Houston's Pension Controversy: Part 6
The last post on this topic focused on who knew what and when about the explosion of the unfunded liability in Houston's municipal employees pension fund, and promised a future post on what should be done about the problem.
That post was a bit of a tease.
I'm not an actuary. I don't claim to have any special expertise in municipal finance. I don't have a staff to research financing alternatives.
In short, I have no qualifications to put together a post advising our city on how to handle this budget crunch in any detail. And I'm not going to do that.
But I am going to offer some thoughts on how the White Administration is approaching the problem, and what I think about the most pressing matter (the May 15 opt-out vote).
It's another long post, so click on the [Read More] link if you're interested.
First, I want to append something to my Part 5 post. I sense that members of council, former Mayor Brown (and maybe even Mayor White) are going to continue to beat up on Towers Perrin for what they consider to be misleading estimates. In that Part 5 post, I noted that this underfunding problem has been known for quite a while longer than any policymakers have let on (with links to support that assertion). I didn't go into much detail on the nature of the Towers Perrin estimates, because I don't think we fully know why the estimates went awry. But I think we can say that much of it has to do with the actual behavior of city employees not entirely matching the anticipated behavior -- specifically, more employees than expected opting into the more generous Group A (which promises higher benefits, but requires employee contributions) instead of the less generous Group B (which does not require employee contributions). It seems to me that the earlier Towers Perrin estimates were not somehow tailored to "cover up" the extent of the unfunded liability, but instead were based on the best estimates of how city employees would behave. That's a crucial distinction to keep in mind as this debate grows hotter. (note: I'm completely leaving aside the question of Group C, which is tailored for executive positions. In my opinion, this is the most generous, most unfair, and least examined component of the pension controversy).
Mayor White and Council have taken the position that there is no solution to this problem short of voters choosing for the City of Houston to "opt-out" of the constitutional requirements spelled out with the overwhelming approval of Proposition 15. That amendment is designed to protect vested participants in local public retirement systems from having their promised benefits reduced. It's clear to me that the amendment applies only to vested participants in the affected retirement plans, and does not in any way prevent municipalities from revamping the retirement benefits for future employees (the constitutional changes are here, and here is some analysis, for those who prefer to come to their own conclusions).
The Mayor has claimed more than once during this debate that if the city does not opt out of Proposition 15, it's uncertain whether the city possesses the power to revise the pension plan for municipal employees. I see no such uncertainty. If an employee is vested in the pension plan, the city can't reduce promised benefits; if the employee isn't (this would cover future employees), then there's nothing in Proposition 15 that would prevent the city (in conjunction with the Pension Board and the Legislature) from reworking the city's pension plan (even radically transforming it) for future employees. I think the Mayor and Council have been misleading on this, and I don't think the Pension Board or any representatives of the municipal employees have done a very effective job rebutting them.
Even in the absence of an effective rebuttal from the people who ought to be working harder to get their message out, there's one thing I keep coming back to: A Promise Is A Promise.
It may have been unwise for Mayor Brown and the Council to boost pension plan benefits because they couldn't figure out a politically painless way to give municipal employees raises. It may have been unwise for them to sit on the unfunded liability information as long as they did. It may well be that the city will have to forgo certain pet projects because it needs to fund the pension plans properly (I'm including the underfunded police plan when I use that plural term). Those things may all be true.
But the city did promise those benefits. And just today, the Comical was quick to point out that Mayor White does not mean to cut those benefits:
White has said he has no intention of taking back money from retirees.Well, that's not exactly what he said at all, is it? He mentioned retirees. What about someone vested in the retirement system? Someone who's close to retirement? Maybe even someone who opted out of the free Group B plan and began contributing to the Group A plan with the expectation of a higher return? Mayor White's language suggests he's not ruling out cutting benefits for those folks! That's exactly what Proposition 15 (which is modeled conceptually after federal law) was meant to cast in constitutional stone, out of a sense of fairness and the notion that a promise made is a promise to be kept. It does so because state constitutional law tends to be more reliable and enduring than the promises of mayors of Houston who are limited to serving three terms. It's neither surprising nor irresponsible that a large majority of Texans voted for Proposition 15.
Now, I realize that a completely reckless promise that cannot be kept is no sort of promise at all, and chanting that mantra has been the Mayor's approach to the political predicament of asking voters to rescind a promise made. And despite the Comical's best efforts to whip voters into a frenzy (with articles on how it's really possible for low-earning city employees to retire as millionaires under this plan, with no solid numbers as to how few municipal employees will ever do so) and the Mayor's political machine working the folks at KSEV (who would usually be my political allies, certainly not our Democrat Mayor's!) into a frenzy, I'm still not convinced that the city is in such a bind that rescinding a promise made is our only way out of the mess, especially since there's been no discussion of how alternative funding mechanisms (bonds?), or incentives for employees to opt for the less generous Group B, or modifications to the overall plan for future employees might affect the actuarial health of the pension plan.
I can still be convinced, as there's a fair amount of time until May 15. But the Mayor is going to have to present the case that no alternatives exist short of breaking a promise made to our municipal employees, and he's going to have to present a plan detailing just how much he would like to cut promised benefits, how it would phase in, and such. He's done none of that so far, and I don't expect him to.
Oddly enough, that puts me in the camp of Representative Sheila Jackson Lee:
At a lunchtime forum called by U.S. Rep. Sheila Jackson Lee, D-Houston, the pair said the city had many other options without threatening benefits already earned. Mayor Bill White has called a May 15 election so voters may exempt the city from a constitutional amendment guaranteeing them.I can't think of another instance when I've been on the same side of a political issue as the Representative."We need to stick together on this," said David Long, executive director of the Houston Municipal Employees Pension System, which serves the city's nonpolice and nonfirefighter employees. His fund has an estimated $1.5 billion funding shortfall.
"The reason we're having this discussion is apparently the city doesn't want to uphold its commitment," said Ralph Marsh, a Houston police officer and vice chairman of the Houston Police Officers' Pension System. His fund has an estimated $480 million shortfall.
The Houston Firefighters' Relief and Retirement Fund, which is not experiencing a funding shortfall, was not represented.
The fighting words were welcomed by about 80 city workers who took an extended lunch break to hear Jackson Lee, who said she sided with them.
What I find even stranger is that some of my Dem friends -- the folks who seem about to have a coronary if a Republican even mentions voluntary private investment accounts for Social Security, let alone cutting promised Social Security benefits despite an unfunded liability that makes Houston's look like chump change -- seem all for opting out of Proposition 15, in order to break a promise made to municipal employees.
I might still be convinced that's the way to go, but it won't be a decision reached so lightly.
(03-31-2004 Update) The Comical is reporting that the Harris County District Attorney's office is investigating whether there were any "criminal improprieties" in the process surrounding the unfunded pension liability. My previous posts ought to make clear that I believe the last administration (and council) made bad judgments, and that the actuarial firm made some "best-guess" estimates as to future behavior that turned out to be wrong. However, I'm dubious that Chuck Rosenthal's office is going to find any evidence of criminal wrongdoing. I suppose this is due diligence on his part -- I hope it's not some political angle that isn't clear to me at this time.
Posted by Kevin Whited @ 03/30/04 22:58 | Houston | Technorati
Previous Entry | Home | Next Entry
TrackBack
Early voting has started for the May 15 pension-plan opt-out election in Houston.
I don't make voting recommendations or endorsements here in any specific sense, but Mayor White has failed to wi...
[Linked on 04/28/04 by PubliusTX Weblog]
Incoming trackback pings have been disabled because of abusive spammers. Technorati is now used to track cross-blog conversation.
Comments
Wake up people of Houston, vote no on prop 1. Have you forgot how big business follows trends. If the city gets the ok to mess with pensions, do you think big business will not follow? Could it be your pension next? The mayor has released statements in a timely manor just before the election to sway the vote his way. He is negotiating with the unions, but yet releases information. Under the negotiating ground rules, all negotiations are to be kept within the confines of the parties involved. So much for Saturday's Houston Chronicle article. He also wants you to believe that all "Municipal employees" are all of the city employees. Bill White has been in office for only 5 months and all he has done for the city is TAKE AWAY.
Posted by David @ 20:17 on 05/12/04
I would disagree slightly here -- that is to say, there are some federal protections for pensions of private firms that must be adhered to. The reason we voted on the amendment to the Texas Constitution (Proposition 15) was, in part, to extend some of those protections to municipal pensions (because federal law did not apply). I believe Prop 15 was a good idea, and that the overwhelming majority of Texans (including me) who voted for it weren't making a mistake. Municipalities shouldn't be able to change pension plans on a whim.
Posted by Kevin @ 10:08 on 05/13/04
Add Comments
While it is not required, creating an account for commenting provides a number of benefits (such as comment editing and bypassing the captcha challenge). You may log in to your account here.
No flames or impolite behavior. Any questions, see the site policies. Older posts are moderated (because of spammers), so if your post does not appear immediately, that could be why.
HTML will be stripped. URLs will be transformed into hyperlinks.
[b]text[/b] will produce bold text. [i]text[/i] will produce italicized text.
Comments for this post must be approved before being published. Thank you!
BLOG
» Create Account
» Log In
DISCLAIMER
Content and design copyright © 1997-2008, Kevin Whited.
Posts represent the views of Kevin Whited (and occasional guest bloggers) only, and do not necessarily reflect the views of employers, family, friends, or significant others.