The fake government economy is at a crisis point in Houston. All of the accounting gimmickry has been used and there is nothing left but a mountain of debt. Now, how do the pension tricksters fool the state again? I am not sure what Turner is looking for in the form of a fix; but, one thing is for certain, the taxpayers will be stuck with the bill. A big question to come – who is to blame? Turner’s strategy is yet another attempt by a mayor to kick the proverbial can down the road. The unfunded pension liability estimates range from 5.6 billion to 12 billion. Our municipal debt mirrors our national debt in many ways with one distinct difference: the City of Houston cannot print money.
State Pension Committee Chairman Dan Flynn brought his Pension Committee to the Houston Council for a hearing on June 13. Highly overcompensated city pension officials arrived with their own form of Enron accounting and glossed over the true financial condition with pretty PowerPoint presentations. A match was struck some time ago to the city finances and that match has now morphed into a blow torch. At the hearing, pension and union officials tried to paint a picture of stability when describing their system; but, it is anything but stable. Democrats on the committee sought to aid pension and union officials with covering laudatory comments. The salaries and benefits paid to Houston public employees are not real. I say this because their Madoff-style accounting system is designed to fool the taxpayers while giving political cover to elected officials tasked with hiding the massive fraud. All of this trickery is designed to keep the City of Houston paying out-of-market salaries and pension benefits.
Dan Flynn, a supposed conservative Republican, also praised the city pension officials during the hearing. Flynn was chairman two years ago when Annise Parker complained that she could not get the legislature to give her “local control” over the city’s pension system. The city’s pension system has been in crisis for the last five legislative sessions. Parker made these complaints after signing an agreement with the police union to refrain from lobbying for “local control” of her own pension system. You really cannot make it up; but, it does show the lengths that elected officials will go to perpetuate the fraud. Former Mayor Parker was endorsed for reelection by the police union the year she signed this agreement to not advocate for local control.
Chairman Flynn will be tasked to come up with some legislation fix. Speaker Strauss, also a big beneficiary of union political largess, will attempt to give cover to Flynn and his committee. The risk for Strauss and Flynn: how to give the unions what they want without making the legislature appear responsible. Of course, the legislature IS responsible. They, of course, are liable because state representatives were scared into thinking, by the unions, that big bad liberal politicians in Houston might one day want to undue the fraud and corruption. The legislature subsequently enacted “Mother, May I” legislation, preventing the City from cutting union benefits. The question for Flynn will be whether he attempts to land the plane or jump out with a chute allowing the unions to auger in what promises to be a spectacular crash at this point. Flynn may attempt to captain this ship all the way to the ground – don’t expect it though.
At this point, the City of Houston has no possible way to pay off the massive pension debt. Pension officials will continue their party line: no problem here – look out thirty years to see the true picture. This position does not account for thirty-year-old rose colored glasses that could not possibly see over the mountain of debt. We will continue to hear the argument that we must honor our obligations, even though crooked politicians made them. And, we will have to except fewer services than we already receive in an attempt to perpetuate the fraud. Turner will continue his sleight of hand with the claim that he has fixed all the potholes and the taxpayers need to pay more money to feed the beast.
Liberal idiocy will be the governing thought process as Houston is smothered in a mountain of debt. It really is way past time to file for bankruptcy. If you are a Houston business, get out while you can. Halliburton, Schlumberger, and Exxon have all bailed. More businesses will continue to get out as they are expected to pay more for a less safe, less accommodating, broken city infrastructure. The city finances are not real. Save yourselves.
Further Reading
A Greek Tragedy in Houston
The problem with the city of Houston’s defined pension plans is exactly the same as that of every other defined pension plan, public and private, that got into trouble. The employer promised a pension, knew what it took annually to fund the pension plan and didn’t come up with the money.
Basically, the employer — public and private — scammed the employees. The employees agreed to work for a compensation package that included the defined benefit pension. The employer paid them the agreed upon salary but failed to pay some part of the remainder of the compensation package: the pension. How many times have airlines like Continental declared bankruptcy to get out of pension plans they agreed to but failed to fund? Same with other employers.
For the city of Houston, it was easy for a mayor and city council to shortchange the pension plans. After all, they would be long out of office when everything came apart. The same for private employers. The guys who made the promises and failed to keep them often were long retired before anyone noticed the problem.
GM got into trouble in the 60s, 70s and 80s when it agreed to union contracts including big pensions and great health care benefits. Management was long gone when the employees wanted to collect.
To me, shortchanging an employee on part of his compensation agreement is akin to stealing. Compensation packages are just that packages agreed to by both the employee and the employer.
The current city of Houston elected officials and employees are left holding the bag for bad decisions made by mayors and councils long gone. Interestingly as I recall this failure to fund started after rock solid term limits went into effect. City officials who KNOW they will be out of office if less than six years don’t have the incentive to make longterm plans and frankly, often don’t have the knowledge to make those decisions.
Just a few thoughts.
Tom
Tom,
It is interesting that city employees strongly supported Turner for Mayor who basically promised to continue with the current scam.
Although I agree with your comments about a compensation package, It appears the employees are at least partially in on the scam.
Don, what makes you think those companies left to avoid city taxes? Have you considered that tax rates are higher elsewhere, and that companies have other reasons to move?
Ross, I think it was also the crappy roads, poor police protection, over regulation, unfunded pension liability, awful schools, and taxes.
I think is like an opinion and an anal opening, everyone is entitled to one. We don’t know why they chose to leave so why use that as an argument?
Neither Here Nor There,
Your reasoning seems to be described by your moniker. You are foolish, large corporations are not.. Businesses leave for straightforward business reasons, like profitability, quality of life for employees, risk assessment, taxes, local regulations and avoiding nasty ditzy democrat local political attitude toward business. Not only are they logical, but they report their results and reasons every quarter if they are a public company.
I’ve long wondered why one of the suburbs doesn’t make a serious push to steal away some businesses from downtown.
Employees quality of life not having to fight traffic, easier logistics with children and school activities, better law enforcement/safety, etc. The untenable pension position could be a tipping issue since the city will either have to lift the expendatures cap, cut services to service the pension liability, or declare bankruptcy. The issue is a serious storm on the horizon.
Greg–the suburbs have made a push to poach businesses. We call the tool they use a “tax abatement”.
Most of the suburbs are unincorporated, and lack the ability to attract businesses. The ones that are incorporated lack the ability to annex property to expand their area due to Houston’s control of its ETJ.
I moved out to the county years ago after I was told by a realtor friend how much cheaper it would be than living in the city. It didn’t take long to find out that was a bunch of hogwash, the county provides almost no services so we supplement them from HOA dues or direct expenses. I used to have free trash pickup and now I get to pay $40/month, my water is more expensive per gallon and I have a yearly MUD tax, and we are pressured to pay for police protection which I thought my taxes would cover. The street light bill, the HOA dues themselves and everything else end up costing me a bunch more or I can move to a rural county where it is worse, even the ISD taxes much more out here.
But the city officers I hire told me that the unfunded part of the pension could be erased with two measures, Rice professor Diamond and the new appointee to the state pension board whose name I don’t recall, both agreeing that if the city stopped paying a cost of living raise each year and limited their deferred program, the problem would go away. They then provided links to the long range task force report that said the same thing. Whether that is true or not, might be better explained by the good professor but Turner has promised he’s been meeting with pension officials to cut costs, I can’t help but think that at least some progress is being made. The best suggestion I heard yet was in some comment somewhere that offered how the state should force cities to adopt a balanced budget each year for pensions, but it added how the state was $40 or 50 billion in debt for pensions too. Ideas?
My idea is bankruptcy and have written about it twice. There is no possibility the unfunded liability can be made up. This is especially true when you consider the actual returns of the funds and the write downs for the private equity investments, which have not been realized in this false accounting.
I have purchased popcorn, and moved all taxable assets outside of the City.
As I recall, the three pension funds are separate from city government. They aren’t solvent (to varying degrees with the firefighters being in the best shape) because the city hasn’t made its payments. That would require a city of Houston bankruptcy to clean up the mess.
I’m no bankruptcy lawyer but wouldn’t that mean everything the city owes would go into bankruptcy like general obligation bonds, revenue bonds and day-to-day debt like the gasoline bill for the police department and the light bill?
That is asking for trouble.. And wait until you see the city’s bond rating. It will be lower than confederate state bonds.
The truth is that business groups, primarily construction, engineering, and architectural rely on government. The City can no longer waste money on them so they have started pushing for control of the pensions, Not mentioning that hedge funds operators have also made killings with pension funds. It is more of taking from the working man and giving to the parasites. Wonder why Trump did so well by saying things in favor of the working man?
Bankruptcy is legal stealing, no self respecting person should have to use it or even advocate its’ use. But just in case one wants to make an argument for bankruptcy, why the difference in how we allow business to use it and not individuals?
The Constitution specifically gives Congress the power to set uniform rules for bankruptcy. Individuals can file for bankruptcy. The most common reason is medical bills.
Remember, Texas was founded by people running from debts. And for generations, our laws protected debtors. However, the bankruptcy reform act pushed by Joe Biden, George W. Bush, Kay Bailey Hutchinson and John Cornyn gutted the Texas homestead exemption for personal bankruptcy.
Right now, credit card companies have the same preference level in bankruptcy as child support. And, it’s almost impossible to discharge student loans in bankruptcy.
Bankruptcy is a legal way for a person or company to get a fresh start. But it is abused, especially by businesses. When a company reorganizes, it isn’t uncommon for the share holders to get nothing and creditors to get pennies on the dollar.
The comment above from “Neither Here or There”; “The City can no longer waste money on them so they have started pushing for control of the pensions”
This is totally absurd. 1. The City has NO control over its pensions. All 3 pensions are set into state law and cannot be changed without the approval of the State Legislature. So called “meet and confer” agreements are really “meet and defer”. Some reform was made to the Municipal workers’ plan, but that plan has the lowest funding level, below 50{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986}, so reform did little good.
2. The City has failed to fully fund its required annual contribution for over 12 years, electing to spend $$ on other things.
3. Taxpayers have approved an increase in the revenue cap, $90 million, to go to “public safety”, but funds spent elsewhere AND taxpayers approved the drainage fee, used primarily to balance the budget and to pay contractors for building roads, not to go to Pensions.
Mr. Frazer, when you ran for office, you pointed out all these things more than a few times so the voters have been aware of the problem but they continue to elect the same people, or same type of people. Most of us here call them democrats.
Other than one time recently, has the GOP controlled legislature ever denied an agreement between the city and it’s employee groups regarding pensions? Has a sitting governor ever told them, “no”? I don’t think they have. So why do we think giving more power to democrats that started the problem is going to solve the problem? As you say, the municipal pension is the worse funded and that pension is one where it meets with the city to determine benefits, while the fire pension is the best funded and doesn’t usually deal directly with the city. To me, that says let the legislature mandate a solution or it will get worse.
You’re a financial expert who ran for office based on your experience and credentials. Most city debt is bonded debt tied to enterprise funds. If the city were to file for bankruptcy in federal court, is there anything in state law or city ordinance that puts that bonded debt ahead of other debts in terms of who loses out in court? Several elected conservatives have told us at local meetings how none of those bonds were subordinate to other debts, further telling us that the interest rates are higher for the city to balance out the risk of buying suck bonds. If so, in a bankruptcy, what is to prevent some Obama appointed federal judge from halting any interest payments on those bonds in favor of forcing the city to pay employees what is owed?
I don’t really think this is purely a Democrat vs Republican issue. If it were, then San Antonio’s pensions would be in bad shape too, and they’re fairly healthy. Houston had two Democratic mayors, White and Parker, wanting to make substantive revisions, but were stymied by labor unions (Democrats, mostly) and, as you point out, various Republican controlled legislatures and governors.
Could there possibly be reasons other than political party affiliation?
The Houston Firefighters pension is the best funded of the City’s three because the state law that governs it mandates full annual contributions of the required actuarial amount each year (called the “ARC”), without exception.
Mayor Turner has said he’s negotiating a solution with the three pension systems to take to the next legislative session for approval. Other than taking defined contribution plans off the table, the Mayor has been mum on his strategy. So I can’t predict where this is headed.
I can’t respond to your questions about bankruptcy. During my two campaigns for City Controller I consistently held the position that bankruptcy is not a good strategy and I haven’t changed my position since then.
Mr. Frazer, while it may not be a purely party driven issue, there certainly seems to be a belief that Houston’s proclivity to vote for democratic mayors and councilmen is the real reason for the problem. Are we wrong to think that? I don’t think so. I looked up San Antonio and while they are much smaller than Houston, their own unfunded pension related liabilities were over $2 billion under the old pension rules, hardly what I’d call healthy by themselves yet I found they had more in other forms of debt than Houston too.
And while we all know that unions cater to democrats, I think very few firemen or police officers would identify or vote as such. That is why I believe our elected GOP leaders refuse to empower their democrat rivals by throwing such employees under the bus, much like Wisconsin carved out exceptions for them. For a Republican to side with democrats against one of their most loyal voter groups could have major consequences, the problem recognized but no consensus as to the best solution.
The city wants more direct control without earning the privilege of such control by using fiscal prudence in its governance while the employees want the benefits they negotiated. As such, I think the state should mandate a true balanced budget for home rule cities rather than push specific solutions that favor either side. Then the city can pay more each year to live up to its contracts or lay off as many employees as it needs to to make the payments just like the rest of us do in the private sector. If the employees would rather pay more to reduce the number of layoffs or accept lower benefits for future services, that can be done under existing statutes.
Like you, I don’t favor bankruptcy either since there is no way to predetermine how a judge will rule on many provisions. That unpredictability could wreak havoc depending on specific issues, bondholders and vendors not exempt because it is overall city spending that seems to be the problem, not a single area as democrats want to sell to the public. As long as the city gives $15 to 20 million in art grants each year, finds money for corporate welfare to companies like Walmart, and duplicates county services rather than pay the county like other cities do, I will maintain that in Houston, it is a democrat problem, not a mutual party matter.
Mr. Frazier only recently have we heard of giving local control of the pension. What do you think that means? Why are years of the City not paying their share into the pensions did it suddenly become a local control.
It goes back more than 12 years, to Bob Lanier and Lee P. Brown. Here is some thing that Bob Lerner published a few years back. https://nebula.wsimg.com/194679584870c25a017773e20dac811e?AccessKeyId=8489BC04C7BE8A04066C&disposition=0
A little study would find that the City agreed to having the state control over those pensions.
I stand by my statement that engineering firms, architectural firms, law firms, bonding firms want to get their hands on that money.
Not too long ago, most of those firms made their money from private projects, now they rely on the public to support their large fees.
True local control is a farce given there is nothing to prohibit the city from paying in as much as needed to fully finance pensions or trim the workforce as needed to afford such a move. Contrary to some comments, none of the pension boards can increase their own benefits without state approval and in most cases, city approval.
But I’d like to hear your reasoning for saying these specific local firms would be able to milk retirement funds of funds. I haven’t seen any local architectural firms open a brokerage, nor engineering firms, or even the others so how would they get their hands on such funds? Wouldn’t it just be easier for all concerned for the city to buy into the state system for all future employees and those who are not vested by a specific date? As retirees die off and move on, the costs will become increasingly easy to predict, places like Harris County paying more for total retirement benefits than the city does even now under that plan.
I guess a rational for my statement is wanted.
If the City has control of the money on the pensions they can borrow on it, they can use it and leave IOUs like the federal government does, there are numerous ways that the people that control the elected officials can gain control of that money.
Surely you will not ask how that happens, Washington is a great place to start, but you can look at Texas, Harris County, the City, HISD, etc.
Wonder which companies tend to get country projects, engineering, architectural, etc.
Ask how the City can find $100 million to contribute to hike and bike trails, when they have such debt problems?
IMO, much of this debacle began with Lanier but that’s water over the dam.
Bill Frazer, when did we suckers approve an increase in the (bogus Bill White) rev cap? I must have been asleep for that one.
Of course Sylvester the sly one will make an effort to repeal all vestiges of rev cap, and he will prevail. Demographics is destiny and Houston is doomed to financial ruin. Kudos to Hooper for evacuating his assets to safer climes.
As to deals made by prior players; I was not a party to those deals and I reserve the right to reneg. If bankruptcy is the most efficient course so be it, we aren’t the first and won’t be the last municipality to do so.
It was in 2006 that the voters over rode the revenue cap for about $90 million in extra revenue, led by Bill White. The vote wasn’t even close which was surprising given the cap was passed in the prior election cycle. It would be interesting to see the legal basis for your belief you can renege on such things, does that mean those who have assets in the city but moved them out would still be held responsible for their share? I bet Mr. Hooper wouldn’t agree to that.
Thanks Don for your post..
I would add that businesses are not the only property owners that should escape Houston before the inevitable crash. Home owners who’s total market value is close to 50{997ab4c1e65fa660c64e6dfea23d436a73c89d6254ad3ae72f887cf583448986} of the city’s total should consider the defensive strategy also. If you are retired or working out of the downtown area, get out of Dodge. Home price declines also lag a downturn in the economy. I have recently noticed the appearance of “price reduced” signs in the neighborhoods. In the 1980’s crash the drop in home prices didn’t occur until way after the loss of jobs, but once it happened it lasted for years.
David previously posted a piece that I wrote entitled “Houston’s Perfect Storm” earlier outlining all the problems facing the City of Houston. I really don’t see how the city is going to dodge the crash for much longer, especially if the oil downturn continues.
By the way, for those not up on the area’s population and economic data, the population of the unincorporated area of Harris County should actually exceed that of Houston’s very soon and all the Houston economic stats you hear or read are Houston area stats which mask Houston’s falling behind. The suburbs include not only unincorporated areas but also many fast growing cities outside of Harris County.
Maybe oil prices may have something to do with that? Why not let the city do as the county, make those roads toll roads? It is a Republican Democrat thing for some people.
How can you make the City roads toll roads when the taxpayer has already paid for them?
Don’t give them ideas. They’ll say the toll is to pay for ongoing maintenance, the same way the county refuses to hold true to former promises for all the roads we paid for but keep getting increased tolls to use.
Thank you Kevin, I remember going to Stillwater, Oklahoma with an Okie friend when he told me about a toll road that was suppose to become free after it was paid for. It had already been paid in the 60s and today it is still a toll road.
The first toll road in Houston between 59 and 10 was to become free for usage after being paid for, the toll keeps going up on that.
http://abc13.com/archive/8671067/
Like I stated for some people it is about who is running the show, the Rs or the Ds,
New to this website. Like it, Big Jolly; appreciate your comments, Don. Will become a regular visitor.