Houston firefighters wary of pension plan
The firefighters' board agreed to give up some benefits in exchange for certainty in a complex deal that would eliminate pension underfunding
By Mike Morris
HOUSTON — For the first time ever, the Houston firefighters' pension board agreed Monday to accept benefit cuts for current workers and retirees, potentially paving the way for a solution to a 15-year-old crisis that has threatened to bust budgets and weaken the city's financial stability.
By a 7-2 vote, the firefighters panel joined the police and municipal pension boards in agreeing to give up some benefits in exchange for certainty in a complex deal that would eliminate underfunding of Houston's three retirement systems in 30 years.
The reform package, which Mayor Sylvester Turner heralded as a "historic turning point," heads to City Council for approval on Wednesday, then to the Legislature, which controls city workers' retirement benefits.
Although passage of the reform in Austin is far from a foregone conclusion, Turner was optimistic the deal would survive any legislative turbulence.
"For the first time ever, all three pension systems have been willing to work with the city in a very productive manner. We're all on the same page and moving forward as a united front," Turner said at a press conference. "We are closer than ever to solving what no one else has been able to solve over the last 15-plus years. The finish line is certainly within reach."
The mayor's declarations were firmer than those of fire pension chairman David Keller.
"I think it substantially moves it forward, but there's still a lot of road to go," Keller said. "It's certainly no end. It's kind of a beginning."
A statement released by the fire fund after the vote called the agreement a "non-binding framework," and no trustees elected by active or retired firefighters appeared at Turner's press conference.
The city's firefighters had never agreed to benefit cuts, whereas the police and municipal boards did so in 2004 and 2007, after benefit increases approved in 2001 led pension costs to spike.
The 2001 changes created a crisis that has burdened the city budget and which has only worsened, in large part because the city has since failed to keep up with its payments into the funds.
The deals approved by the three retirement systems would eliminate Houston's pension underfunding in 30 years, avoid billions in future costs via benefit cuts and limit similar future crises by mandating benefit reductions if the market tanks.
Specifically, the funds would assume more realistic investment returns – 7 percent rather than 8 percent to 8.5 percent – which increases the city's total pension underfunding from $5.6 billion to $7.8 billion.
To dig back out of that hole, the funds would reduce benefits – primarily through cost of living adjustments and employee payroll contributions – enough to slash the underfunding by roughly a third, or $2.5 billion. To narrow the remaining gap, Turner would issue $1 billion in pension obligation bonds.
"It is a delicate balance. If you shift it around, it does not work. That's why this is the deal," Turner said. "And what I've said to them if there's any attempt to unravel it, I will not support it. This is the deal."
Nearly 100 active and retired members attended the fire pension board meeting in varying states of angst. Houston Retired Firefighters Association President Nick Salem said his members are displeased with the vote.
"There are certain legal advisors saying that the entire agreement could be unconstitutional due to the fact that retirees were promised benefits and the agreed on promises are being reneged on," Salem said. "I think most retirees would probably hope that this agreement didn't make it and that a substitute, more fair agreement would come out of the next few weeks or the next few months."
Questions of the deal's constitutionality also dominated the fire trustees' discussion of the motion they would vote to approve. Some members openly grappled with the finality of their actions, acknowledging that Turner would be able to describe their vote as final even as they insisted on caveats requiring that any legal hurdles found in translating the agreement's terms into legislation be reported back to the board.
Asked about the tentative nature of the board's discussion, Turner said, "It was 7-2. I think the vote speaks for itself."
The uncertainty was spurred by attorney Andy Taylor, who, along with law partner George Hittner and Tony Essalih of Cornerstone Government Affairs, has joined the fire fund's payroll as a lobbyist, though none of the three appears to be registered, per Texas Ethics Commission filings.
Keller said he invited the trio to speak Monday as a counterpoint to the view of the fund's longtime lobbyist, Robert Miller, who has argued the firefighters are better off dealing with Turner than risking it in Austin.
"As long as you put forward a good plan, they're going to get behind it," Essilah said of the Texas Legislature.
Taylor echoed that, and was interrupted five times by applause when as he argued the fund's leverage would increase if members pushed back against Turner, drawing on the "reservoir ... of goodwill" for Houston firefighters and the fund's "legally and financially" stronger position over the police and municipal funds.
Taylor's advice to delay action ultimately was not heeded, as several board members who supported the reform vote said they did so drawing on months of conversations with lawmakers. Many firefighters walked out immediately after the vote, many with the word "screwed" on their lips. Those who remained debated whether Miller or Taylor was closer to the truth long after the meeting adjourned.
The end of the meeting also did not squelch debate on Taylor's assertion that the deal could face legal hurdles.
"If you cut a deal that disproportionately affects the group who's played by the rules, you're going to get lawsuits," he told the pension board and audience.
Taylor declined to elaborate after the meeting on which provisions he believed may not pass legal muster.
City Attorney Ron Lewis, who has been central to the negotiations, said all parties will work through problems as the bill is drafted, but he largely dismissed Taylor's view.
"If there were such patent defects in our approach, they wouldn't be, I don't believe, at the table, or have reached that judgment. In this respect, talk is always cheap," Lewis said. "I'm not aware of a reason to think, at present, that somehow all of those players in the drama have missed something obvious."
Former city attorney David Feldman, who has litigated pension issues in Houston and Dallas, said Taylor has no basis for constitutional claims.
In fall 2003, Texas voters approved a constitutional amendment blocking cities from cutting pension benefits already earned by public workers, but former Mayor Bill White got 72 percent of Houston voters to exempt the city from that amendment in May 2004, clearing the way for the 2004 and 2007 reforms.
"Their (pension) system is based purely on what the Legislature wants to do because Houston opted out. It's moot," Feldman said. "There is no constitutional basis to attack it."
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