Sylvester Turner’s pension reform proposal, a subject of major scrutiny since its release last month, is making its way to council for a vote. However, the vote is only the first step on the long road ahead for reform. If approved, the plan would still require the state legislature to give the green light before changes can be implemented. Turner that State Rep. Dan Flynn (R-Canton) and State Sen. Joan Huffman (R-Southside Place) will carry his pension reform bill.
The $7.7 billion plan is the first of such plans to get all three governing boards to agree on a reform. The police and municipal pension boards signed on to the plan early on with the firefighters holding out until just days before the council vote.
In return for the police and municipal support, and $2.5B in benefit cuts, the plan provides a $1 billion immediate influx of cash in the form of pension obligation bonds. Though this is one of, if not the largest bond issuance in city history, taxpayers will have no direct say in the matter.
Included in the plan is limiting Houston’s exposure to market downturns by assuming a more realistic, albeit still generous, rate of return. Instead of calculating returns at an overly-optimistic 8 or 8.5 percent, they will now be reduced to 7 percent.
If a downturn does happen, that’s when Turner’s “thermostat” comes in. Ultimately this trigger point would force all parties back to the table and require either benefit reductions or higher worker contributions if the city’s contribution exceeds a certain amount.
The firefighters were hesitant to agree on this aspect, but Turner vowed to move forward with or without their support.
Two planks in the proposal will not be brought before council at this point. The $1B of pension obligation bonds, which doesn’t require a public vote, and the removal of the voter-imposed property tax cap, which does require a public vote, will come further down the road.
The plan is meant to end Houston’s constant underfunding and eliminate not only the pension obligation bond debt, but also the liabilities, in 30 years. Politicians have made empty promises before to kick the financial can down the road until they no longer face a reelection bid, so only time will tell what relief this proposal actual provides.
One thing is for sure: if taxpayers don’t want to see their taxes increase, they need to be wary of removing the cap. And they should be questioning city officials about their lack of say regarding $1 billion of new debt.