Since the Houston City Council voted to affirm a group’s right to petition its government, the mayor, his appointees, and allies have taken every opportunity to warn of the fiscal calamity they claim will come if the referendum passes in November. However, a recent report disputes those claims, saying the effects to pension reform may not be nearly as bad as voters are hearing from local officials.
The November vote on Houston fire fighter pay parity, if passed, is expected to give employees within the department raises averaging somewhere between 25 and 28 percent.
In a letter recently sent to the Executive Director of the Houston Fire Relief and Retirement Fund (HFRRA), Aaron Shapiro, principal of Buck Consultants said, “The Board of Houston Firefighters’ Relief and Retirement Fund engaged us to project the impact on funded status and contribution rates… Overall, the 28% pay increase would be projected to have a positive effect on the pension plan with an improved financial position over the long term.” That’s a very different claim than what was heard at the most recent council Budget and Fiscal Affairs (BFA) hearing on the matter.
The hearing was called to discuss the financial implications of the November pay parity referendum, but Chairman Dave Martin continued the political theater that has dominated committee hearings under his short-lived chairmanship. Martin played a video, sans sound, of Houston Professional Fire Fighters Association (HPFFA) President Marty Lancton testifying at a previous meeting saying he would be happy to show up to any future hearing to discuss the pay parity issue and related matters. However, when pressed by colleagues, Martin nimbly dodged questions about whether or not he actually reached out to Lancton to invite him to the September 4 hearing. It’s safe to assume that his dodging and reluctance to answer meant he didn’t formally invite Lancton as would be expected.
“Mr. Chairman, with all due respect it’s usual protocol that you don’t put someone on the agenda if they don’t confirm at the time that you’re making the agenda,” said Council Member Mike Laster.
Since the meeting was called to discuss the financial implications, Tantri Emo, Houston Finance Director and Sam Peña, Chief of Houston Fire Department were invited to testify. Emo reiterated a talking point first issued by the mayor weeks ago, arguing that an increase could have a negative impact on the city’s pension reform.
“We have the new system that is called the corridor system that solved the problem going forward, that it’s not going to put where the city was years in the past… it may potentially place the fire pension above the corridor or at the maximum level,” she continued. “That will have some impact to the city contributions.”
She qualified her remarks by saying that she has not run any numbers about the effect of pay parity on pensions and was basing everything she said on assumptions and potential scenarios. It seems negligent, if not purposely misleading, that the administration would claim a vote in favor of pay parity could negatively impact the landmark pension reform deal if they have not done any calculations to determine that.
“If it increases the point of the pension as a percentage of the payroll that we are contributing today at a higher level, then we have to increase that cost or it could make the parties come back to the table,” Emo said.
In previous meetings Mayor Sylvester Turner said, “If it passes, it goes into effect in January, it will have a direct effect on pension reform.”
Pension contributions are based on percentages of payroll, and an increase will have a direct impact on pension funding, but the findings sent to HFRRA seem entirely opposite of what voters are hearing from the administration.
The letter, sent by Buck Consultants and provided to Texas Scorecard, summarizes what they believe will be the outcome of the 28 percent increase:
- Initial decrease in overall firefighter pension funded ratio: 78.4% to 74.6%
- Decrease in the projected city contribution rate: 31.51% to 29.96%
- Higher projected 30-year funded ratio: 82.8% to 84.5%
- Two-year delay in reaching top of the employer contribution corridor: 2037 to 2039
Simply put, according to the report, the plan’s funded ratio would initially drop, but overall the city contribution rate, paid by taxpayers, would also drop; the pension would be better funded overall; and there would be an additional two years before the employee contribution rates increase.
To repeat, the consultant was retained by HFRRA to determine the impact.
While it’s not an objective source, since the city has yet to do any calculations, this report is the first and most informed estimation on how pay parity will impact the pension fund. The mayor’s major claims against the referendum are the cost and the impact on the pension deal passed last legislative session, so unless the administration provides a report, study, or calculation that is in conflict with this one, voters can only assume the claims of negative impacts on pension reform are no more than campaign scare tactics.