Mayor Turner unveils plan to fix the city's pension problem

Mayor Sylvester Turner unveiled his plan to payoff Houston's unfunded pension liabilities on Wednesday.

HOUSTON - After 15 years of rising costs and seven months of negotiations, Houston Mayor Sylvester Turner unveiled a preliminary pension reform plan Wednesday afternoon at City Hall.

Turner says the 30-year fixed plan will pay off the estimated $7.7 billion the city owes its pension fund over the next three decades, cut yearly costs and require full yearly contributions to police, fire and municipal employee pensions. 

“It does so in a cost-neutral fashion,” Turner said.

Turner says all three of the city’s pensions have identified benefit changes to cut the unfunded liability immediately by $2.5 billion.

“Your taxes are not being increased to reduce the $2.5 billion,” he said.

The city will also issue $1 billion in pension obligation bonds and lower the expected rate of return on pension investments from 8.5 percent to a safer 7 percent, which raised the unfunded liability figure to $7.7 billion from its previous $5.6 billion estimate.

Turner was joined by city and state leaders at the news conference, along with representatives from the police and municipal employee pension boards, who deferred comment to the mayor. However, there was one group that was noticeably absent: members of the firefighters’ pension board.

Turner said the firefighters' pension board agreed to all of the terms except a proposed new financial cap, which the mayor compared to a thermostat that must be kept at a set temperature: if future market conditions cause the costs to go over that set limit, the city and pension boards will work together to bring their costs back under the cap.

“I’m willing to give them the time to understand it and digest it, and we will continue to talk,” Turner said. “But I also want to make it very clear: it is a non-negotiable item.”

After the news conference, David Keller, chairman of the Houston Firefighters’ Relief and Retirement Fund, released a statement, saying while his group continues working with the city, they have not reached an agreement on adjustments to the fund’s current plan.

"We have discussed economic changes that would fit within the guidelines set forth by the Mayor,” Keller wrote. “We have also presented issues that are important to us. However, no resolution has been made.”

Bill King, a longtime pension reform advocate who narrowly lost to Turner in a mayoral runoff, praised the city for taking a hard look at the issue. However, he says the city’s unfunded pension liability is actually around $8.3 million because of $600 million in previous pension debts.

“The problem I have is the same problem I’ve always had, which is we’re continuing to work with a broken model: defined benefit pension plans,” King said. “These are plans that you can never know what the cost of them are, and frankly, these numbers just don’t add up.”

King also said the “thermostat” cap plan would make up 35 percent of the payroll and is unrealistic.

“How are we going to hire new police officers and pay them a decent salary if we have to pay 35 percent on top of their salary and pension plan?” King asked.

Turner says there will be changes in employee benefits; not to their existing paychecks, but to other areas like future cost of living adjustments and future benefit accrual rates. The city would not offer specifics Wednesday, saying the details are still being negotiated.

A final plan will be presented to the three pension systems, City Council, and the state legislature for approval.

(© 2016 KHOU)


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