Pension board accountable to no one for ‘unbelievable’ decisions

If Houston’s municipal pension board makes investment decisions the way it makes personnel decisions, it’s in more trouble than we thought. Actually, we all are.

The Chronicle’s Mike Morris reported recently that the pension board had renewed a generous contract with the fund’s director, Rhonda Smith, in late 2014, only to notify her a few months later that she’d be out of a job. She was finally put on paid leave in January, and removed in February, but her contract entitles her to $223,000 in annual salary through August 2017, plus a monthly car allowance and other extras.

Must be nice. But not for us, the taxpayers, who are stuck with the bill, or for pension beneficiaries, who depend on their finances being managed responsibly.

To make matters worse, the board replaced Smith with David Long, a longtime pension official who is seen by city officials as an obstructionist in negotiations.

He was key in pushing 2001 benefits increases that turned out to be based on faulty cost assumptions. We haven’t dug out of that hole yet. He also backed a provision that gave himself and other city executives what’s known as a “two-fer,” double the years of pension seniority for each year of service. During the funding crisis in 2004, he took a $25,000 bonus. Then there were the dozens of trips to Alaska, the Bahamas and elsewhere on the pension fund’s dime that former Mayor Bill White recently described “in the nature of boondoggles.” On top of all that, Long appears to have a glaring conflict. As a retired city employee, and pension beneficiary, will he be advocating for himself or for current employees hoping there’s something left in the shaky fund when they retire? As it stands now, the fund has only half the cash needed to pay benefits over the long term.

The words dysfunction and incompetence may come to

mind. You may be shaking your head. You may be thinking the same thing as former City Attorney David Feldman:

“And the employees of the city of Houston tolerate that crap?” he said during an interview last week. “That is unbelievable.”

I don’t know if they tolerate it. A union representative didn’t return a call. Neither did Long or pension board chairwoman Sherry Mose. A spokesman said they could not discuss personnel matters.

‘It’s ridiculous’

If you’re wondering whose head will roll for these decisions, the answer is simple: nobody’s. The pension board has a governing structure that makes it virtually unaccountable to the folks who supply a large chunk of the fund: Houston taxpayers.

The board is controlled by retirees, with seven trustees chosen by employees and four members appointed by City Hall. But the city appointees can’t serve on the powerful “external affairs” committee, which handles the most important duties: meet-and-confer negotiations with government officials.

The rationale for this, I’m told, is that the city shouldn’t negotiate with its own appointees. I don’t see why not, if those appointees are indeed part of the board.

Apparently, decisions about Smith’s ouster were made by the personnel and procedures committee, which includes a grand total of one city appointee. That committee, too, is able to make final decisions without full board approval, said former city appointee Craig Mason.

“It’s ridiculous,” he said. “The biggest expense they have is the salaries of the personnel. … Where else do you have committees making final decisions without full board approval?”

In Smith’s case, her fate was approved by the full board on days when three city appointees were absent.

In addition, Feldman said, the state law governing the board includes catch-all language that basically gives it prerogative to interpret the statute however it wants, without being subject to review.

“So long as there’s no accountability, it’s never going to be reined in,” he said.

Little leverage

Feldman acknowledges the city signed off on provisions to effectively neuter its own voice on the board. He says he and other city attorneys had little leverage to negotiate when they were asking the pension board for a big favor: to let the city pay less than what it owed into the fund.

“That was really the most frustrating thing,” he said. “In each case, the city was looking for some kind of short-term relief. There was a financial or political motivation. And each time, the city gave up the future.”

Will the next re-negotiation be any different? Possibly. Mayor Sylvester Turner is in a unique position as a former longtime legislator to get reforms passed in Austin, but his hands are bound by the same lopsided rules that disadvantage the city.

Bankruptcy, perhaps?

Recently, Turner seemed to downplay the significance of Smith’s ouster, saying he doesn’t care who’s at the table when it’s time for a new round of talks over benefits and funding. Just so they come ready to lower costs.

If Long is the obstructionist that former mayors describe, Turner’s got his work cut out for him.

I asked Feldman what will happen if nobody relents. If the pension boards refuse to offer deep concessions. If taxes aren’t raised to meet obligations. If the Legislature is unwilling to consider reforms.

“Nobody wants to hear the word bankruptcy. And it’s Houston. We can’t identify with Detroit,” Feldman said. “But one day, that will be the only way that there can be a solution.”