On Wednesday, Houston City Council members threw their support behind a proposed pension reform plan that Mayor Sylvester Turner called “historic” and 15 years in the making.
Turner says Houstonians’ taxes will not go up under the plan, which he calls “cost-neutral” for the city and says has been vetted by several outside groups. The mayor also says the city’s current and former firefighters, police officers, and city workers won’t see a cut in their retiree checks, but they might see smaller cost-of-living adjustments, higher employee payroll contributions, and a phasing out of the pension’s Deferred Retirement Option Plan, or “DROP”, that lets current employees bank retirement benefits early.
"I'm just bubbling over on the inside,” said Turner after the vote Wednesday morning at City Hall during a regular City Council meeting. “I am just as excited as excited can be."
Ten intense months of negotiations led to an agreement three previous administrations spent 15 years trying to reach, as the mayor and City Council approved a resolution endorsing a pension reform plan signed off on by the police, fire, and municipal pension boards.
"Any time you've got benefit cuts, you're going to have members that are concerned, just as I am,” said Ray Hunt, President of the Houston Police Officers’ Union, which was not involved in the negotiations. “However, we also want to make sure that we have a sustainable pension that's going to be there for our husbands or our wives."
Mayor Turner says the plan immediately slashes 30 percent off the city’s $7.8 billion in unfunded pension debt, sets a hard 30-year payoff date for whatever's leftover and issues $1 billion in bonds to help with that.
"We're gonna treat it like your mortgage,” Turner said.
Under the proposal, the city will also fully fund each system every year and lower its expectations about how much they think pension investments will earn each year, from an 8.5 percent annual return rate down to 7 percent.
The plan also includes what the mayor calls a “risk corridor” component that he compares to a thermostat. In a nutshell, the cost limits are set at a certain amount, and when the costs go over that limit, the city and the pension boards go back to the drawing board to find a way to bring those costs back in line.
Mike Knox, Council Member At-Large Position 1, cast the only vote against the resolution.
"It's not necessary for you to have this resolution to carry this legislation to Austin,” Knox said. “Without reviewing the proposed legislation, I cannot offer my support for something that does not yet exist."
Greg Travis, Council Member District G, voted in favor of the resolution, calling it “a vast improvement over the current situation”. However, he told council members he would still like to see defined contribution, DROPs reduced quicker and further, as well as more clarity on risk corridors and pension obligation bond rates.
“(The legislature’s plan is) supposedly supposed to mirror the components that are in the attachments we received, and if it does, I’ll be fine with it,” said Travis. “If it’s not, I’ll be the first one up in Austin lobbying against it.”
City officials emphasized that Wednesday’s vote was really just a show of support and a message to the Texas Legislature about the kind of plan they want to see. Ultimately, the state representatives and senators are the ones in charge of writing the pension plan and ultimately passing it when the Texas Legislature reconvenes in January.
Turner says Sen. Joan Huffman (R-Houston) will carry the omnibus pension bill on the Senate side, while Rep. Dan Flynn (R-Van) will carry the omnibus pension bill on the House side. The mayor said he has had several conversations with both and has received “favorable” comments.