24 Jan Houston Business Community Needs to Take Principled Stand on City’s Pension
1. Turner has claimed that there will be $2.5 billion in savings from the plan from benefit reductions and increases in employee contributions. However, the City has refused to release the calculations from which these proposed savings were derived, notwithstanding the repeated requests to do so by third parties attempting to vet the plan. From the limited information we have, most of those familiar with the plans have been unable to generate a number anywhere close to $2.5 billion. Craig Mason, the City’s chief pension officer under Bill White, has flatly said the changes to the plan will not generate $2.5 billion in savings.
2. No drafts of the proposed legislation have been made public. A secret draft of the legislation for the police has been circulated to some select organizations but not made available to the public. Apparently some Houston residents are more important than others. This week the City refused to release the draft of the police bill claiming it was exempt from the Open Records Act. Of course, the mere fact that a “secret” draft is being circulated tells you all you really need to know about this process. How can any organization or individual endorse the “plan” without the actual legislation being released to the public?
3. The only potentially redeeming feature of the plan is the so-called “corridor” which would limit the City’s contribution to 37% (as absurd as that level is). According to the term sheets, once the contribution goes above 37% of payroll, the pension plans would either reduce benefits or increase employee contributions. The problem is that the enforcement mechanism for even this minimal protection for the City has never been defined. What exactly happens if the pension systems do not make the specified changes is anybody’s guess. That kind of vagueness and the inherent complexity of such a mechanism virtually guarantees that the pension systems and the City will be in litigation for decades.
4. The plan uses a repayment schedule that negatively amortizes the pension debt for about the first six years. Conveniently, the payments begin to dramatically ramp-up after the current administration will be out of office. At the end of the 30-year period, the annual pension payments would be over $1 billion.