Ouster adds to city’s pension woes

Houston’s municipal pension board has pushed the fund’s director out of her post without explanation, a move that could require the trustees to buy out her contract for more than $300,000.

The likely payout for Rhonda Smith, which would be paid from the same dollars used to pay retirees, comes at an uncomfortable time for the Houston Municipal Employees Pension System.

Not only are the fund’s finances the shakiest of the city’s three pension systems, with only 52 percent of the cash needed to pay benefits over the long term, but the board also has joined the city’s police and firefighter groups in intensifying reform talks with Mayor Sylvester Turner.

The mayor wants a deal by the end of the year that will reduce the city’s large and growing pension bill, which has strained city finances since workers’ benefits were increased in 2001. The city’s unfunded pension liability has reached $5.6 billion.

Smith’s replacement atop the fund is David Long, a key figure behind the 2001 Legislature changes who was criticized when it became clear those changes had blown a hole in the city budget.

While Turner said he knows and respects Smith, he said pension leaders’ willingness to ne-

gotiate matters more than who those leaders are. Of Smith’s severance, the mayor said employees expect him to be prudent and should expect the same of the trustees they choose to oversee their pension fund.

“I don’t care who’s at the top. I do expect them to come to the table and participate with me in lowering the costs,” Turner said. “In terms of who they’re paying and how much they’re paying, I think the concern is more toward their members and explaining to their members why they’re paying maybe more than they could afford.”

Former mayors Bill White and Annise Parker, who grappled with Long during the last reform fight a decade ago, were less welcoming.

“It’s a huge problem for the city and for the pension that they’ve brought David Long back,” Parker said. “He was, frankly, in my view, part of the problem. He was part of orchestrating the changes in the Legislature, but he was also an obstructionist in trying to move things forward.”

White agreed, saying Long “made more money than the vast majority of city employees and managed to leave the pension fund with a large unfunded liability.”

A ‘curious’ reversal

Smith’s attorney, Rusty Hardin, said Smith has not been given a reason for her ouster. Though trustees renewed her contract at the end of 2014, she was notified just a few months later that her tenure would not be extended.

Pension system meeting minutes offer no clues, but they do show that Smith was placed on paid leave Jan. 20 and removed from her post on Feb. 29. Long, having resigned his seat on the board, took over as executive director March 1, returning to a role he held from 1993 until 2010; he won his board seat later that year.

The municipal pension board is controlled by retirees, with seven trustees elected or appointed by employees and four members appointed by City Hall. The seven employee-trustees declined comment or could not be reached for comment.

Craig Mason, a city appointee who recently left the board, said it appeared to him that Smith’s relationships with Long and with board chair Sherry Mose had cooled. Mason and other city appointees are excluded from personnel subcommittee meetings, so he knew few additional details.

“The question is, what was she doing so poorly that they would have to dip into taxpayer funds for no good reason?” Mason said. “It’s curious why we’d renew her contract and then a few months later decide she wasn’t doing a good job. I thought she was doing an OK job.”

Ric Badger, another longtime city-appointed trustee who resigned his post earlier this month, agreed, saying, “I did not see any reason why Rhonda Smith should have been terminated or let go. I thought she did an excellent job.”

In a written statement Friday, Mose said the fund “does not discuss personnel matters.”

A controversial leader

Mose’s statement stressed Long’s experience in the city finance department, as executive director and as a trustee.

“Mr. Long has worked successfully with previous administrations on HMEPS’ meet and confer agreements,” Mose said. “Mr. Long’s considerable knowledge and insight will help HMEPS to skillfully and efficiently work with the city on pension-related matters and help strengthen the system for years to come.”

HMEPS did not make Long available for an interview.

Long’s role in the controversy centers partly on faulty assumptions. The actuarial firm he hired to project the financial impact of benefits changes in 2001 estimated the city’s pension bill would rise only slightly, when in fact it tripled within two years. At the time, Long said he had “no regret,” and blamed the problem on the consultant. The consulting firm fought back, saying the assumptions were in fact Long’s.

Long also drew criticism for backing a provision that gave city executives — and himself — two years of pension seniority for each year of service. And, when City Council first began airing its outrage over the pension crisis in 2004, Long initially refused to testify.

White blasted Long for taking a $25,000 bonus that year despite the funding crisis, and this week noted the 74 trips that critical council members said Long had taken on the pension fund’s dime to attend gatherings in Alaska, the Bahamas and elsewhere, which White called “in the nature of boondoggles.”

A generous separation

Hardin now is negotiating Smith’s separation from the fund, a process in which he is aided by Smith’s lopsided employment contract.

Despite being informed a year ago that the board wanted someone else in her job, Smith’s deal entitles her to receive her $223,000 annual salary through August 2017. The deal also entitles her to other forms of compensation, such as a monthly car allowance.

“To me, that speaks to the competence of the HMEPS board, that they would extend her contract and then immediately decide to dump her,” Parker said.

“What they’re going to be paying out to her would go a long way to cover the pensions of a number of our lowest-paid city employees.”