Pen­sion re­form deal may not be per­fect, but it’s good for the city

Houston Chronicle Sunday - - SUNDAY MORNING - ERICA GRIEDER

Polling has found that a ma­jor­ity of Har­ris County vot­ers are in fa­vor of Propo­si­tion A, which asks Hous­to­ni­ans to au­tho­rize a bil­lion dol­lars worth of pen­sion obli­ga­tion bonds.

Ex­pe­ri­ence shows that a ma­jor­ity of Tex­ans don’t vote in off-year elec­tions, even if the stakes are as high as they are in this one. Pas­sage of Prop A may be “ab­so­lutely crit­i­cal to Hous­ton’s fi­nan­cial fu­ture,” as my col­leagues on the ed­i­to­rial board put it. Its fail­ure would mean the city be­gins the next fis­cal year with a siz­able bud­get hole. Even so, early vot­ing be­gan on Mon­day, and peo­ple are not yet stam­ped­ing to the polls.

And the mea­sure, like ev­ery­thing re­lated to pol­i­tics, is con­tro­ver­sial. In Septem­ber, David Jen­nings noted that in a post for his blog, Big Jolly Pol­i­tics, sug­gest­ing that I should take a look at Prop A and ren­der my ver­dict.

“If she is able to com­plete my as­sign­ment,” Jen­nings wrote, “you will have a very good, very trust­wor­thy anal­y­sis to use to help you make your de­ci­sion.”

I was hon­ored by his con­fi­dence and can un­der­stand why some read­ers might be skep­ti­cal of it. I ar­rived in Hous­ton less than two weeks ago and still haven’t fig­ured out where City Hall is. But I do like writ­ing about bud­gets, and in­no­cence might be an ad­van­tage, in this con­text.

Ev­ery­one agrees that Hous­ton needs pen­sion re­form. The city has three pub­lic pen­sion funds, for po­lice, fire­fight­ers, and mu­nic­i­pal em­ploy­ees. They are, as it stands, only 55 per­cent funded. The un­funded li­a­bil­i­ties work out to $15.7 bil­lion. The city’s share of that would be up to $8.2 bil­lion, de­pend­ing on how shrewd the fund’s man­agers might be.

Sylvester Turner cam­paigned on the is­sue while run­ning for mayor in 2015, and the pen­sion obli­ga­tion bonds are part of the plan he pro­posed this year and pur­sued in the 85th Leg­is­la­ture.

The re­sult, after ex­ten­sive ne­go­ti­a­tions, was Se­nate Bill 2190, au­thored by state Sen. Joan Huff­man, RHous­ton. Its terms call for city em­ploy­ees to con­trib­ute more to their pen­sion funds and ac­cept $1.8 bil­lion in ben­e­fit cuts in ex­change for an in­fu­sion of cash via the pen­sion obli­ga­tion bonds. It also lim­its the risk of fu­ture cost in­creases, through a fi­nan­cial cor­ri­dor pro­vi­sion that caps the city’s con­tri­bu­tion rates.

Fire­fight­ers op­posed the deal, as did some con­ser­va­tives, for var­i­ous rea­sons. But it had the back­ing of many Repub­li­cans and business groups, as well as Hous­ton po­lice and mu­nic­i­pal em­ploy­ees, and was signed into law by Gov. Greg Ab­bott after be­ing ap­proved by the Texas Leg­is­la­ture. Op­tion of ig­nor­ing

The ques­tion at hand is there­fore whether Hous­ton should is­sue the pen­sion obli­ga­tion bonds, which city lead­ers al­ready agreed to do, as part of the pen­sion re­form deal, which took ef­fect on July 1.

The deal it­self is not per­fect, for a va­ri­ety of rea­sons, and con­ser­va­tives may see it as a BandAid, be­cause city em­ploy­ees would still be en­rolled in de­fined-ben­e­fits plans. Fis­cal con­ser­va­tives are wary of that ap­proach, in gen­eral, be­cause if the ben­e­fits are de­fined, the costs of the plan it­self are nec­es­sar­ily in­de­ter­mi­nate. They can eas­ily be higher than ex­pected, and of­ten are.

Dur­ing the 2015 may­oral cam­paign Bill King, the run­ner-up, had ac­cord­ingly ar­gued that new city em­ploy­ees should be en­rolled in de­fined­con­tri­bu­tion plans, and over lunch this week, he told me that he still wished Turner had pur­sued that op­tion.

“The can will be smaller when we get to it next time, but it will still be a can,” he said.

Still, King was plan­ning to vote for Prop A. The deal Turner ne­go­ti­ated wasn’t the one he would have pre­ferred, he ex­plained, but Turner won the elec­tion and, in his as­sess­ment, it was bet­ter than noth­ing.

Other con­ser­va­tives, how­ever, see that as the prob­lem. In the pub­lic sec­tor, at least, em­ploy­ers who of­fer de­fined ben­e­fit plans of­ten have the op­tion of ig­nor­ing the prob­lem un­til some­one else has to deal with it, and Hous­ton lead­ers have ex­er­cised it.

In 2001, for ex­am­ple, the Hous­ton Mu­nic­i­pal Em­ploy­ees Pen­sion Sys­tem pro­posed over­haul­ing their plan to ex­pand ben­e­fits — an ef­fort that was sup­ported by then-Mayor Lee P. Brown.

In a 2004 op-ed for the Chron­i­cle, Brown ex­plained his rea­son­ing. The city’s bud­get was stretched thin. Mu­nic­i­pal em­ploy­ees had been forced to go with­out a raise. And Tow­ers Per­rin, the ac­tu­ar­ial firm that eval­u­ated their plan, con­cluded that if the city just in­creased its con­tri­bu­tions, there would be no im­pact to the fund.

“At the time, it was a rea­son­able thing to do,” wrote Brown.

That’s as­sum­ing, how­ever, that the city would ac­tu­ally pony up, rather than merely promis­ing to do so some­day. Hous­ton fire­fight­ers, as it hap­pens, have been stick­lers on this point, but po­lice and mu­nic­i­pal em­ploy­ees have not. The Hous­ton Fire­fight­ers’ Re­lief and Re­tire­ment Fund, as a re­sult, is in pretty good shape; the other two pen­sion funds are not. ‘A failed sys­tem’

All of this raises some rea­son­able ques­tions about the city lead­ers urg­ing vot­ers to ap­prove the pen­sion obli­ga­tion bonds, as it might if some­one asked you for a loan so they can pay off their credit card. An­other loan, that is; Hous­ton al­ready has about $600 mil­lion in out­stand­ing pen­sion obli­ga­tion debt.

“Is­su­ing the bonds eter­nal­izes a failed pen­sion sys­tem,” ar­gues Bill Frazer, who ran for city con­troller in 2015.

I can see where he’s com­ing from.

Still, I dis­agree with his con­clu­sion. A bil­lion dol­lars is a lot of money, but Hous­ton vot­ers are al­ready on the hook for more than that. And pas­sage of Propo­si­tion A would help lessen the bur­den, in ad­di­tion to its st­ing. In­ter­est rates are low. Hous­ton’s mu­nic­i­pal debt has a de­cent credit rat­ing. The deal, as men­tioned, in­cludes sig­nif­i­cant ben­e­fit cuts — which can be re­scinded, if the city doesn’t come through with the pen­sion obli­ga­tion bonds.

And so the ques­tion Jen­nings asked me is, after all, a straight­for­ward one. In my view, the pas­sage of Propo­si­tion A would be a good thing for Hous­ton. The mea­sure is rea­son­able in it­self, and it’s only one part of the pen­sion re­form deal — a deal which may not be per­fect, but is al­ready done.

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