Houston Has a New Plan to Dig Out of Pension Hole

It includes major benefit reforms for city employees. 

Houston Mayor Sylvester Turner (AP Photo/Harry Cabluck)

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Houston Mayor Sylvester Turner announced a plan to pay off the city’s debt in 30 years at a press conference Wednesday. KHOU reports that the fixed plan would pay off the estimated $7.7 billion that the city owes its fund over the next three decades by cutting yearly costs and making significant benefit plan changes to the city’s three pensions: the Houston Police Officer’s Pension System, the Houston Municipal Employees Pension System, and the Houston Firefighters Relief and Retirement fund.

Houston will also issue $1 billion in pension obligation bonds and lower the expected return on pension investments from 8.5 percent to 7 percent. This raises the unfunded liability figure to $7.7 billion from its previous $5.6 billion estimate, but some say this could be a low estimate.

Bill King, who narrowly lost to Turner in a mayoral runoff last December and is a vocal advocate of pension reform, says that the city’s unfunded pension liability is actually around $8.3 billion because of the $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 told KHOU. “These are plans that you can never know what the cost of them are, and frankly, these numbers just don’t add up.”

Critics also say the pension changes could make it difficult to recruit police officers and firefighters. But Turner says that while there will be changes to benefits such as cost of living adjustments, existing paychecks won’t change.

“The current system is not sustainable, and I have 22,000-plus employees. The current system is not in their best interest,” Turner said during the press conference. “This is my package I am proposing, and based on my conversations of all the different groups in the last seven months, it is the best interest not just employees, but it is the best interest of the city of Houston.”

The plan comes after 15 years of rising costs and seven months of negotiations. Turner says taxes won’t be raised to reduce the pensions, and that the benefit changes will cut the unfunded liability immediately by $2.5 billion.

The firefighter pension board is not yet on board with all aspects Turner’s plan, but the other two pensions have given their tentative approval. The plan still needs to be approved by each fund’s board before going to city council and then on to state legislature before being implemented.

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Kelsey E. Thomas is a writer and editor based in the most upper-left corner of the country. She writes about urban policy, equitable development and the outdoors (but also about nearly everything else) with a focus on solutions-oriented journalism. She is a former associate editor and current contributing editor at Next City.

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Tags: houstonpensions

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