Legislators push referendum on pension reform
Turner labels public vote a ‘poison pill’ that could derail measure, force layoffs
A state lawmaker carrying Houston’s pension reform bill says her version of the proposal will require a public referendum on a $1 billion cash infusion central to the negotiations, an idea Mayor Sylvester Turner called a “poison pill” that could derail the reforms and force “massive” layoffs.
The requirement that voters have a say on the $1 billion in pension obligation bonds is the brainchild of Sen. Paul Bettencourt, R-Houston. Fellow Houston Republican Sen. Joan Huffman, who is carrying the reforms in the higher chamber, said she understands the mayor’s frustration but said her bill — which still is being drafted — will not pass without the provision.
“It is a billion-dollar bond, and though it’s not new debt — it’s debt that the city owes to both the police pension fund and to the municipal pension fund — I can understand how the voters would want to have a voice in the issuance of the bonds,” Huffman said. “To get it out of the Senate, it’s a necessary addition to the bill.”
Turner’s reform plan, despite ongoing wariness from the firefighters’ pension fund, emerged from a year of negotiations in Houston with broad
support from civic thinktanks, business leaders and pension experts, as well as a 16-1 endorsement from City Council.
This is arguably the first significant hurdle Turner has faced in selling the proposal in Austin. It also is the second sign in a week of the tension between local officials’ proposals and state lawmakers’ opinions on them; Sen. John Whitmire, D-Houston, has filed a bill that would require Harris County to hold a referendum on a $105 million proposal to save the Astrodome by building 1,400 parking spaces in it.
Turner’s pension reform package is intended to end a slow-motion crisis that has eroded the city’s fiscal health since flawed projections led local and state leaders to agree to benefit increases in 2001, causing retirement costs to soar. Despite reforms to the police and municipal plans in 2004 and 2007, the city has failed to keep up with rising costs, leaving the three plans underfunded by nearly $8 billion today.
Turner’s proposal is intended to erase that debt in 30 years; cut benefits for retirees, current workers and future hires; and include a mechanism that would cap the city’s costs even if, for example, the stock market crashed. The plan also calls for the city to issue $1 billion in bonds and put the proceeds into the municipal and police plans up front to make up for past city underfunding. The alternative would be paying that debt down over three decades.
‘It will kill this deal’
Leaving those promised funds at the mercy of a public vote could lead the police to back out of the reform plan, Turner said, adding that the city already owes the money and it makes little sense to ask voters to OK paying it back.
“That is a poison pill, and you are saying you want this deal killed — and it will kill this deal,” Turner said at Wednesday’s council meeting. “If that’s the course that the Legislature chooses to take, then the Legislature must also say
to people in this city — to businesses and property owners — ‘We are assuming responsibility because the state can do it better.’”
Turner also sought to spell out the consequences if the reforms fail: still-rising pension debts, an additional $134 million added to an already sizable deficit in the coming budget, and “massive layoffs” touching every city department.
Police union leader Joe Gamaldi noted Turner’s warning in accusing Bettencourt of trying to torpedo the deal to better position his friend and 2015 mayoral runner-up, pension hawk Bill King, to again challenge Turner.
“While Sen. Bettencourt and Bill King play political games,” Gamaldi said, “the safety of our city and of everyday Houstonians hangs in the balance.”
Bettencourt said he would only be vulnerable to that charge if he had suddenly decided to focus on pensions, and added he
cannot be sure he wants the deal rejected until he sees a formal bill. It was simply a mistake, he said, for the Legislature to remove the need for a public vote on pension bonds in 2003.
“I’ve been working this issue for over a dozen years — I’m not changing my public policy stripes,” Bettencourt said. “Anytime you consider $1 billion of anything, the public should vote on it first.”
Josh McGee, an Arnold Foundation pension expert who chairs the state Pension Review Board, said he hopes a solution can be reached that both leaves the Houston reform intact and also requires public input on the issuance of future pension obligation bonds.
“It would be a shame if this issue around voter approval of POBs, which is a good policy idea, was allowed to sink the overall reform package, which is meaningful, substantial and would put the city on much firmer financial footing going forward,” McGee said.
Whitmire and others close to the talks said there has been discussion of the city sidestepping the legislative turmoil by issuing the bonds as soon as possible, but it is not clear Turner supports that idea or whether bondholders would penalize the city with higher interest rates for acting before the reforms became law.
Others optimistic
McGee stressed the pension bonds are a political necessity, not a mathematical one. The city owes the money and would be obligated in the reform proposal to pay it one way or another, making annual debt payments on the bonds or annual payments into the pension funds. Huffman echoed that. “Anybody would like their money up front — we all would, and maybe it will work out that way — but it doesn’t have to work out that way for the plan to work,” she said.
Despite the heightened tensions, Turner, Huffman, McGee, Gamaldi and Rep. Dan Flynn, a North Texas Republican who chairs the House pensions committee and is carrying the Houston reforms in that chamber, said they remain optimistic the proposal will pass. Flynn, in a brief statement, did not say whether he supports the referendum rule.
Rep. Jim Murphy, a Houston Republican who has offered pension reform bills in each of the last few sessions, sounded a note of caution on the idea.
“The voting part sounds good but could be easily misunderstood. I think we need to be really cautious in terms of what we put forth in measures to the voters,” he said. “But we’ve got some time to educate folks about this process, both in the city of Houston and here in the Legislature.”
All parties, Murphy said, ought to take a deep breath.
“We’re just at the first time-out in the first quarter,” he said.