October 8, 2020

Judge Rules Houston Pension Plan Unconstitutional

Judge Rules Houston Pension Plan Unconstitutional

On Wednesday, State District Judge Beau Miller1, in no uncertain terms, struck down the provisions of SB2190 which made fundamental changes to the City of Houston’s retirement plan for its firefighters as violating the Texas Constitution. (See ruling here.)  The potential consequences for the City could hardly be more consequential.

Most of you will recall, in what seems like a hundred years ago but was really only three, the Texas Legislature passed a major revision to the City’s pension plans in SB2190.  I outlined the changes the bill enacted in this post.  The bill, among other things, reduced pension benefits that had been previously earned by City workers.  Benefits for all City employees were reduced, but the cuts to the firefighters’ benefits were, by far, the largest.  The police and municipal employees accepted the changes in exchange for a cash infusion into their systems.  But firefighters fought the bill and filed suit shortly after SB2190 was passed on the basis that it violated a little-known provision of the Texas Constitution which grants pension boards the sole power to set actuarial standards for plans.  SB2190 forces the pension board to share those responsibilities with the City.

Shortly after the firefighters filed suit, the District Court dismissed their suit for lack of jurisdiction.  The firefighters appealed, but the 14th Court of Appeals eventually upheld the District Court’s ruling under a theory that I think could charitably be described as strained.  Basically, they ruled that since there were some theoretically possible outcomes in how the provisions of SB2190 might be implemented that would not violate the Constitution, the statute was not “facially” defective, and therefore, the case should be dismissed.  For the lawyers in the audience, the ruling was akin to holding the controversy was not ripe for adjudication.

Some of the early reaction to the new ruling has discounted its significance since the fire fighters’ argument is virtually Identical to their first suit.  But the Court of Appeals ruling specifically left open the possibility that firefighters could refile the action if the actual implementation of SB2190 proved to violate the applicable constitutional provisions. (See ruling here.)

After the Court of Appeals handed down its ruling in June 2019, the firefighters refiled their suit.  By that time, of course, the provisions of SB2190 had been implemented and therefore the outcomes were no longer theoretical.  In the new suit the firefighters filed motions presenting evidence that the actual implementation did, in fact, violate the constitutional provisions.

Judge Miller did not issue an opinion explaining his ruling, but it is a total vindication for the firefighters.  He found that SB2190 was unconstitutional because it “impermissibly infringes on the Board’s exclusive authority.”  His ruling prohibits the City from “taking action under SB2190” and orders the City “to allocate funding in all City of Houston budgets in accordance with [the] Texas Constitution . . .”

Judge Miller stayed his order until November 15 to give the City an opportunity to appeal and to petition the Court of Appeals for a stay pending the appeal, which I think is likely to be granted.  But the City could easily eventually lose this case.

When SB2019 was under consideration, there was a lot of discussion about this risk it was unconstitutional.  During the negotiations over the bill, the City offered several concessions to the firefighters, but they were always conditioned on the firefighters waiving their right to challenge the constitutionality of the bill.  So, obviously the City was concerned about the constitutional risk from the outset.

If this ruling holds up, it will cost the City hundreds of millions, perhaps even more than a billion, dollars. It might also open the City to challenges to the changes in the City’s other two pension plans.  Plunging pell-mell into the implementation of SB2190 with the risk that it was unconstitutional unresolved, may prove to be the most irresponsible financial decision in the City’s history.

But since our appeals courts move at the rate of molasses on a cold morning, it will be several more years before this is ultimately resolved.  It is quite likely that will come after the current administration has moved on, leaving it as a major headache for the next mayor . . .  and, of course, future generations of Houston taxpayers.


Note 1 – Judge Miller is a Democrat and was elected in 2018.  He is a University of Texas law school graduate and is the permanent president of his class.  He served as a clerk for federal judge Ricardo Hinojosa.  Such clerkships generally go to only the top law school students.  According to Transparency USA, Miller received no campaign contributions from the fire fighters or their attorneys.  He did receive a $1,000 contribution from the City of Houston’s law firm.

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