There is nothing that strikes fear into our local public safety pension officials more than local control of the pension system. I have long since given up on the idea that the City of Houston is salvageable. For several years, I have written that the only way out is bankruptcy and property owners and business leaders need to plan accordingly. I believe this because no one can explain how we pay off the massive city debt. This year alone, the city added over $350 million to the pension debt. The total pension debt is estimated between $5.6 billion and $12 billion. Please understand that if the City of Houston increased your taxes one hundred percent, it would take 10 to 20 years to pay off the accumulated debt. This assumes that the city neither spent nor borrowed any more money. This situation is beyond ridiculous and the people in charge of this mess put Ken Lay and Jeff Skilling to shame for their Enron-style accounting tactics.
I do love reading articles about how the legislature is going to address the problem. The Houston Chronicle is reporting that Senator Joan Huffman is encouraging City of Houston pension officials to work out the problem with the mayor. When these little nuggets of information appear in the newspaper, you have to understand that Senator Huffman’s admonishments are not only self-serving but also representative of how we got into this situation.
Imagine if you had the opportunity to negotiate your salary and benefits with a committee of your choice. Who would you select for the committee? Maybe your spouse? Or your parents? That would be too obvious. What about placing your employees on the committee and hiring an administrator. Let’s pay the administrator $450,000 each year and put them on the committee too. For $450,000, the board member lies to the taxpayers about the real costs and benefits from their own decisions. Then, let’s have our union groups line the pockets of politicians who might ever think about changing this crooked operation. What a system!
People need to get their minds right about the City of Houston and its finances. Houston has seen a succession of career politicians in the mayor’s office. I don’t expect Sylvester Turner, yet another career politician, to handle the pension system any differently. Of course, Turner made a deal with the devil when he was endorsed by all three city employee unions. You can expect Turner to line his pockets with a generous pension too. Suckers.
I had a long conversation with Steve Costello in July 2015 and much of the discussion was about his solution to the pension deal. Besides comparing the pension debt to a house mortgage that needed to be paid off over a 30 year plan he basically put the problem on Austin by saying any changes had to be approved through the Texas legislature. So I spoke to a good friend who is in the legislature and he said the legislature will approve anything the locals want as long as the locals are all in agreement.
During the last session our own Jim Murphy tried to enter a bill to give local control to the cities that are dealing with pension debt. He could not get one co-sponsor and it never made it out of committee.
Following the 84th session I spoke to Phil Stephenson, Dan Flynn, Jim Murphy and Anna Hernandez in August 2015 about the pension problem in Houston. Phil was at least goofily interesting in that his solution was to borrow some ginormous amount of money and fund the pension debt with the interest earned on the giant loan. I call that the Joe Biden solution. Dan Flynn is an interesting fellow who is more than happy to bottle up any assistance to solve the problem by taking the “It’s those city’s issues not the state’s!” Dan Flynn also happened to chair the committee that killed Jim Murphy’s bill. He is an East Texas rep from around Canton and is a Joe Strauss lieutenant. I went ahead and called Anna Hernandez just to get a democrats take. Her plan is keep the status quo and pay the retirees whatever they negotiated. I will leave my friend out of any further discussion.
I called the State Pension Board and asked a few questions. This is a 6 member board with each member getting an assistant and two general staff for a total of 14 people. They generate a ton of reports with lots of data. When I asked if they monitor pensions for solvency I was told they were looking into it but that was really not their role yet. I also asked if there were any state funded pensions that are as underfunded as the City of Houston, Dallas, Austin, El Paso, etc were. Crickets. I asked if their pension were fully funded. Laughter.
My hunch? There is a pension crisis throughout the state that nobody wants to discuss. I think the recent federal Kline-Miller laws that passed during the era after Boehner was ousted in 2015 should be applied to the entire spectrum of public pensions. The Houston pension debt exploded the very first year it came into existence and was never corrected. The pensioners have known this and voted for these liberal mayors that made them the promises. Give them all they want in promises, that’s what they voted for.
DanMan,
The only pensions with problems are the ones under state control. Those Unions who sought protection from the state did so for a reason. No responsible adult would ever agree to the salaries and benefits package. The state protection is to protect the broke systems from sanity. James Quintero from the Texas Policy Foundation has done the best work at analyzing the state controlled pensions. Most pensions are fully funded it’s only the 8 or so that have real problems, think big liberal cities. You can guess who they are, most funds have responsible adults running them.
Local Control in the City of Houston would mean Mayoral Control. How can anyone ever be for that It would be a bad policy. How would we set that up if we had local control?
Paul,
Local control would imply local politicians or the unions could no longer hide behind the skirts of our state reps. Meaning the Mayor would have full responsibility for the failure or success. Only the unions who are protected by the state have unfunded liabilities.
We could solve the problem in a charter admendment. I would still argue bankruptcy is the only way out. There is no way to catch up at this point.
Yep, simply adopt the original language of the plans and make the authors and supporters of them take responsibility for the condition of them. These people are still around and drawing handsome pension payments.
the employee unions are seperate from the pension funds. one doesnt negotiate the other.
and the city has local control on 2 of the 3 pensions. those are the ones that are massively unfunded. it’s amazing that you are so pro local control when the only pension fund that is protected at the state level is near 90{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} funded.
I don’t care if they are 100{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} funded or 30{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} funded. Defined benefits that puts the burden on me is a non starter when those that voted for this mess that also hoped to reap the windfall have allowed their futures to be compromised and did it by political means.
Like I said, you voted for those promises all these years and you got them. Kline-Miller is good for the private sector, it ought to apply to the public sector as well.
This is a completely foreseeable and avoidable financial disaster.
Unfortunately our elected officials both locally and at the state level, will do nothing to resolve it.
COH has local control in two of the three pensions. The one it doesnt have local control over just so happens to be the best off… Around 90{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} funded. Local control apparently doesnt equate to better management.
City needs to abolish the TIRZ funds that divert tax money, lift the revenue cap and pay the money into the pension funds as they are supposed too. and not blow it on art and dog parks
Successive city administrations created the pension mess by 1) failing to make the city’s full payment to the pension funds and 2) using crazy assumptions on how much the funds will earn.
Governing is drawing priorities and making hard decisions.
Pensions are part of the compensation packages for city employees. If the city started failing to pay salaries or health insurance or cut out vacations, there would be hell to pay and rightly so. The same is true of the pension contributions.
Yes, promises were made that probably couldn’t be kept. But it’s easy for a corporate executive or a mayor to agree to generous pensions knowing that they’ll be long gone when the bills come due. And, yes, it’s easy for a mayor and city council to shortchange the pension funds rather than layoff employees or cut city services when money is tight.
And, of course, no one expects a mayor or city council member to go to the people and explain that we need to raise taxes to pay for pensions. That would be expecting too much courage.
Tom,
Describe what you think a tax hike looks like. A 20{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} hike would be like spitting into a hurricane. A 50{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} hike might generate enough revenue to payoff the existing debt in 40 years. 4 0, assuming they never borrowed anymore money.
easy way to fix it is to cut into the pension benefits. and instead pay the employees up front. provide them a decent retirement but at the same time a decent wage and let them take care of their matters.
however a 401k isnt the solution since city employees dont pay social security. a 401k is meant to supplement that. not to take it’s place.
Don: I was thinking a tax hike the year the payments were due rather than pushing them off on the next generation of city officials. You’re more than right, the more you put it off, the more it costs.
When you have city officials who are limited to eight years in office, it’s easy to kick the can down the street knowing that someone else will have to clean up the mess. Wasn’t it Louis XV who said, “After us the deluge.”
I only wish that we could blame the pension problem on democratic control, certainly many other problems are the result of their demands for ever increasing social funding, but some of you are missing the bigger picture here. Houston is reported to have pension debt of almost 6 billion dollars right now when using the new accounting measures. Bill King wanted to issue bonds at a lower rate and invest the money to make more, a dangerous move some here pointed out. Mr. Costello simply wanted to stop cost of living increases and the deferred retirement program, those were the two biggest drivers of cost increases which together would eliminate most debt overnight. But the newly appointed state oversight board member Josh McGee believes that as bad as Houston is, the state problem is worse.
The Employees Retirement System of Texas and related state controlled pension systems that include pensions for many conservative counties is underfunded close to 50 billion dollars and that number grows quickly if we apply interest rates for investments in line with recent market returns. If you use a risk free rate, the number multiplies by a factor of five. The state legislature fought this under funding last term by paying hundreds of millions of dollars into state pensions but Josh seems to think the impact was slight. Are we going to demand the state cut benefits to the bone to fix this problem, a problem not of democrat making and having nothing to do with yearly cost of living adjustments, or defined benefits? Are some of you going to move all your assets out of the state to protect them?
I don’t think Houston is going to lower their discount rate and pay in enough despite whatever benefit cuts are made. I also don’t think the city will capitalize on wholesale retirements if the cuts are big enough to make a difference, democrats like to spend other people’s money too much, but it seems that even those labeled as conservative Republicans are no better so maybe we need a balanced budget amendment for the state and all home rule cities. Otherwise nothing is going to change except the accounting trickery used to keep the numbers off the books.
Kevin W:
It’s not a Democratic problem or a Republican problem. The failure to fund pension programs is simply a matter of people in power — both government and corporate — failing to make hard decisions. It’s easy for a corporate CEO in union contract negotiations to promise a huge pension program with great medical benefits. It’s a lot easier than giving a big raise that will show up on the next quarter’s earnings report. He knows he’ll be long gone when the bill comes due.
The same is true of government officials. It’s easy to promise generous pension benefits knowing that no one will give a darn if you don’t fund them and when it all comes crashing down, you’ll be retired and living in your beach house.
It’s always an example of compound interest. If you put money in years before it is going to be spent, be it a 401(k) or a traditional pension plan, compound interest will give you lots of money. If you wait, putting in enough money to come up with the same amount will cost a lot more.
It’s a different story for, of all things, military retirement. There is no build up fund for military retirement. My military pension comes from current spending and has to be budgeted and appropriated each year. Every year, DOD and Congress has to pony up enough money to cover military pensions and benefits.
Tom, as I said, both political parties have failed the community and both of them routinely point the finger of blame at each other in foolish fashion. The problem locally seems to be tied to term limits, the offers of better pension benefits without paying for them in advance laid at the feet of Mayor Lanier who pushed deferred benefits just before he left office that were signed off by the GOP dominated state legislature and governor.
The military is currently changing pension benefits too but as the country is $20 trillion in debt, I wonder if we’ll hear about people packing their bags and assets to protect them. It doesn’t work locally and won’t work elsewhere but given how many local pension officials are retiring, I suspect the pending cuts are greater than previously thought. Mayor Turner seems to be making his mark early, and with a four year term as a minimum, he may do more than expected from people of both parties.
The proposed changes in military pensions are quite complicated. Now, unless you serve 20 years, you get nothing. Under the new plan there will be a 401(k) type option so people with less than 20 years get something. I also think there will be contributions.
It they start getting contribiutions from the troops, they will have to start a trust fund and annual payments. Going to be nasty for DOD when they have to decide whether to buy another trillion dollars worth of F-35s that don’t work worth a darn or fund the pension fund.
KW,
I think there is a lot to what you are saying about term limits. The City bureaucrats do run the City. Chief C. O. Bradford always told me reform won’t come without redoing the charter. I miss him being on counsel. People forced to live with poor decision making is an improvement.
I still see no way to payoff the unfunded liability. Corruption is still a major factor and without a District Attorney to prosecute malfeasance meaningful reform is next to impossible. The City is in horrible shape and got there so because of term limits and their impact on decision making.
Don, I believe the best term limit is an educated electorate. That is apparently too much to ask of the 95{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} that don’t bother to keep up with even the most basic topics. As a small business owner, I understand the value of a budget, a real budget that must be followed and not one full of hidden debts, off book expenses, and government accounting.
I am familiar with pension politics courtesy of Mr. King, Mr. Costello, and a select handful of others, including those I hire from time to time that are covered by pensions the rest of us haven’t earned. I’ve read a few city pension reports in order to keep up with the conversation and think some of the proposals made in recent years could drastically reduce the existing debt, most solutions involving cutting benefits and expecting employees to pay more for them. This applies to the state pensions that are much worse off than those of the city police/firemen as well as the city, one look at Dallas’ troubles of the past year show that this is not just a local issue.
Bill pointed out that the first step was to stop digging deeper into debt and Steven agreed, Mr. McGee commenting that unlike other communities, Houston has more flexibility since it opted out in 2003 of the state constitution provision securing pensions. Other states are also worse off for similar provisions that demand no cuts to benefits. One of them pointed out that most municipal employees do not pay into their pension like the police/firemen do so it is worse off by far. Another said that making cost of living adjustments as city finances improve instead of automatic would cut the debt in half almost immediately. So it can be done but there has to be the will to make changes, just like residents have to decide between fixing roads and adding more in parks and other niceties few enjoy regularly. But the question remains, if the city’s mayor is given more control, will he abuse it as all his predecessors or be a wiser steward of tax dollars? Like you, I fear the worse.