Who would have ever thought that the Houston pension problem would take a back seat to an impending City of Dallas bankruptcy? The word usage on the Dallas problem is phenomenal. Dallas’ present financial condition immediately morphed into the bankruptcy word because of their pension shenanigans. I am sure Houston Mayor Sylvester Turner was thinking, “Can’t you guys wait until next session to use the ‘B’ word?” Mayor Turner is trying to sell another “kick the can down the road” pension bill, which will allow the runaway spending at the City of Houston to continue until his term in office is over. When Turner was a State Representative, he carried all the pension bills in the House for his hometown local labor leaders – the same bills biting him in the butt now. The irony of the Houston Mayor needing to pass the largest “kick the can down the road” pension bill should be lost on no one. The open discussion of a City of Dallas bankruptcy has everyone wringing their hands in Austin.
Local Dallas and Houston union officials set up a system at the state level over the years that allows union officials to rush to the legislature to renegotiate any deal they did not like offered by Houston and Dallas politicians. I have labeled this the “mommy may I” system. This system is about to come home to roost on the heads of House Pensions Committee Chairman Dan Flynn, his Senate counterpart Senator Joan Huffman, and Lieutenant Governor Dan Patrick.
Senator John Whitmire holds a special category of being a union pension fund administrator and someone who introduces legislation for union labor bosses. Think about that conflict for a second. All of these politicians have lined their campaign coffers with union money. The bigger the problem, the bigger the contribution. Senator Whitmire’s law partners act as lobbyists for the very unions he passes legislation for in Austin.
Lieutenant Governor Dan Patrick was supportive of these back door union deals Monday night at the Kingwood Tea Party. I reminded his host that Dan has always had his hand out to labor leaders and is not a fiscal conservative. Dan’s priority this session is a bathroom bill and he wants you to look the other way on pension matters.
Patrick, Whitmire, Huffman, and Flynn are not alone and have been joined by other pension committee members. This coziness has led to the economic reality of the Dallas bankruptcy. The lie of the Turner plan is exposed by the fact Dallas kept kicking the can down the road just the way Turner is attempting to do. Dallas started kicking the can in 1992 and Houston started in 2001. The fact that the whole scheme blows up is now evident to anyone who can add. Dallas is also seeking a billion dollars worth of pension obligation bonds in addition to local control of their pensions. Dallas politicians want direct control over their destiny by seeking local control back from the Texas Legislature.
Senator Paul Bettencourt is once again standing in the breach. Paul Bettencourt knows that Turner’s plan obligates Houston taxpayers to years of misery without doing a thing to correct the problem. Paul is sponsoring two bills: SB 151 (requires a vote by the public to authorize the use of pension bonds) and SB 152 (allows the transfer of new employees from defined benefit plans to defined contribution plans). Paul is threatening to filibuster Turner’s “kick the can down the road” legislation on the Senate floor. Senator Bettencourt needs our help and support in this battle. There is a website being promoted to help Paul’s effort, Houston taxpayers for pension reform. Please help him out by signing the petition supporting defined contribution plans.
Our local state elected officials are as clueless as Houston City Council Members, a very low bar. Their belief in campaign contributions has always exceeded logic. The Dallas bankruptcy claims are real and Turner can no longer hide the fact that Houston will suffer the same fate. Turner has added much ballyhooed sexy language like corridors and shared sacrifices to his messaging about the latest “kick the can down the road” scheme. Taxpayers need to understand that Turners’s scheme obligates 25-30 billion dollars in taxpayer funds to be used to pay people to hunt and fish. Actually, retirees will be paid more to hunt and fish than current public safety employees will be paid to fight fires and crime. Let that sink in for a minute.
No one is more culpable than Mayor Turner in the financial disasters that have befallen Houston and Dallas. The mayor is advocating borrowing a billion dollars he can’t pay back, combined with a negative amortization scheme that does not morph into real payments until he is out of office with the rest of the City Council. This is the classic kick the can down the road but here comes Dallas, always competing with Houston. Go Cowboys.
Further Reading
Pension debt and the Collapse of the City of Houston
A Special Council Meeting for a BIG Problem
Had I stayed with HPD I could have retired at 43 years of age. I kick myself now. You people could have been paying me to hunt and fish for 40 years.
All kidding aside, I stood up at a Union meeting in 1998 and told officers there that they City could never afford our pensions at the pay rates they were raised too. Let me tell you the hidden “raping the taxpayer” that occurred at H.P.D.
From 1998 – 2001, officers were getting huge pay raises for their time in service. These officers were normally hired from 1977 – 1981. Back in those days, officers were not pad very much. So when they contributed 9{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} of their salary to their pension, it was 9{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} of a very low number. Then suddenly, three to four years before they are eligible to retire and enter the DROP program, they are getting huge pay raises that raised their pensions. The problem is they had not contributed enough to the pension to justify their sudden windfall of pension benefits. That is why you are seeing this acceleration of debt in the pension system. When you add that the DROP program malfunction, the math for these pension issues become undeniable.
I do not want to see the pension fall apart, but anytime you mention that it is a problem (Like I did in 1998 and in 2007 when I ran for city counsel – I was mocked and told to shut up). Well karma is a real bitch. Especially when you are a young officer at a Union meeting and you are the only person with a finance degree and you know how to do math,
Tom Nixon
HPD 1995-2006
Thank you for your comment. I do remember when you ran for council.
I can kind of see making the police come out the best in this disaster but bankruptcy is our best option ultimately. There is no way I can see paying higher property taxes and withstanding diminishing services so city employees can retire in their early 50’s while the rest of us work into our 70’s.
I’ve said it before and I’ll say it again. The union members got what they wanted with their votes….promises. The money wasn’t ever paid into these plans (starting in the very first year), it ain’t there now, it is never going to be there because the money that was promised has been spent. Who is going to accept being forced to sacrifice for this mess?
Go Dallas go! Blaze the trail!
You are correct, bankruptcy is the only choice. I wrote that several years ago.
Don,
As the pension has pushed to the forefront in recent years, I have 2 particularly salient observations (at least in my youngish mind)
1) Many of those leading the charge, so to speak, were endorsed candidates of said scummy “gubmint employees” labor unions. These endorsements come about after a moderately in depth interview and research on past positions of said candidate / encumbent.
What you can infer from this is that no one in politics is above being the people your parents warned you about. I really don’t understand how one can be an elected official at a certain level (muni, state, fed) and NOT make peace with the fact that you have resigned yourself to being a real POS.
2) I’ve had a few back and forth discussions on FB chiefly with Bill King himself and Paul Bettencourt’s apologists. Whenever the mouthbreathers, exhausted from their diatribes, ceased I posed a question: if public safety pensions were so ill deserved after 30 years, I presume Paul (and anyone on his train by that matter) would surely forego their state of Texas defined benefit plan.
Based on my limited info ($158k Texas State judge salary and the ERS years of service chart, Paul should be eligible for a $29k annual pension in about 2-4 years after a mere 8 years of “service” (Nevermind they get credit for 365 days / year for 140 days of work every other year). The response is crickets.
I presume he, like most other legislators, will not be taking their own prescription.
Notice that Paul does not have several million dollars in a drop account. If he did the state would not be able to pay their bills either.
It has often been argued that the outrageously lucrative benefit plan was an an actuarial mistake. I believe it was criminal in nature and long prison sentences need to be handed out to the responsible parties. Certainly looks like an ongoing criminal enterprise to me. There is soon to be a new US Attorney and hope that such behavior will be put in check.
And Texas is doing so well? But, Republican run that Government so let us not talk about them.
Texas could also be looking at bankruptcy;
http://watchdog.org/124193/tell-em-aint-got-texas-debt-hits-341-billion/
Your John Cassidy article is three years old but it MAY contain some useful information. The state portion vs the municipal portion are different animals yet this article adds them together.
I have been told the pensions for groups such as teachers and say TxDOT employees are quite stable and well funded to meet their obligations. Are these types of obligations showing up as debt in the article? My hunch is they are.
The municipal pensions in Houston, Dallas and San Antonio are not at all fully funded under any scenario. Austin says they have theirs under control but my friends in Austin are looking to get out as their property taxes a shooting up quickly to pay for the under funded pensions their mayor says they will pay in full.
If all of the other state pensions are in the same shape the four cities mentioned are you would have a good point. And also, if they are there will be pitchforks and tar being readied to be applied as necessary.
Texas debt clock http://www.usdebtclock.org/state-debt-clocks/state-of-texas-debt-clock.html
While the state of Texas has used accounting tricks it has problems that were not visible until accounting rules that required more transparency for example
At first glance, the massive Texas Teachers Retirement System appears to be doing much better, but appearances can be deceiving. TRS has $132.8 billion in assets against liabilities calculated at $159.5 billion, for an unfunded liability of $26.7 billion.
Texas pension use that same famous 8{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} figure of growth
Source – http://watchdog.org/207217/pension-texas-ers/
So let us pick on Texas for a while, Houston has been kicked more often, just need to remove the revenue cap or it should be applied to all government entities.
The entire deal is a scam on everyone involved except those that used the union votes to get elected. The tax payers had no one to represent them when this retirement plan was adopted. It was recognized in the very first year how off the mark the contribution projections were and those that made the decision to implement it knew it and hid that from the public.
Using Jack’s logic, every public person involved in this situation needs to have their benefits stripped immediately with those savings going back into whatever can be salvaged for the rest of the workers that will be impacted. The existing pot should be distributed among the impacted employees.and a defined contribution plan should be adopted. There is probably an element of choice that can be adopted where some employees may find it better to cash out now and leaves for other employment while some may want to jump into the new DC plan and transfer whatever is available to them into Roths or other accounts.
Privatize as much of the city’s function as possible to keep future costs manageable. Clean this mess up and let’s move on now.
Let me tell you something. I was there when the first meet and confer agreement was adopted. I was there for the second meet and confer agreement as well.
When the Union and the Administration came to the HPD officers they were essentially promising that “2 + 2 = 7”
Anyone who could do math knew damn good and well that what the City was promising was completely unsustainable. I said so at a Union meeting, and there were several other officers who agreed, but would not raise their voices. City employees are not victims here. City employees are not innocent in this transaction. The Administration is not innocent. The mayor and City counsel KNEW THEY WERE LYING – but so did the Union. Everyone was betting that “trees could grow to the sky” and that market returns would remain at 8{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} or higher forever. It was a foolish bargain.
Let me ask an honest question…..Does anyone know where the DROP money is? What financial institution is holding the money? How much has been collected? How much of that money has been borrowed by the City or other investments? How much of that money still exists?
I guarantee you that money is a myth. It is phantom money that has already been spent. Something tells me that DROP money is in the same place as social security money. It is in the left column/credit section of an accounting sheet on someone’s desk as an “accounts payable” promise.
I predict that police officers, city council members, and city residents are going to become very familiar with something known as Chapter 9 Bankruptcy law somewhere around 2018.
Grab some popcorn, this will get interesting.
Tom
Grat perspective Tom. And that’s what I don’t get How can people expect to get so much when they knew over the years the money wasn’t going in? Yet they still voted in lockstep.
I’m reminded of Enron secretaries “losing” hundreds of thousands in their pensions when the company filed for bankruptcy. It wasn’t there, they never had it and hence they never got it. Almost Newtonian in its simplicity.
So you’re implying if someone doesn’t have something in the form of cash they have less of a legal claim to it ? Ok let me rephrase that. Regardless of how you backpedal, that’s the rationale inference from your comment.
I’m also fairly certain Enron didn’t have traditional pensions for their secretaries. They had 401Ks and ESOPs. Had they had traditional pensions, those rank and file would have been much better off.
Good article on Enron pensions here http://www.wsj.com/articles/SB1008712386485424000. For the most part, Enron pensions were of the 401(k) type, with a lot of Enron stock in the accounts. Some of that is the fault of the employees, who put all their savings in company stock rather than having some diversification. I leave my employer contribution in company stock, but my contribution has no company stock at all, reducing my exposure.
Traditional pensions are far better, and make the company take the risk, rather than the employee. I am fortunate that my employer still provides a traditional pension, as well as a generous 401(k) match. As well, our 401(k) investment choices have tiny expense ratios, which helps returns.
I would love to see the same sort of data for the CoH plans.
Tom, DROP accounts are notional accounts. That is not a secret. You majored in finance ? It’s not as if the CoH has a savings account at WF labeled “Police DROP.”
I’m kind of at a loss for words based on the questions posed and statements made by the commenters here.
Jack,
Sometime this morning we are likely to learn the Dallas Police pension has collapsed. There will be officers who were unable to pull their DROP accounts, others NOT so fortunate. Taxpayers are going to start learning what actually has been going on. The fund would have failed because of bad private equity investments. People will start asking what investments have been made by Houston. It is likely to trigger a run here too if it has not begun. As in Enron people went to jail. What do you think the chances are that people are charged here. I think it will be based on who does not get their money out and who decided to invest in shale plays. What do you think?
So I’ve been living in Dallas since August, and I’ll be moving back to my Houston home in the summer of 2017.
Before any mouthbreathers get on a rant, I’ve owned a home in Houston with no homestead exemption since 2010. So, my taxes are about 80{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} higher than my true comps. I should get 2 votes in any Houston muni election eh ?
Younger Dallas public safety personnel will take a huge haircut no matter which you slice it. Their investment team looked to have done an atrocious job managing risk. I believe they had something approaching 60{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} of the portfolio in RE. I think the national average of similar funds is to the tune of 20{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986}.
Truth be told, the 8{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} floor on DROP investment is a large exacerbating factor, but s balanced portfolio with even mediocre returns would have “coverered a multitude of sins” or in this case the DROP account.
Very few people at Enron went to jail unfortunately. As far as the DPFP goes, I sincerely doubt any police and fire have any power or sophistication to do something illegal.
We are almost assured the former pension manager did something illegal as his office was raided by the FBI a month or two ago.
I don’t know why there isn’t something similar to the PBCG for public sector pensions. I know the DPFP and most any Texas city pensions are not Qualified plans in the IRS, and thus ineligible for PBGC backing.
Jack,
Really?
No, we don’t do that around here. If you choose to insult people, do it elsewhere.
DJ
David,
It’s not directed at you or anyone here. At least none deserving that moniker has commented as of yet.
The most vociferous anti-pension debaters I’ve come across have all made a point that I don’t even (currently) live in the city of Houston. I figure my property tax bill more than suffices. Never mind, each one of them has been from, so far, Bellaire, West U, Hedwig Village, and Southside Place – ‘meaning they aren’t even Houstonians.
You nailed that prediction Don. They shut down the DROP withdrawals this morning with $154 million scheduled to be paid tomorrow.
Here’s a good link for how DROP accounts work http://benefitsattorney.com/articles/ria/
Personally, I am opposed to DROP. Let the employees retire if they want to, rather than paying them a pension and a salary. I also want to reduce the percentage of the pension that is indexed for inflation. If I take my employer pension as an annuity, there is no indexing. I only get indexing on social security. Public employee pensions are a combination of social security replacement and traditional pension, so let’s index only the portion that is a replacement for social security. Lastly, let’s discount the pensions when they are taken before age 60. If I take my pension at age 55, there is a 25{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} discount from the full amount(it’s 5{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} per year before I turn 60). Same thing for social security – if I take it early, there’s a discount. i find it pretty ridiculous that a public employee can retire with a 90{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} pension, indexed for inflation, at age 55 (it is my understanding that the HFD pension works like that).
You’re capped at 80{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} after 30 years with HFD and have to forego DROP participation to hit that percentge. You can conceivably get 80 percent and a full 13 year DROP with 43 years of service.
Years 10-13 of the DROp though, your 9{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} contribution does not go into your DROP account. It goes into the general pension fund (though your pension percentage is still fixed).
I don’t think anyone opposes indexing COLAs to the CPI in the future. However, those who elected to DROP already did so because they were able to calculate what 3{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} compounding would do to their monthly benefit.
They’re now on the DROP, and it’s irrevocable. Those guys will have pension benefits worth substantially less now.
I am definitely not advocating anything like that.