Mayor’s credibility with unions helped get city’s pension deal done
There’s a deal on pensions in Houston. Anything is possible now. The Cubs can win a World Series. I will start using sports metaphors. I’ll be able to walk into a McDonald’s and respond to the aromas and mouth-watering LED imagery by coolly ordering only coffee. Black.
It took 10 months. But a Houston mayor — that would be Sylvester Turner and his staff — actually hammered out a deal to address the city’s $5.6 billion, 15-years-in-the-making pension crisis.
Sure, there are some pretty cranky firefighters this week. Trustees still haven’t shown up for one of Turner’s news conferences.
But it seems firefighters acknowledge there’s a problem, and they’re tentatively on board to find a solution. In a 7-2 vote this week, their pension board agreed for the first time ever to cut benefits for current workers and retirees. It’s worth noting that the vote came two months after the abrupt retirement of longtime pension board chairman Todd Clark, who cast previous attempts at reform as attacks.
“I’m actually flabbergasted the pension systems have agreed to some benefit reductions,” said Craig Mason, the city’s former pension consultant and retired actuary who has long advocated several of the reforms in Turner’s plan. “I’ll have to give Turner full credit. Apparently, he pushed the pension boards pretty hard in getting something done.”
Or, maybe it’s all about relationships — locally, and in the Legislature, where any deal would have to be approved. The pension boards for police, fire and municipal workers simply may have trusted Turner more than past negotiators.
“If there’s four reasons it got done, four of them are Mayor Turner,” said the city’s finance director, Kelly Dowe. “I think it’s the credibility he brings. He’s been on their side for a long time, and when he said, ‘folks, something has to change,’ they sat up and listened.”
Turner struck a delicate
balance. Still, the deal is a long way from making it through the legislative gauntlet. And some reform advocates, from the Greater Houston Partnership’s Municipal Finance Task Force to state Sen. Paul Bettencourt, R-Houston, want to look under the hood before they drive it off the lot.
Legitimate questions
They’re asking good questions. The Partnership wants to know more about independent oversight on investment returns and conflicts of interest. Bettencourt, along with former mayoral candidate Bill King, are raising red flags about Turner’s plan to issue $1 billion in pension obligation bonds.
Bettencourt told me this week he plans to file a bill during next year’s legislative session requiring voter approval of such bonds.
“They’re expensive instruments, and there’s no limit,” he said.
Dowe, the finance director, said the pension deal won’t happen without the bonds, and either way, taxpayers are on the hook.
“Whether we’re paying it back to the pension systems or we’re paying it back to bond holders, you still owe that billion dollars,” he said.
As for Mason, he’s glad to see that pension funds will assume more realistic investment returns.
He wishes cost-of-living adjustments had been further reduced, that the state’s governance of pension benefits would be eliminated, and that a generous benefit known as “DROP,” which lets active veteran firefighters collect salaries while also accruing guaranteed interest on would-be retirement income, would be phased out quicker.
But his main concern is that the city’s obligations don’t change much under the plan.
Mason pointed to some numbers in the proposal: The city’s 2017 contribution to the municipal pension fund was projected to be more than 29.36 percent of payroll before reform, and 29.33 percent of payroll in 2018, after reform. The contribution to firefighters goes from 33.2 percent to 30.3. And the police contribution is projected to go up: from 33.96 percent of payroll to 36.6 percent.
If the current pension bill is driving the city toward bankruptcy, and that bill doesn’t change much, what have reformers really done?
Dowe acknowledged Tuesday that the proposed plan is “revenue neutral.” But he says for the same amount the city is paying today, it will start paying the full amount it owes pension funds, and the new deal eliminates a tremendous amount of risk because the city doesn’t have to rely on unrealistic market performance.
Little help for budget
Will the deal keep the city from routinely robbing Peter to pay Paul? Probably not. Other challenges, including the revenue cap and the decline in tax revenues due to the oil and gas slump, remain.
So yes, more severe reforms would have helped the city’s strained budget, but they weren’t practical, Dowe said.
“Theoretically, you could close DROP tomorrow,” he said. “And we could get more savings. And you’d lose 1,000 firefighters and police officers tomorrow.”
It’s hard to argue with that.
Turner’s deal is far from perfect. All sides acknowledge it still needs work. And more gentle persuasion for wary firefighters.
But Turner’s efforts so far have shown the impossible stands a fighting chance.
Go, Cubs!