AUSTIN, Texas (FOX 26 / AP) - The Texas Senate has approved a bill potentially cutting billions in future costs from Houston's cash-strapped police and firefighter pension plans.
Republican Sen. Joan Huffman's proposal was approved Monday 23-5. She said it wasn't perfect but still "critical" to America's fourth largest city's future.
Plagued by investments that didn't meet high return expectations set previously, Houston is facing about $8 billion in unfunded pension liabilities. Mayor Sylvester Turner has warned of up to 2,200 layoffs.
Huffman's plan is similar to one backed by Turner. It provides $1 billion in payments from bond proceeds to be divided among the police and firefighter pensions, while lowering the plans' future investment yield targets.
The bill didn't include a conservative-backed effort to change both funds from guaranteed pension payments to 401(k)-style "defined contribution" plans.
If the House passes the Houston pension bill it will impact both veteran and recently hired city employees.
The Houston Police Union backs the plan and is pushing for it to become law. But the Houston Firefighters Relief and Retirement Fund calls it punitive to active and retired firefighters. The pension reform plan will impact not only city employees but every taxpayer.
“Less and less police officers and firefighters to respond to you when you pick up the phone and call 911,” said Houston Police Union President Ray Hunt. “So everybody in the city of Houston is affected.”
The big concern all along has been how does the city afford to give good retirement benefits without going broke.
Here’s how the plan would work. If pension funds do not hit specific targets like 65 percent, then new employees would switch over to a defined benefit plan.
“Obviously it’s not a happy day for anybody when we’re cutting benefits like we have to, but we also know these changes are absolutely necessary to have a sustainable pension,” said Hunt.
Under the plan current HPD officers and firefighters will make a 10.5 percent contribution into the pension system.
“So in essence those of us who are still here taking a 10.5 percent pay cut in order to make the system more sustainable for everybody,” Hunt said.
Under the plan, City of Houston retirees won’t get a cost of adjustment for at least two years and future adjustments will be based on how much interest the city’s retirement fund makes over the last five years.
There’s actually good news for city employees hired after 2004. Retirement benefits would begin when your age and years of service reach 70. Right now city employees must be at least 55 to retire. The benefit cuts, some believe, are an evil necessity.
“None of us want to be 80 years old and getting a letter stating we have no more money in the pension system,” said Hunt.
Before the Houston Pension Plan becomes law it must be passed by the House then it would be placed on a ballot for voters to decide.
The City of Houston Mayor's Office released the following statement on Monday:
The Texas Senate passed Senate Bill 2190, the Houston Pension Solution, Monday with a 25-5 vote. The plan now must receive the approval of the full House and the signature of the Governor to become law.
“Today, the Senate approved a locally developed and agreed-to solution that will place the City of Houston on a sustainable financial path,” said Mayor Sylvester Turner. “I’d like to thank Senator Joan Huffman, the bill’s author, and Lt. Governor Dan Patrick for their work in moving this forward.”
The Houston Pension Solution will immediately reduce the City’s $8.2 billion unfunded liability through future benefit reductions. Under the plan, which utilizes a more realistic 7 percent rate of return on investments, the City will be required to meet its annual contribution until the unfunded liability is fully paid off in 30 years. An innovative corridor concept controls costs for the City.
The plan has the support of two of the three pension system boards, City Council and the Greater Houston Partnership. The Senate’s approval comes on the same day more than 50 CEOs and Houston business leaders released a letter of support (see letter here).
“The Senate has listened to the will of stakeholders in Houston,” Mayor Turner said. “We now move forward to the House of Representatives, where I have full confidence my former colleagues will follow suit.”
The House is scheduled to vote on House Bill 43, SB 2190’s companion, on Saturday, May 6. The bill is authored by Rep. Dan Flynn, chair of the House Pensions Committee. The bill passed that committee last month on a 6-1 vote.
Texas Lieutenant Governor Dan Patrick released the following statement on Monday:
Senate Bill 2190 goes a long way in protecting the pensions of our first responders as well as the interests of Houston taxpayers. It addresses a problem that has been building for thirty years and will help put the City of Houston on sound-footing. This has been one of the most challenging pieces of legislation to pass in my ten years in public office because there are so many stakeholders. However, in the end, the vast majority of those stakeholders agreed this is the best way forward. I commend the commitment, leadership and hard work of Sen. Huffman and all those who helped pass this historic legislation.
There is no doubt that Senate Bill 2190 represents meaningful progress towards establishing a fair and sustainable solution to the City of Houston's pension problem," said Sen. Joan Huffman. "It ensures that taxpayers will not have to absorb future pension costs while protecting the city from a spiral of debt and a full-scale financial crisis. I thank all my fellow senators for their support on this important bill.
Today, the Senate approved a locally developed and agreed-to solution that will place the City of Houston on a sustainable financial path," said Houston Mayor Sylvester Turner. "I'd like to thank Sen. Joan Huffman, the bill's author, Sen. Whitmire, and Lt. Governor Patrick for their work in moving this forward.
The concerns with Sen. Huffman's bill regarding police pensions have all been addressed to our satisfaction," said Ray Hunt, President of the Houston Police Officers Union. "We applaud Sen. Huffman and her colleagues who voted yes along with the lieutenant governor for staying the course to get this important legislation passed in the senate.
Texas Senator Paul Bettencourt's office released the following statement on Monday:
Senator Joan Huffman (R-Houston) proposed a compromise on SB 2190, the “Houston Pension Plan” bill, that will automatically trigger new employees to be hired under an alternate plan, instead of a defined benefits plan, if pension funds do not hit specific performance targets. The compromise establishes that the pension funds must be 65 percent funded or more or they will automatically trigger a switch to a defined contribution plan for new employees after a grace period has expired. The bill passed by a vote of 25 to 5.
“This amendment is a recognition of the obvious. The citizens of Houston need an alternative to defined benefit plans that do not met their assumed rate of return. So, we must look to alternate plans, besides defined benefits, as a long term solution to the pension problem in Houston and, I believe, in other jurisdictions as well,” said Senator Paul Bettencourt (R-Houston). “This was a good amendment by Chair Huffman.”
The bill already contained language from SB 151 by Senator Bettencourt that allows for a vote by the public on pension bonds. Therefore, SB 2190 now has two important citizen/taxpayer protections. The first guarantees a vote on pension obligation bonds. The second is the new triggers for new pension plans as follows:
• Houston Firefighters Pension Fund must be at least 65 percent funded after a four year grace period.
• Houston Police Officers Pension Fund must be at least 65 percent funded after a four year grace period.
• Houston Municipal Employees Pension Fund must be at least 60 percent funded after a ten-year grace period.
In addition to the trigger mechanism, the bill includes that the public has the right to vote on pension obligation bonds and would take effect September 1 or upon the signature of the Governor if passed in the House by 2/3rds.
“Pension obligation bonds are the only general obligation bonds in the state that do not require voter approval,” continued Senator Bettencourt. “When debts are secured with taxpayer money, the taxpayers deserve a vote, and I am pleased that they will have that opportunity under this legislation.”
“After the House votes on SB 2190, I would hope the House passes SB 151 as well so all pension bonds around the state have voter approval as well,” added Senator Bettencourt. “Every voter deserves the right to vote on pension obligation bonds in Texas as it is their property taxes that secure them.”