabilities.

Houston firefighters have been without a contract for three years. The “evergreen” terms that had governed their employment during that time lapsed last month, reverting to state law and local ordinance. City Council made the terms in that local ordinance less favorable in a unanimous vote on the same morning the union filed its lawsuit.

“This petition drive was necessary because Houston firefighters are at a breaking point,” said Marty Lancton, president of the Houston Professional Fire Fighters Association at a press conference Monday. “We now are asking the voters to help Houston firefighters because the city refuses to do so.”

The petition seeks to amend the city’s charter to mandate equal pay and benefits between firefighters and police-officers of similar status, but not necessarily title, accounting for varied rank structures between the two departments.

See here for the background. I have a basic question to ask here: Who is going to support the firefighters in this effort? Who will their allies be in this fight? Because I’m having a hard time seeing who is on their side right now.

As noted, Council voted unanimously to impose those less favorable “evergreen” terms under which they now grudgingly labor, and Council approved the pension reform plan on a 16-1 vote, with the only No coming from CM Knox, who wanted to see a bill get filed first. Who on Council is going to endorse the pay parity effort?

If the thinking is that the firefighters might try to tank the pension obligation bonds as payback or leverage as part of this, then please note that the House passed the pension reform bill 103-43, and the Senate passed it 25-5. Of the Harris County contingent, Sen. Sylvia Garcia was a “present, not voting”, while Reps. Jessican Farrar and Briscoe Cain (a pairing I’d never expected to see) were No votes. Everyone else voted Yes. I don’t see Sen. Garcia and Rep. Farrar crossing swords with Mayor Turner on this, and Rep. Cain represents Baytown. Who in the Lege will stand with the firefighters? Maybe Sen. Paul Bettencourt, because he’s a little weasel who likes to stick it to Houston, but he was the one who put the provision in to require a vote on the bonds.

Of the establishment groups that tend to get involved in city politics, the Greater Houston Partnership is all in on pension reform and spending restraint. I can’t see the Realtors opposing the Mayor on this, nor the GLBT Political Caucus, nor any Democratic-aligned groups. The one possible exception is labor, but this proposal would be bad for the police and the city workers. It’s not about a rising tide, it’s just shifting money to the firefighters from the rest of the city employees. Maybe labor backs this, maybe they don’t. The Chronicle will surely endorse a No vote. Who among the big endorsers will be with the firefighters?

I’m sure the firefighters will have some allies. My point is that as I see it, the Mayor already has a lot more. Which brings me to the next point, which is where will the firefighters get the money to run their pro-pay parity campaign? It helps to have allies, who can not only make donations themselves but also hold fundraisers, solicit contributions from their networks, and eventually participate in campaign activities. I think we all agree that Mayor Turner is a good fundraiser, and he can assemble a pretty good get out the vote campaign. While this is certainly likely to be a low turnout election, at least compared to a normal city election, turnout is in part determined by how many people are aware there is something or someone for them to vote on. Who do you think is going to have more resources and a bigger microphone for getting out a message about the need to vote? And bear in mind, even if the firefighters are good at raising money, that in itself can be used against them. I mean, here they are claiming poverty, holding up signs saying they can’t afford to live in the city, but they can spend a bunch of money on a campaign? Yes, I know, the one doesn’t really have anything to do with the other, but do you want to have to explain that to people?

What I think it comes down to is this: Sure, people like firefighters, and they think they should be adequately compensated. In the abstract, their proposal sounds reasonable, and there are probably a lot of people who would feel good about paying our firefighters more. But this isn’t an abstract choice, and there are lots of consequences to making it. The firefighters are asking for something for themselves, something that doesn’t benefit anyone else and which potentially has a large cost attached to it that everyone will pay. They’re doing all this while at the same time spitting on an offer from the city to give them a ten percent raise. Now how positively will people feel about their proposal? That’s what we’ll find out. Campos has more.

Firefighters’ lawsuit over pension reform law tossed

There it goes.

Mayor Sylvester Turner

A state district judge on Friday dismissed Houston firefighters’ lawsuit challenging the constitutionality of the city’s pension reform package, removing a potential barrier to the city’s efforts to solve a 16-year fiscal crisis.

State District Judge Patricia Kerrigan granted the city’s request to dismiss the case while denying firefighters’ motion to temporarily block the state law, known as SB2190, from going into effect Saturday.

[…]

Houston Firefighters’ Relief and Retirement Fund Chairman David Keller, meanwhile, said he was disappointed, adding that the board would discuss next steps with its legal team.

Kerrigan’s order gives the pension board the option to refile its lawsuit, which argued the reform law infringes on the fund’s exclusive right to select its own actuaries and choose the actuarial assumptions that will be used to determine contributions into the pension system.

See here for the background. I presume this will get appealed, but I kind of doubt it will get anywhere. One may wonder how it is that the relationship between the firefighters, who endorsed Turner for Mayor, and the Mayor has gotten so combative. I suspect it is more likely that the firefighters believed that despite Turner’s promises about pension reform he didn’t really mean to affect their pensions than it is that Turner was dishonest with them about what he intended to do. The firefighters, with some justification, have felt invulnerable for a long time. Having that come crashing down around them has got to be a tough thing to take. One also wonders how much previous Mayors, nearly all of whom have had tumultuous relationships with the firefighters, are getting a bit of grim satisfaction out of this. I mean, if the firefighters had ratified the contract agreement that their leadership agreed to with Mayor Parker in 2014, and if they had worked with Mayor Parker to pass a pension reform plan back in 2013, we wouldn’t be having any of this conversation now. Maybe they wouldn’t be any better off than they are now, but it’s hard to see how it would be any worse for them. I know, hindsight is 20-20, but surely some of this was foreseeable.

Firefighters sue city over contract negotiations

These are busy days for the HPFFA.

Mayor Sylvester Turner

Houston’s fire union sued the city Wednesday alleging Mayor Sylvester Turner’s administration failed to act in good faith during contract negotiations, exacerbating tensions between firefighters and City Hall.

The lawsuit filed in state district court came just two days before firefighters’ “evergreen” labor agreement with the city expires, at which point local and state law will govern their employment until a new deal is reached.

Those employment terms – unanimously approved by City Council Wednesday morning – are less favorable than those in the evergreen.

Turner said he offered to extend the more generous arrangement another 30 days while negotiations continued, but the fire union preferred to resolve the issue in court.

“When you say no, what do you expect a city to do?” Turner said before council voted to amend local ordinance. “They made their choice.”

A letter provided by the mayor’s office shows the city on May 12 proposed extending the collective bargaining agreement by 15 days. Three days later, firefighters declared an impasse, allowing them to request an arbitrator to settle the contract dispute.

The city declined that option, Houston Professional Fire Fighters Association President Marty Lancton said, but agreed to mediation, which began last week.

[…]

South Texas College of Law Houston Professor Richard Carlson said the vagueness of state law makes it difficult to assess firefighters’ chance of success.

“Our law is still very uncertain, and when you throw in the fact that public employees can’t strike anyway, it’s hard to say what the practical outcome in any of these cases is,” Carlson said.

It’s been a busy couple of months for the firefighters, and not in a good way. They lost the fight over the pension reform bill in the Lege, and subsequently filed a lawsuit over it. This fight was over their collective bargaining agreement with the city, which expired three years ago. I’m not exactly sure what they were hoping to accomplish with their negotiating tactics, but it appears they didn’t get what they wanted. I don’t know what will happen with these lawsuits or the contract talks, but I get the sense that the firefighters have lost some goodwill. It’s more than a little incredible that no one on Council voted against the less-favorable employment terms for them. They’re big players in city elections, so either they now have a lot of former friends or they have a problem of image or communications or something that they might want to consider addressing. I don’t know how to advise them other than to say they ought to give this all some thought. The Press has more.

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.

Senate rejects House changes to Houston pension reform bill

Conference committee, here we come.

Mayor Sylvester Turner

The Texas Senate on Wednesday refused to concur with House-passed amendments to a reform bill designed to resolve financial problems for Houston’s pension system.

Sen. Joan Huffman, a Houston Republican who is the author of the legislation, said the House changes would be too costly and would derail a tentative agreement brokered by Houston Mayor Sylvester Turner.

Huffman, saying the passage of the bill “is absolutely essential to the city’s future,” said one of the House amendments alone would add an additional $26.7 million to the cost of the reforms, an unaffordable amount.

Huffman was appointed chair for Senate negotiators assigned to negotiate a final version of the bill, joined by Sens. Jane Nelson, Charles Schwertner, Kelly Hancock and Carlos Uresti.

See here for the background. The amendment in question was authored by Rep. Dwayne Bohac; the Chron called for its removal, so there’s that. My guess is that the final version of the bill will be more or less the Senate version, and it ought to be approved without too much difficulty.

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.

Petitions submitted to force another pension vote

Oh, good grief.

Voters soon could decide whether to close Houston’s traditional pension plans to new employees after political activists submitted a petition to City Hall to force a referendum this November.

The petition further complicates Mayor Sylvester Turner’s efforts to pass a pension reform bill, which already had hit a hurdle in the state Senate this week on precisely the same issue of whether new hires should be put into “defined contribution” plans similar to 401(k)s instead of one of the city’s three employee pension systems.

The petition, which began circulating at college campuses, grocery stores and elsewhere in February, calls for a public vote to require a shift to defined contribution plans for all city workers hired after the start of 2018.

Under traditional pension plans, the city promises employees specific payments based on their years of service and salaries and makes up for market losses by putting in more money. Defined contribution plans are those in which the city and employee set money aside in an account that rises and falls with the market.

Windi Grimes, a public pension critic and donor to the Megaphone political action committee that sponsored the petition drive, said the group submitted 35,000 signatures to the city secretary’s office Thursday. That easily would clear the 20,000 signatures required by law to trigger a charter referendum, provided City Secretary Anna Russell verifies the names.

Grimes, who also works with Texans for Local Control, a political group that wants Houston, not the Texas Legislature, to control city pensions, had described the petition effort as an “insurance policy” in case the Legislature does not move to defined contribution plans for new city employees.

[…]

Houston Republican Sen. Joan Huffman ended weeks of negotiations with city officials, union leaders and conservatives over whether and how to incorporate defined contributions plans by releasing a new draft of the pension bill Wednesday. It said the city and workers could agree to move to a defined contribution plan, but did not require that change.

In response, Sen. Paul Bettencourt, another Houston Republican, said he would propose an amendment to ensure the result of any city charter change to defined contribution plans would be binding. That wording is necessary, he and others said, because some lawyers say amending the city charter alone would be insufficient, since Houston’s pensions are controlled by state statute.

“I’m just trying to stay on a public policy position I’ve had for over a decade,” Bettencourt said, adding that he is not working with Megaphone or Texans for Local Control and that he already had filed a separate bill mirroring the language of his amendment.

The Houston reform bill had been expected to reach a Senate vote Thursday, but Bettencourt’s amendment created an impasse: some bill supporters, led by the chamber’s Democrats, were unwilling to let the item come to a vote, fearing they lacked the votes to torpedo Bettencourt’s proposal.

“If he brings it up, (Huffman) says she won’t accept it, but she’s going to need about five or six Republicans to go with us to block it,” said Sen. John Whitmire, D-Houston. “That’s a tough vote for them.”

Turner accused Bettencourt of seeking to kill the pension reform proposal for political gain.

“Quite frankly, what he wants is not a pension resolution. It seems like he’s asking for a re-vote of the mayoral race in 2015, and that’s unfortunate because he’s not putting Houston first,” Turner said. Bettencourt in 2015 supported mayoral runner-up Bill King, who has spent months publicly criticizing Turner’s pension reform plan and calling for a switch to defined contribution plans for new city workers.

I found this story so annoying that I had a hard time putting my thoughts together about it. So I’m just going to say these four things for now:

1. We have already had an election on this question, in 2015 when Sylvester Turner won the Mayor’s race. A lot of people, led by Mayor Turner, have put in a ton of work, including political work, to put forth a workable solution for the city’s pension issues. You can feel however you want about the Mayor’s proposal – the firefighters are certainly not very happy about it – but it represents a Houston solution to a Houston problem, which the voters have already had a say on. These efforts to undermine it are the opposite of that, and the people pushing it are doing so because they don’t like the solution Houston and Mayor Turner have crafted for its problem. They would rather see the whole effort fail, and that is what they are working for.

2. You have to admire the shamelessness in calling this group that has come out of nowhere and is in no way complementary to the Turner plan “Texans for Local Control”. Who wants to bet that it’s funded by a bunch of rich conservative activists who are mostly not from Houston and will go to court to keep their identities secret?

3. The story quotes HPOU President Ray Hunt as saying the petition collection effort is a “sham” and that they have evidence of people signing the petitions multiple times. You’d think that would be a big deal, but then you remember that the Supreme Court ruled in the mandamus that forced the HERO vote in 2015 that the city secretary could only check that a signature belonged to a registered voter. It’s OK if it’s forged – the city secretary is not empowered to check that – as long as the forgery in question belongs to a valid voter.

4. There sure could be a lot of referenda on the ballot this 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.

Is there some fretting about Mayor Turner?

Maybe? I don’t know. I guess it depends on how you define “fretting”.

Mayor Sylvester Turner

The resignation of Mayor Sylvester Turner’s top deputy – a social justice advocate and one of the mayor’s few confidants in a sea of senior staff appointed by the previous mayor – is fueling worry among aides and allies about the administration’s commitment to the progressive policy goals on which he campaigned.

Turner for months has downplayed his unusual decision to entrust much of the implementation and communication of his policies to his predecessor’s staff, urging focus on big-ticket accomplishments, such as bringing a pension reform deal to the state legislature, soothing tempers on City Council and closing last year’s $160 million budget gap.

However, chief of staff Alison Brock’s departure just 15 months into Turner’s term has stoked renewed angst among supporters who think Turner has not championed the progressive platform for which they worked to get him elected.

“We’re a little concerned, because she was that voice at the table, so we were confident our concerns were being heard,” said Tarsha Jackson of the Texas Organizing Project. “Now, we’re just hopeful the mayor gets someone that shares his vision, the vision that he had when he ran for office. We don’t have an ally in the mayor’s office right now.”

Jackson, who met and befriended Brock in 2004 when she was Turner’s legislative aide, said TOP’s attempts to reform city economic development policies have stalled, despite Brock’s support.

Labor leader Linda Morales said the same of her efforts to push an ordinance asking city contractors to provide better wages, community engagement and job training.

“Labor wants to be a partner with the mayor,” she said. “We want him to speak to his staff and get on the program with us because it’s his agenda we’re trying to push.”

Turner distinguished himself as a candidate on such issues, calling for a higher minimum wage and pushing the city to require recipients of tax incentives to pay higher salaries. He also decried Houston’s economic inequality, stressing the need to “build a city for the middle class.”

Despite maintaining similar rhetoric in office, the mayor has hesitated to bring forward sweeping progressive policy proposals. His much-hyped “Complete Communities” plan aimed at revitalizing Houston’s under-served neighborhoods, for example, still awaits implementation. As for employee benefits, the city passed an ordinance last year suggesting companies seeking tax breaks offer additional benefits but did not require them to do so.

“The mayor is being cautious, in my opinion maybe too cautious. He’s got issues he wants to pass at the state Legislature, so he’s trying to make his way through the land mines without having folks hurt his possibility of passing pension reform,” said Morales, of the Texas Gulf Coast Area Labor Federation, AFL-CIO. “I understand that totally, but there’s other things I know, as a collective, progressives want to move.”

The mayor bristled at any perception of sluggish progress.

“Compare my track record with any previous mayor, and if they did as much. Name me one mayor in the last 20 years that has brought forth a pension reform package to this point. … Name me one mayor that has attended more events than I have,” Turner told reporters. “Even though I came in on a very close vote, I have governed in a very uniform, universal fashion.”

Texas Southern University political scientist Jay Aiyer largely agreed.

“Other than (former Mayor Bob) Lanier, he’s probably the most successful first-term mayor I’ve seen,” said Aiyer, who served as former mayor Lee Brown’s chief of staff.

I get Tarsha Jackson and Linda Morales’ concerns. Mayor Turner did run a progressive campaign, and he did talk about a lot of non-pension things. To be fair, that was in part because the other guy was talking about it more than enough for everyone. Mayor Turner was always going to have to deal with that, and I feel like lots of things are sort of waiting in the wings until a pension bill gets through the Legislature. (Assuming one does; if that doesn’t happen, it’s hard to say what comes next.) That was basically the theme of look back at Year One story on the Mayor. I think it’s fair to say that if he gets a win on this big issue, it not only restores a lot of oxygen for everything else, it gives him some momentum and capital to push for things that will generate significant political opposition, which includes a lot of the agenda Jackson and Morales are hoping to see get enacted.

I recognize that it sucks to hear that these progressive items that Mayor Turner campaigned on have to wait. It’s far from the first time that has been the message, and I’m sure Jackson and Morales have lost count of the number of times they have heard it. I don’t know what else to suggest other than if you think Mayor Turner is still basically the same person as Candidate Turner was, you’ll need to have faith that he will do as he said he would. Easy for me to say, I know. The other thing I could add is that given the anti-local control nature of this legislative session, there are strategic reasons for waiting till after sine die to roll out a plan for an increased minimum wage or the like. Again, I know what that sounds like. Jackson and Morales clearly understand how and why things are. A little reminder to the Mayor that they’re still here seems like a reasonable strategy. A press release from the Mayor in response to this story is here.

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.

Some dude opposes pension reform

Presenting this in a slightly redacted form.

[Some dude] has joined friend and ally Sen. Paul Bettencourt, R-Houston, in rallying opposition to [Mayor Sylvester] Turner’s [pension reform] proposal among conservatives. He has attended at least three dozen forums on the topic, by his count, and has been running social media ads touting his views on Facebook, has traveled to Austin to lobby legislators and has formed a pension-focused political action committee with Bettencourt.

The recent mayoral runner-up’s central role in his rival’s most important initiative is unprecedented, political observers say.

“It does somewhat seem like sour grapes for a defeated mayoral candidate to continue to campaign against his victorious opponent,” said Rice University political scientist Mark Jones. “It perhaps would have been more productive to allow Sylvester Turner to handle this himself for the first legislative session of his tenure and only get more actively involved if that session had not resulted in a significant improvement.”

[…]

[Some dude] insists the aim of his critiques is to improve Turner’s proposal, not kill it, and says he is not using the issue to position himself for another mayoral run.

His critics aren’t buying that. They accuse [some dude] of acting out of self-interest in seeking to torpedo the reforms, or of at least failing to grasp that his actions will make that result far more likely.

In particular, [some dude] and Bettencourt want to move all new city workers to defined contribution, or “DC,” pensions similar to 401(k)s – which the employee groups despise because it leaves their retirement pay vulnerable to market fluctuation – and to force a referendum on the $1 billion in pension bonds that are a key piece of the reform package.

“I would concede that it’s unusual, but I don’t understand why there’s anything wrong with it,” [some dude] said of his role. “Just because one candidate advocates some things and loses an election doesn’t mean that all those things are wrong and are off the table forever.”

[Some dude] acknowledges his dozen email blasts attacking the proposal as a “secret” attempt to pass “a bad deal” that is “not real reform” and would “make the city a financial cripple” have sometimes been “harsh” or indulged in “hyperbole.”

[…]

“My role here is to fire up the Republican base to support the two reforms that I want added to the bill,” [some dude] said. “It is a Republican-controlled Legislature. The Republican base is not a little bit in favor of DC plans, they are way in favor of it.”

Not accounting for the union’s certain negative response to these controversial provisions, lawmakers and legislative observers said, means [some dude] might as well say he wants the deal dead.

“[Some dude] feels strongly that there should be defined contribution plans. He ran on that. We had a vote, and he lost,” said Robert Miller, a former Metro chairman and a longtime lobbyist for the city’s three pensions, among dozens of other clients. “That was not something the employee groups were willing to agree to. If you stick that in, there’s a high likelihood that the agreement falls apart. He is seeking to kill the deal.”

I’m sure you can tell who this story is about, but I have no desire to give him any more attention for it. I neither know nor care what this guy’s motivations are, but I do know this: He’s seeking to use the Legislature to overrule the voters who rejected him in 2015. I have no respect for that, and as such I no longer have any respect for him. Hope you’re happy, dude.

Interview with Bill Kelly

You may have heard that the city of Houston has some legislative business to take care of this session. Most notably, the city wants to get a bill passed to implement its pension reform plans, which may or may not have been complicated by the news that a vote could be required for the city to float pension obligation bonds. The person who is on point for this, to work with legislators to lobby for city issues and get the legislation it wants passed while stopping the legislation it doesn’t want passed is Bill Kelly, the Director of Government Relations under Mayor Sylvester Turner. I spoke to Kelly about his work in Austin, on topics ranging from pensions and “sanctuary cities” to speed limits and pipe bombs – yes, pipe bombs – and what the city’s goals are for each. We referenced a few links in our conversation, which include:

The Kinder Institute study on pension funds.
The City of Houston Legislative Priorities and the City of Houston Legislative Principles for the 85th Legislature.

With all that said, here’s what Bill and I talked about:

I’ve got a few more of these interviews about issues in the Legislature to do. I hope you find them useful.

We may be voting on pension obligation bonds

Oh, boy.

Mayor Sylvester Turner

A state lawmaker carrying Houston’s pension reform bill says her version of the proposal will require a public referendum on a $1 billion cash infusion central to the negotiations, an idea Mayor Sylvester Turner called a “poison pill” that could derail the reforms and force “massive” layoffs.

The requirement that voters have a say on the $1 billion in pension obligation bonds is the brainchild of Sen. Paul Bettencourt, R-Houston. Fellow Houston Republican Sen. Joan Huffman, who is carrying the reforms in the higher chamber, said she understands the mayor’s frustration but said her bill – which still is being drafted – will not pass without the provision.

“It is a billion-dollar bond, and though it’s not new debt – it’s debt that the city owes to both the police pension fund and to the municipal pension fund – I can understand how the voters would want to have a voice in the issuance of the bonds,” Huffman said. “To get it out of the Senate, it’s a necessary addition to the bill.”

Turner’s reform plan, despite ongoing wariness from the firefighters’ pension fund, emerged from a year of negotiations in Houston with broad support from civic think-tanks, business leaders and pension experts, as well as a 16-1 endorsement from City Council.

[…]

“That is a poison pill, and you are saying you want this deal killed – and it will kill this deal,” Turner said at Wednesday’s council meeting. “If that’s the course that the Legislature chooses to take, then the Legislature must also say to people in this city – to businesses and property owners – ‘We are assuming responsibility because the state can do it better.'”

Turner also sought to spell out the consequences if the reforms fail: still-rising pension debts, an additional $134 million added to an already sizable deficit in the coming budget, and “massive layoffs” touching every city department.

Boy, between this and the Astrodome and the revenue cap and maybe another Metro referendum, not to mention the May recapture re-vote, this may wind up being a far busier election year than it would have with just the usual slate of city races on the ballot. I’ll be honest, I had thought from the beginning there would have to be a vote on the pension obligation bonds, but it turns out that’s not the case thanks to a law passed in 2003. The rationale is that this is not new debt, since the city in this case already owes the money. Be that as it may, I don’t necessarily object to voting on them, though I have to wonder once again why Houston is being singled out like this. What’s the rationale for having a vote, other than “it’s a lot of money”, which as a reminder the city already owes? Paul Bettencourt says “anytime you consider $1 billion of anything, the public should vote on it first”, but if that’s the threshold then why is there a bill to vote on $100 million of Astrodome spending? The thing about having a vote is there’s a winner and there’s a loser. If there is a vote on pension obligation bonds, who’s rooting for Yes to win, and who’s rooting for No? It would be nice to be clear about that before we go on.

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.

HPD retirements

This is a concern, but I don’t think it’s a big one.

A dozen of the Houston Police Department’s top commanders were among 123 officers who filed paperwork this week indicating they plan to retire in the first half of next year, senior City Hall and HPD sources said, a sign that a rumored exodus driven by unease about possible pension reforms may be underway.

As of last month, the department’s retirements for 2016 were on pace with the attrition rates seen in recent years. However, the number of officers now expected to leave by July 1 – the earliest a new pension structure would take effect, if Mayor Sylvester Turner can get the proposal passed at the Legislature – far outstrips the typical volume of about 50, HPD spokesman John Cannon said.

Officers can retire at any time, but Wednesday was the deadline for those who wish to enter a program called “phasedown” in which employees effectively retire but retain some benefits of employment while using up accumulated vacation days and other paid time off.

The uptick in retirement filings comes as city officials and law enforcement experts acknowledge the police department already is understaffed. HPD has fewer officers on the street today than it had to police a much smaller city 15 years ago, and a recent operational study recommended ramping up hiring to improve the rates at which crimes are solved.

City leaders long have been concerned that huge numbers of first responders are eligible to retire, as many were encouraged to stay on the job by the pension benefit increases Turner now is working to roll back. About 37 percent of police officers and 25 percent of firefighters are eligible to begin drawing a pension.

The mayor cast the number of retirement filings as a positive, saying it was lower than some had predicted.

“Considering there are 1,900 officers eligible to retire, I view this as a positive response to the pension reform,” Turner said. “These numbers are in line with what we normally see. They are definitely far lower than the hundreds of retirements some had speculated we would have. Instead, we have hundreds who are staying. I want to thank them for their commitment and vote of confidence in the pension reforms.”

[…]

Many senior HPD chiefs face a fairly obvious decision to retire because of a provision that essentially drops the salaries on which their pension payments would be calculated to that of captain. The effect is similar for some lower-ranking officers, as well.

“Folks have to make decisions based on their personal financial consequences if they were to stay, and I understand that,” Acevedo said. “I’m confident that regardless of the numbers, our men and women are up to the challenge and are committed to doing whatever it takes to keep Houston safe, which is as simple as starting an overtime program where all hands will be on deck, working patrol or whatever other function needs to be worked.”

Acevedo also was unphased by the prospect of losing as many as 13 of HPD’s top 17 commanders, the number sources said filed retirement papers Wednesday, in part because he intends to flatten the command structure.

“You hate to see a lot of good people leave, but the sky’s not going to fall,” he said. “With the retirement of good people, it creates opportunities for other good people who are full of energy, ready to lead and probably will bring a new, fresh creativity to their position. We’ll get through it.”

I agree completely with Chief Acevedo. HPD and the city will be fine. The hiring of the new chief, who is planning to make changes in the command structure, would likely have spurred a few departures even in the absence of the pension change. There will likely be some bumps in the road, but this is just the circle of life. We will indeed get through it.

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.

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.

What do we want of a Fire Department study?

Whatever it is, this wasn’t it.

A much-anticipated analysis of fire department operations essentially was dead on arrival Friday after it failed to identify cost savings and called for a multitude of investments, including three new fire stations.

Mayor Sylvester Turner promised to conduct another review of the $500 million department to supplement the $297,000 study, which came in roughly $1.7 million under budget.

“You get what you pay for,” Turner said. “I view this report as a starting point for what we need to learn more about. There will certainly be a second, more critical review by my own administration.”

The city solicited bids for the report two years ago amid concerns about resource allocation and a staffing shortage that increased overtime costs.

The 178-page report by Facets Consulting praised the Houston Fire Department’s “high degree of dedication” and took aim at budget cuts made after the 2008 recession It also criticized Houston’s voter-approved cap on property tax collections.

[…]

City Council’s public safety and homeland security committee is slated to take up the report Wednesday, and Turner said he expects the group to prepare an analysis by March.

Obviously, Mayor Turner is looking for a report that outlines ways that the city can save money on the fire department. Any deal involving pensions (for all three funds) is going to involve the city paying more in some places, so it needs to find savings elsewhere. This report outlined a bunch of ways in which the city could do more and do better, and I have no doubt many of those recommendations have a lot of merit. What they don’t have is a way to pay for them. Maybe someday later, but not now. That’s just how it is these days.