Leah Binkovitz | @leahbink | October 24, 2016
“Today is a special day for the city of Houston,” Mayor Sylvester Turner told a crowd at City Hall Monday after the Firefighters’ Retirement and Relief Fund became the final of three city pension boards to approve the mayor’s pension deal in a 7-2 vote, joining the police officers’ pension system and the municipal employees’ pension system. “We are all on the same page,” he said of the plan that will be presented to the city council on Wednesday. Notably, the plan does not call for a tax increase, according to Turner. “This plan establishes a reliable and sustainable pension system for the city of Houston,” the mayor said.
The support of the firefighters is a critical step for the plan’s success, according to Max Patterson, the executive director of the Texas Association of Public Employee Retirement Systems. With their approval and Turner’s experience in the legislature — the next step after Houston’s city council votes on the plan — Patterson said the plan’s odds of success are stronger, at a panel discussion shortly after the mayor unveiled his proposal.
The mayor touted the plan’s reforms Monday, saying it will immediately reduce the $7.8 billion unfunded pension liability by 30 percent, set a hard 30-year payoff debt for the remaining debt and force a return to the negotiating table if no agreement is reached or if the city’s annual pensions costs begin to exceed agreed upon limits.
Like many cities, Houston has faced a growing unfunded pension liability for over a decade with lower than expected rates of return and lower than needed annual payments into the funds by the city, according to an analysis by the Kinder Institute. “Every major city in the United States has this challenge,” said Jack Christie, city council member and chairman of the budget finance committee, who hailed the deal as critical to a balanced budget at Monday’s press conference.
The plan will use a lowered assumed rate of return more in line with rates used in other cities and will commit the city to fully funding each pension fund annually. Some $2.5 billion in savings will come from benefits cuts, mostly to cost-of-living adjustments, as well as reductions in Deferred Retirement Option Plans (DROP) benefits. The plan also calls for $1 billion in pension obligation bonds, a step some experts are skeptical of. “It really is just moving debt from one place to another,” said Jean-Pierre Aubry, associate director of state and local research at the Center for Retirement Research at Boston College, at the panel event. His research formed the basis of the Kinder Institute’s pension report. Still, the plan adopts several key steps recommended in the report toward sustainability.
“We are closer than ever to solving what no one else has been to solve over the last 15-plus years,” Turner said.
City council is expected to vote on the plan Wednesday, which will then head to the state legislature for approval. “This is the deal,” said Turner, adding that if there is “any attempt to unravel it,” he will not support it.