Ryan Holeywell | @RyanHoleywell | May 25, 2017
The Texas state legislature Wednesday passed a Houston pension reform package, providing a major legislative victory to Houston Mayor Sylvester Turner, who has made the issue his top priority since taking office almost 18 months ago.
The pension reform package will become law once it’s signed by Gov. Greg Abbott.
“Today is a historic day because we have done what many said was impossible,” said Turner in a statement. “Today’s significance is not marked merely by what we have accomplished, but by what we can achieve now that we have lifted a significant barrier to progress in our city.”
Turner has made the case that Houston’s pension obligations are so onerous that they would prove to be a major obstacle to the city going forward, sucking up a larger and larger portion of its tax revenues and depriving the public of the ability to use that funding for other priorities. Meanwhile, credit agencies have also cited Houston’s growing pension costs as a concern. Turner had threatened mass layoffs if the pension reform wasn’t passed.
In a report published last year, the Kinder Institute calculated Houston’s unfunded pension liability at $3.9 billion as of 2015, up from $212 million in 1992. The city contributes $350 million per year to its three pension funds, a number that’s not even large enough to stop the growth of liability, the report found.
City officials — who calculated Houston’s unfunded pension liability at $8.2 billion — said the reforms will help them chip away at that figure.
The reforms don’t entirely solve the problem, nor do they eliminate large pension costs any time soon. But they are aimed at stopping the bleeding, allowing the city to gradually cut its pension debt and eventually stop rising pensions costs.
Mike Morris of the Houston Chronicle summed up the significance of the package’s passage nicely:
Whatever looms ahead, it is hard to overstate the extent to which Houston’s pensions crisis has come to dominate municipal politics – from recent mayoral elections and City Council budget debates all the way down to civic club meetings – and the disbelief many at City Hall feel at long-discussed reforms actually coming to fruition….
Public officials confronting worker demands for higher pay and better equipment or citizen demands for better services seemed always to wind up at the same answer: Pensions. Rising pension costs, gobbling up the dollars that would otherwise go elsewhere.
The legislation, along with Turner’s negotiated reforms, includes several key elements:
* The three pension plans will assume a 7 percent rate of return on investments, a more realistic assumption than they’ve used in the past that will allow for more accurate projections and funding.
* A mechanism Turner calls the “corridor,” which establishes triggers. If the plans’ returns fall below certain levels, benefits will be cut or employee contributions will be increased to close the gap.
*In order to issue $1 billion in pension bonds Turner advocated for, the legislation requires Houston voters’ approval.
The Chronicle notes that the last item could be a sticking point: without that approval, “much of the $2.8 billion in benefit cuts the mayor negotiated will be rescinded.”
While the package had the support of the city’s municipal workers and police workers, firefighters opposed the reform package.
Assuming the governor signs the bill, it will take effect July 1, according to the Chronicle.