Pension Obligation Bonds Will Be on Houston’s Ballot

After some back and forth, Houston’s city council voted Wednesday to put $1 billion in pension obligation bonds on the ballot this November.

The vote comes with consequences for the pension reform deal approved by the state earlier this year, as Houston Chronicle reporter Mike Morris explains:

“If the underfunded police and municipal pensions do not get their bond dollars, the reform legislation would rescind the $1.8 billion in benefit cuts Turner negotiated with those groups, hiking the city’s annual pension costs by $155 million overnight.”

The council decided to postpone a vote on a host of other improvement bonds that could also be on the ballot.

Most Houstonians support the use of obligation bonds to fund city employee’s pensions, according to a poll conducted by the University of Houston’s Hobby School of Public Affairs in May. Support among registered voters who had voted in the 2015 municipal election was even higher.

But what exactly will these pension obligation bonds do?

“It really is just moving debt from one place to another,” Jean-Pierre Aubry, associate director of state and local research at the Center for Retirement Research at Boston College, told a crowd gathered in September to learn more about the mayor’s proposed pension reforms. Aubry’s research formed the basis of the Kinder Institute’s pension report.

The city has relied on pension obligation bonds in the past. The report broke down why it was a useful step for the city but not one that did much to the overall debt:

Due to the backloaded structure of the principal payments on the Pension Obligation Bonds, the bonds have played an important role in providing the city with cash-flow flexibility. However, the issuance of POBs does not really reduce the overall liability related to pensions for Houston. Rather, it simply shifts the city’s financial obligation: Instead of owing the pension systems directly, it owes bondholders.

Still the vote will prove critical to the mayor’s reform deal and would help support the pensions of municipal workers and police officers in Houston. Without voter approval, explains Morris, “the substantial benefit cuts to those groups could be rescinded – which would increase the city’s costs immediately.”

Print Friendly

Leah Binkovitz

Leah Binkovitz is Senior Editor with the Kinder Institute for Urban Research.

Leave a Reply

Your email address will not be published. Required fields are marked *