HOUSTON – The City of Houston owes its workers and their pension system millions of dollars. 

“We owe over $2 billion dollars,” said City Controller Annise Parker.

But the way the city has paid down some of that debt has raised concerns. The city handed over a promissory note, which promises to eventually pay $300 million to the pension fund.

The note made the city look better on paper, but the city hasn’t paid its tab yet.  Plus, it hasn't paid most of the interest on the promissory note, which has increased the debt by millions.

Regardless of the rising debt, Mayor Bill White told City Council on Wednesday that the decisions they made were the right ones.

“I want to assure Houston employees that their pensions are secure.  And I want the taxpayers to know that these debts are all affordable,” said Mayor White.

In addition to the promissory note, the city borrowed from Wall Street to help pay its pension debts down. They did this by selling pension bonds.  With this deal, the city will once again pay more interest.  This time it could be hundreds of millions more.

Houston’s controller said that she warned the city not to do this.

“I made a presentation to the council recommending against pension obligation bonds. But they chose to issue pension obligation bonds,” said Parker.

Parker doesn’t like the pension bonds because she said the city will be using debt to pay a current obligation.

Even though they are ones making these deals, the current administration won’t be the ones paying the bills.  It will be deferred to a future generation. 

For the next 25 years, the city will only need to pay off the interest. But in 2034, whoever is mayor at that time, will be responsible for coming up with the balance – which will be approximately $350 million, plus the interest that the city will owe on top of that amount.

“We have borrowed money to make some of the pension payments. That's because the pension payments are a long-term obligation,” said Mayor White, when asked if this is the right thing to do.

However, the long term problems are what critics of the current administration worry about.

“When you cut through all the fluff, all Mayor White did was take an existing debt and shove it into the future,” said Bob Lemer, retired partner from Houston’s Ernst and Young, and a longtime critic of city fiscal policies. “It’s beyond me why they are turning their head to this.”

On Wednesday, the city turned to Wall Street. They are trying to get investors to enable them to get out of their $300 million promise. Their plan is to sell more of the controversial bonds at a low-interest rate.

They were unable to get the deal completed, but if they eventually can make it happen, today’s debt will become the problem for the future.