In Dallas and Houston, pension fights escalating, sparking unexpected debates.
Pension leaders and elected officials in Dallas and Houston had one job: Get all parties from each city on the same page about how to shore up multibillion-dollar retirement fund shortfalls before seeking help from state lawmakers.
Neither city has.
Their respective divisions come with seven weeks left in the legislative session and as a collection of pension bills are poised to hit the floors of both the Texas Senate and House. And the separate local disagreements over how best to move forward are now spurring spinoff debates involving whether to dramatically overhaul future public retirements in Houston and whether public transit funds should be tapped to shore things up in Dallas.
Still, lawmakers, city officials and pension members vow to press on in behind-the-scenes negotiations aimed at quelling some of the acrimony.
"It will be more of the same for the near future," Houston fire pension chair David Keller told members in an email this week. "Back and forth to Austin. Back and forth with lawmakers."
The Houston fire pension fund opposes both the House and Senate bills that aim to shore up that city's shortfalls. The vast majority of unfunded pension liabilities in Houston come not from the firefighters' pension but from the municipal employee retirement fund and police pension system, according to credit rating agency Standard & Poor's.
The municipal and police systems respectively have 48 percent and 62 percent of the money they are expected to pay out to retirees over coming decades according to S&P. The firefighter fund, meanwhile, has about 81 percent of the money it needs to cover future pension costs. That puts it among the best-funded pension funds in the state.
Firefighter pension members say that the two bills working through the Legislature would lower their benefits in order to save the city money that could be spent helping shore up the municipal and police funds.
"Talk about punishing success," Keller told members in his email this week.
City officials, though, blame squabbles over access to the firefighter fund's financial data for the plan enshrined in current legislation. Mayor Sylvester Turner was not available for comment for this story last week.
"In the absence of the data from the fire pension system, we had no choice but to move forward with our own projections about what it will cost to provide future benefits for fire retirees," Turner said in an opinion piece submitted to media last month.
Missed payments and a controversial fix
The Houston shortfalls in the police and municipal funds partially stems from years in which those respective boards agreed to let the city underfund its own contributions to the pensions. The firefighters didn't strike such a deal.
To repay the underfunded amounts, the city plans to issue $1 billion in pension obligation bonds and give $750 million to the police pension and $250 million to the municipal system. City Hall and both of those pension funds are on board with the plan, though the Senate passed a potentially problematic bill in March that could require voters to approve issuing the bonds. Scores of Houston business leaders have been lobbying lawmakers to include that election requirement to the Legislature's pension fix, but it's a provision Turner adamantly opposes.
Bill King, who opposed Turner in the 2015 Houston mayoral race, is among that group of Houston leaders at odds with Turner on this issue. They also want any pension fix to require that future employees be given defined contribution plans akin to 401(k)s instead of defined benefit plans like pensions.
King said pensions are throwbacks to a time when interest rates were higher and life expectancy was shorter. He said there are too many variables for any pension entity to accurately know how much money it's going to need now to pay retirement benefits for the next four or five decades.
"That model just doesn't work anymore," King said. "The private sector figured that out two, three decades ago and got out of it."
Public employees and first responders largely oppose such shifts to defined contribution plans, which generally offer no guarantees about how much money someone will be regularly paid after retiring. Turner strongly criticized the controversial idea at a City Council meeting this week, though he did not mention who was pushing it at the Capitol.
Turner said switching future employees to a defined contribution plan would do nothing to shore up current shortfalls in existing plans. He also portrayed state lawmakers as trying to control local matters.
"Let Austin be the City Council and let them pay the bill," Turner said of the Legislature.
Different problems and another divisive proposal
In Dallas, police and fire employees share a single pension fund, which credit rating agency Moody's recently said has the second-worst pension funding ratio in the country relative to the city's revenues. S&P estimates that the fund has 28 percent of what it will need to pay retirees.
That's the case even though, unlike Houston, Dallas continuously paid its required contribution into the retirement fund. What's driven the financial crisis there is instead a mix of poor investments, generous contributions and the fact that pension members withdrew more than $500 million from accounts last year amid fears that the fund was about to collapse.
Police and firefighters support State Rep. Dan Flynn's House Bill 3158 which seeks to shore up the system's massive shortfall. But many City Council members oppose the bill because it regularly escalates the city's contribution to the fund and doesn't swing the balance of power on the board to give city appointees a majority of seats, an arrangement city officials have argued is needed for the city to avoid financial shortfalls like this in the future.
Still, the bill passed the House Pensions Committee last week and is now likely headed to the full lower chamber.
Meanwhile, some Dallas leaders have spurred an entirely separate debate about how to fill the pension shortfall. The city's pension board last week passed a resolution that said Dallas should divert part of the sales tax it spends on public transit to the troubled retirement system instead.
Council member Scott Griggs, who also sits on the pension board, championed that idea. Though Griggs has long been a public transportation advocate, he and other council members have also been critics of how well Dallas Area Rapid Transit fulfills its mission. They accuse the agency of favoring suburban cities to the detriment of transit service in the region's urban core.
"A large portion collected from city of Dallas sales tax is diverted by DART to the suburbs," Griggs said.
Other council members, including Mayor Mike Rawlings, oppose such a move in how the city spends its sales taxes. And DART officials have questioned whether it's possible without a separate change to the state law that governs the public transit agency and its members. Still, DART is taking the idea seriously because it could cost the agency $35 million a year.
"If they were able to do that, the effects would be devastating," said DART spokesman Morgan Lyons.
Dallas and Houston have among the highest pension shortfalls among local governments in the country, according to a report released late last year.
More than two dozen former government officials convicted on corruption charges are still eligible to collect lucrative public pensions, a Texas Tribune investigation has found.
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|Publication:||The Texas Tribune|
|Date:||Apr 17, 2017|
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