Houston’s pension plan clears first hurdle
Turner, others testify about objections to various parts of plan
A pension reform plan clears a state Senate committee in its initial hearing at the Capitol, despite the fact that all those who testified opposed at least a portion of the package.
Houston’s pension reform plan cleared a state Senate committee in its initial hearing at the Capitol on Monday, despite the fact that all those who testified — including Mayor Sylvester Turner — opposed at least some portion of the omnibus package.
Retirees were concerned about benefit cuts. Some conservatives said the only path to true reform would be to move new hires into defined contribution plans similar to 401(k)s, which the bill does not do. Firefighters, who never agreed to final language with the city, are opposed in part because the legislation would cut their benefits by what the state Pension Review Board estimates to be $970 million, up from about $800 million the firefighters agreed to in approving initial reform terms last fall.
Turner says those deeper cuts are to ensure the city gets the savings it needs in spite of the fire pension not providing comprehensive data to predict future costs; fire leaders say an ongoing lawsuit prevents them from complying. For his part, Turner — along with the city’s police and municipal worker groups — opposes the bill as written because Sen. Joan Huffman, R-Houston, added a requirement that the public vote on pension bonds that are a key piece of the proposal; the mayor has called the clause a “poison pill.” Ultimately, city officials hope the provision could be excised at some point in the legislative process. Turner also listed seven technical changes he wants that he said appear to be drafting errors in the bill; Huffman took no issue with those, but defended her decision to call for a public vote on the pension bonds.
Backing voter input
The provision is a pet project of another Houston Republican, Sen. Paul Bettencourt, whose standalone bill to require a vote on any Texas municipality’s pension bonds also passed the committee on Monday.
“It’s important that voters have input,” Huffman said, adding that she believes voters would approve, that she would campaign for the bonds’ passage, and that the underlying math of the proposal would work without the bonds.
After fire pension chairman David Keller testified that the bill would “make unfair and disproportionate cuts to firefighters’ benefits to cover the city’s financial shortfalls,” Huffman also expressed concern that she had been led to believe the firefighters’ opposition was less adamant.
More broadly, however, Huffman said the proposal’s merits are enough to convince her to keep taking fire for carrying the bill; she also joined Turner in calling for the fire pension board to release the data the city seeks.
“I stand behind you,” Huffman told Turner. “There are plenty of folks who don’t like this plan no matter what because they don’t think it goes far enough, but I understand this will be good for the city of Houston. I’m going to do my best to get this bill passed. It’s going to be kind of tough, but it needs to be done.”
Approved bill 7-1
The State Affairs Committee, which Huffman chairs, approved the bill by a 7-1 vote, with Sen. Brandon Creighton, R-Conroe, opposed, and Sen. Eddie Lucio Jr., D-Brownsville, voting “present.”
Benefits for the city’s police, fire and municipal retirees are controlled by state statute and cannot be enacted solely with a vote of the City Council. The reform fight has its roots in benefit increases passed in 2001 that caused costs to spike rather than increase slightly, as flawed studies had predicted. 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 about $8 billion today.
Turner’s proposal recalculates the city’s pension payments, using lower investment return assumptions and aiming to retire the debt in 30 years, both of which would increase the city’s annual costs. To bring that cost back down, the plan would cut workers’ benefits, and includes a mechanism to cap the city’s future costs even if the market tanks. To bring the police and municipal funds to the table, the city also agreed to inject $1 billion in bond proceeds into their plans to make up for past city underfunding.
Leaders of the police and municipal unions and pension boards testified that they support the proposal, but not with a pension bonds referendum.
Testimony of widows
The day’s most emotional testimony came from the widows of Houston firefighters, who focused less on negotiations over actuarial tables and more on what they view as the injustice of the entire effort. Among them was Renee Jahnke, whose husband, district chief Steve Jahnke, died of cancer in 2007 after 35 years with HFD.
“Who best can absorb unfunded liabilities?” she said. “The city with all its income and financial tools that are available, or retired employees who have only one source to live on, and that is their pension?”
A hearing on a companion bill in the House originally was to take place Monday, but has been delayed.
“I’m going to do my best to get this bill passed. It’s going to be kind of tough, but it needs to be done.” Sen. Joan Huffman, R-Houston