Mayor riding momentum with thorny referendums ahead
Pension reform has passed, though bond and revenue cap battles remain
A politician who spends 16 months pushing a major reform and then beats the odds by achieving it could be expected to pour a drink, put on some jazz and kick his feet up.
After all, Mayor Sylvester Turner’s pension reform deal just saw final passage in the Legislature last week. The reform halts a debt spiral that had blown past $8 billion, reduces that burden by $2.8 billion via cuts to workers’ benefits, and caps the city’s future pension costs.
Far from relaxing, however, the mayor likely finds himself facing two, perhaps even three, complex referendums this fall, with five months to sway voters on thorny topics like taxation and worker benefits.
“This is the most consequential campaign of the mayor’s career,” University of Houston political scientist Brandon Rottinghaus said. “These things are more complicated and more politically fraught than either his mayoral campaign or the lobbying to get the pension bill passed to begin with, and those were both complicated.”
Turner has made his own climb steeper by pledging to ask Houstonians to repeal a voter-imposed cap that limits what the city can collect in property taxes. That rule is a lightning rod for conservatives, who spearheaded its passage 13 years ago.
The pension bill also requires voters to approve the $1 billion in bonds Turner plans to inject into the underfunded police and municipal pensions. Should voters reject it, those groups’ benefit cuts would be rescinded.
City officials have examined whether the bonds could be issued before the bill takes effect, avoiding a public vote, but it is unclear whether that is possible.
Meanwhile, the City Secretary is reviewing a petition that calls for a vote on giving 401(k)-style retirement plans to all city workers hired after the start of next year, which employees view as insufficient.
Conservative activist Windi Grimes, an organizer of the effort, however, said her group thinks sufficient fiscal safeguards were added to the pension bill passed in Austin, and will not mount a campaign behind the petition.
“You take each mountain one at a time. This was a huge one,” Turner said last week, after the Texas House sent his pension bill to the governor’s desk. “But this is not the end of the journey. It’s just lap one. There is another lap, and I’m going to ask you to run it right along with me.”
Turner thanked city employees for shouldering $2.8 billion in cuts to their retire-
ment benefits, and said it is now time for all Houstonians to join in sacrificing for the good of the city. The revenue cap, Turner said, hurts the city’s credit rating and hamstrings its ability to provide services and compete on a global scale.
Many conservatives don’t see it that way, arguing that the cap protects taxpayers and gives the city an incentive to operate more efficiently.
The Harris County Republican Party plans to campaign against Turner’s repeal effort.
Breathing room gone
Voters approved the revenue cap in 2004, limiting the annual growth of property tax revenue to the combined rates of inflation and population growth, or 4.5 percent, whichever is lower. Voters tweaked the rule in 2006, allowing the city to raise an additional $90 million for public safety spending.
Houston exhausted that breathing room in 2014, and, with property values still on the rise, has had to trim back its tax rate each fall since to avoid collecting more revenue than allowed.
Despite the cap’s complexity, conservative po- litical strategist Denis Calabrese said he doubts there will be a shortage of voter education on the issue.
“Voters will come into that election very well informed and knowledgeable and they’ll be able to express their opinion,” he said. “The predisposition going into this is that voters don’t support the repeal of the cap, and we’ll see if that changes as a result of the education efforts on both sides.”
Two early polls — one by the UH Hobby School of Public Affairs and one by the polling firm Baselice & Associates — suggest voters want to keep the cap. The Baselice survey found 53 percent of respondents support keeping the cap and 36 percent want it repealed; the UH poll found broad support for property tax relief.
Democratic political consultant Keir Murray said most residents look only at their overall tax bill and do not notice the amount they pay to Houston ISD, for instance, is nearly double what they send to City Hall.
“Houstonians may theoretically recognize that there’s a revenue cap in place, but they don’t see their property tax bills going down,” Murray said. “We know that’s because of increasing appraisals, but it’s hard to make that distinction to voters.”
Cap tied to credit
The ad valorem tax rate City Council set last fall — 58.642 cents per $100 of assessed value — is the lowest since 1987, and represents an 8.2 percent drop since the cap kicked in.
If the cap had not come into force, Houston would have been able to collect an estimated $397 million more in the coming fiscal year and the three prior ones, according to the city finance department. During the same period, the average homeowner with a standard homestead exemption would have saved a cumulative $346 in taxes, or about $87 per year, compared with the cap never having taken effect.
Turner said he would like to think securing pension reform has given him the fiscal credibility to discuss repealing the cap with voters, and reiterated that ratings agencies repeatedly have flagged the cap as a credit risk.
“There will be plenty of time to have that conversation with the people in the city of Houston,” Turner said, “and I look forward to having that conversation.”
Repeal has risks
Seeking to repeal the cap has another risk, Rottinghaus said, in that placing it next to the $1 billion pension bond issue risks undoing the pension reforms because some voters will misinterpret the measures as a city spending spree.
“There’s a huge risk on putting rev cap on the ballot at the same time as you have these must-pass pension bonds because you run the risk of not being able to communicate the consequences effectively for each of them,” Rottinghaus said. “The voters only have so much willingness to embrace such grand fiscal reforms, especially because oftentimes they’re unclear about what it might mean.”
Calabrese said he expects the bonds to pass if they are presented as necessary to help the police and municipal workers, particularly because the benefit cuts — and resulting savings for taxpayers — otherwise would be reversed.
“The trade of the bonds and the cuts is really made most worthwhile by the more fundamental reforms in the pension bill,” he said. “It makes that bargain of $1 billion in bonds for $2 billion-something in cuts worth it.”