With the chaotic end to the regular session and the tension in the special session lots of ink, time, energy, and focus has been in Austin. That’s well and good, but it poses a significant challenge for Houston. With the attention focused on Austin, the needed scrutiny for the November election on pension reform and spending cap increase has been pushed to the back burner. The vote will have a far larger impact on Houstonians than anything that happens in Austin this special session.
Before turning reasoning on the vote, I will give credit where credit is due. Mayor Turner could have pushed the pension plan through without a vote. He took the high road and agreed to let it go to the voters. For that, he deserves credit.
It’s important to recognize that the spending cap will need to be increased/lifted if pension reform is approved. Approving the plan without increasing the spending cap will be disastrous. The city has released a “sustainable pensions” web page which promotes the plan. The information there is presented in the light most favorable to the city. The Urban Edge has published an analysis which gives a more neutral assessment.
Although the current situation in untenable, the plan has some problems that need to be addressed. The first, big, problem is that the plan only has a framework to stop unfunded liabilities from increasing. Don has written on the plan extensively, and he correctly points out that the corridor is not a lockdown solution.
Without a lockdown solution, the “risk sharing” is theoretical rather than ongoing. The city and pensioners had the option of shifting future employees to a 401k structure. This would have reduced the obligation going forward and made the problem manageable. Rather, they elected to go the corridor route. The corridor route would achieve the same goal IF it were a hard agreement without wiggle room. Rather than being a hard agreement it calls for negotiations should the investment return fall outside the boundaries of the corridor.
The second problem is that the plan assumes it will succeed and gives little wiggle room for error. The plan calls for reducing the rate of return to 7{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986}. That’s great if the rate of return hits 7{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986}. However, Houston Municipal Employee Pension System publication shows they have not hit that rate of return in the past 3, 5, and 10 year periods. It’s close, but not there. Individual year values have been much lower.
The pension bond requires a 5{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} rate of return in order to make debt service payments. Although the HMEPS hit that mark in the 3, 5, and 10 year periods it did not hit the mark every year. In those years the city will have to bridge the gap with general revenue.
Third problem is while the books allegedly will be open the transparency doesn’t regulate where the investments are. Municipal bond rates over time have been at 3.5{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} or slightly higher for the past decade.
With an assumed 7{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} rate of return along with a 5{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} rate needed to service the pension plan at least moderately aggressive investing is going to occur. Aggressive investments played a part in the current crisis. The plan lets everyone see the investments, but doesn’t place safeguards to ensure prudent investments.
These problems are significant and give pause as to whether the proposed plan is workable. Prudence calls for a no vote and tweaking the plan to ensure Houstonians aren’t left with a billion dollar obligation that isn’t backed by reform that have teeth to ensure the pension crisis is resolved.
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Txlt44 says
I hope the city keeps a defined benefit plan for fire fighters and police officers. Without defined benefits recruiting new personnel may become difficult.. A robust economy already makes recruiting harder. 401k plans are not sufficient for police or fire fighters whose pay is generally lower than average and defined benefits guarantee them a secure retirement. I also believe that the pay difference between fire fighters and police needs to be addressed. Currently fire fighters make approximately 40 percent less than police officers.
Let’s take care of the people who take case of us.
Fred Flickinger says
The firefighters don’t need to recruit as they have a waiting list to join the department.
The average retiree last year left with more than an $800,000 check from their DROP account in addition to their retirement pay and benefits.
All this while working 8 days a month.
No wonder there is a long line to join the Fire Department.
Txlt44 says
They do have good pensions and benefits. However, most folks won’t run into a burning building to save lives or face an armed convicted felon who has multiple warrants and doesn’t plan on going back to the penitentiary. These city employees see things that would traumatize normal citizens on a regular basis. PTSD is rampant among their ranks and usually goes untreated. When these people earn their living, they really earn it. All it takes is one call to end it all for them and let’s not forget their families.
By the way. A fire fighters shift isn’t 8 hours long. It’s 24 hours. Police usually work 12 hours. That doesn’t include being away from loved ones during deadly fires, hurricanes, floods and civil unrest. Then nobody goes home until it’s over.
Our society should be paying them more. They probably make more life and death decisions than a Doctor on a regular basis.
Fred Flickinger says
I didn’t say anything about the police. I was specifically speaking about the firefighters.
I am fully aware they work 24 hour shifts.
The scenario of running into a burning building is extremely rare. Fires have decreased by 50{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} over the last two decades. This is not only true in Houston but nationwide. The area I live in has five fire stations. We average one fire a year. Given the number of shifts and stations, what are the odds of actually responding to a fire?
The Fire Department has become an ambulance service that occasionally responds to fires. God bless them for when they do.
Unfortunately this has nothing to do with their compensation.
The bottom line is when you have a large number of employees and you have no turnover except retirements, the value proposition is too rich.
Maybe it is the pay.
Maybe the work schedule.
Maybe the pension.
Maybe it is because if they have a city owned vehicle and live in Huntsville, Lake Jackson, or the Dallas Ft. Worth Metroplex the tax payers will pay for their commute.
Howie Katz says
Fred, it pleases me that you appreciate our firefighters. While your neighborhood may be fire free, that’s not so in my Clear Lake neighborhood. The house directly across from me burned down as well as two more houses within two blocks from me. In the fire across the street, I saw Houston firefighters enter the fully engulfed structure to save a dog.
And where do you get this “they have a city owned vehicle” stuff? None of the rank-and-file firefighters have a city car. The few fire department officials that have a city car have it because they are subject to be called out at any time.
You seem to resent the fact that firefighters (and police officers) live outside of Houston and do not pay city taxes. They should be able to live anywhere they want as long as they can respond to emergency call ups in a reasonable time. And we should not expect them to pay for their own salaries.
Jack Rhem says
Fred, what neighborhood do you live in ? I am interested in seeing the stats you managed to drum up.
As well, to point out, Howie Katz lives in Clearlake, which is what we would call a retirement district. That is to say, like Kingwood, it’s an upper middle class neighborhood of youngish housing stock where very little happens regarding crime, fires, etc. Station 71, 72, and 93 with 3 fire engines, 2 medics, 2 ladder trucks, a district chief, and an ambulance probably combine to make fewer runs than where I started in Sunnyside.
My point is, if we seek efficiency and shut down companies that aren’t busy, the people who pay the bulk of taxes will be the ones who lose the service. I suppose there is some justice in that they’re largely the ones bellyaching the loudest (not you Howie).
Fred Flickinger says
I live in Kingwood, and yes I realize that closing a station would have a negative impact. Although with all the stations located within a two mile radius, and two of the stations having utilization rates of 2{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} and 3{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986}, I think we could survive.
Jack Rhem says
Kingwood and Clearlake have an abundance of fire stations as a result of the annexation process. Both neighborhoods enjoy special provisions for coverage that no other neighborhoods have including Uptown, River Oaks, Memorial area, etc. If a fire engine in Kingwood is dispatched on a run, engines from other poorer neighborhoods to the south are backfilled to Kingwood.
What I am describing above is a normal occurrence anywhere in the city were there to be a large multiple alarm fire that cleared out 6-10 stations in one geographic area, That’s common sense. The difference is Kingwood and Clearlake get this treatment for anything. That is not an HFD issue. It’s a governance one. I doubt you’d see Council Member Martin try to change this (the city it trying to add a station each to Kingwood and Clearlake).
Also Fred, your facts and analysis are wanting. The last firefighter to die in a house fire died in Kingwood.
HFD does not have a waiting list. When I was hired almost 9 years ago, HFD was objectively considered the easiest big city FD job in the country. That’s before our pensions were bilked for the police and muni. HFD now has an open ended hiring process. There is literally no time frame for when a process beings and ends. They are accepting applications at all times. It’s astounding to me and anyone in the fire service.
The latest insult is the Laredo FD is currently hiring with a much better compensation package than the CoH. What a joke.
The lack of turnover in civil service is a feature not a bug. Our compensation is entirely weighted on the back end. Unlike an ERISA compliant plan, my pension will give me 0{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} of employer contributions if I leave before 20 years. You don’t know things like that, nor do you care.
Don’t let the facts get in the way of a good story I guess.
Jack Rhem says
No one pays people to cover their shift to keep their job. They do it because they want off for a specific day for whatever reason. If my wife wants me not to work Christmas, and I can’t use vacation or because of seniority, then I could pay someone to work that day for me.
Technically it’s not supposed to happen, and we are to trade shifts 1 for 1. That’s cumbersome and inefficient. It’s not all that different than how organ transplants used to work where one person could donate an organ to their match, provided that match recipient had a family member giving one back to the original donor family. Now days, they will allow for these long chains of donors involving 5.10, 15 groups of people that will never see or know each other. It’s objectively more efficient.
I can think of a group of employees that pay other employees to work for them from time to time – anyone who does shift work. I know physicians do it for sure.
Fred Flickinger says
Jack,
You are absolutely correct about the last firefighter fatality, but that doesn’t change the frequency.
As far as your comment the “facts are wanting”, the utilization rates I cited for the fire stations came from the fire department. If you are correct about the “facts are wanting”, your beef is with the fire department, not me.
Fred Flickinger says
Jack,
You might want to check your plan summary as you start vesting after 10 years.
https://www.hfrrf.org/uploadedFiles/HFRRF/Content/Resource_Center/Summary{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986}20Plan{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986}20Description.pdf
Jack Rhem says
I wasn’t referring to the utilization rate of the Kingwood stations. Those are just immutable numbers.
The commonly cited statistics of fires dropping precipitously don’t mean what your camp wants them to mean.
Regarding vesting at 10 years, you garner a 1.7{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} credit for each year of service multiplied by your annual salary. That number is calculated at the time of leaving, and then it receives no interest credit for returns on your money in the pension NOR does it get adjusted for inflation at all ever. You can start taking it at 55. So for me, that would mean 20 years of unabated inflation going unrecognized.
THEN that pension will forever offset any SS benefit you garner after leaving AND my wife’s spousal benefit.
TL:DR – it’s a paltry sum that will hurt you financially over the long haul more than if you didn’t have it in the first place. Think of it as advisable as a telling your 85 year old grandma that buying a variable annuity is a great deal.
Fred Flickinger says
Jack,
I can quibble with ever you stated but the overall theme is you believe the firefighters are under compensated and I believe they are over compensated.
So I have one last question for you, can you name another group of employees who will pay someone else to work their shift, just so they can stay on at that job?
Doug says
I thought the decision was made to leave the “spending cap” off the ballot.
Greg Degeyter says
I hadn’t heard of such a decision, but it would be wise from a political tactical standpoint so the two aren’t viewed as linked. However, if the pension bond passes, the cap will need to be raised at some point since the debt service will not always be covered by the investment rate of return.
DanMan says
I think the public employees need to expect a fairly extensive hair cut on their pensions. Little details like the police taking pay increases to allow their pensions to go underfunded while the firemen eschewed those increases to fund their pension more robustly are issues to be considered but this tax payer feels he has already paid his due on those pensions.
The money was not allocated, the compounding is forever lost and your union leaders and the mayors that promoted this scheme will be enjoying fully funded retirements. That is all on you members that allowed yourselves to be used. Very harsh reality that always rules: TINSTAAFL.
Your expectations to get funded have no models to reference that I know of. All of the towns that have or will precede Houston down this path are your examples. We are not an $8 billion retirement backstop for some 40,000 people that think they should win the lottery in their 50’s. We are a city of 2.1 million people that have lives to live outside of funding your retirements.
Kline-Miller is good enough for the private sector and is good enough for public employees as well.