Agreement reached by administration just defers a real solution, and does nothing to fix broken pension system
After complaining that previous administrations have failed to fix the city's broken pension system, some city leaders are now doing exactly what they have faulted their predecessors for. They are kicking the can down the road.
The recent deal between the city of Houston and the firefighters' pension board does nothing to solve the pension problem.
Under the terms of the deal, firefighters, who haven't had a pay raise in years, will be required to pay more for pension benefits. The amount of money taken out of their paychecks will increase from 9 percent to 12 percent over three years. That means firefighters themselves will end up paying roughly $20 million more.
Meanwhile, the city will contribute less. Its payments will decrease from more than 30 percent to 24 percent over the life of the deal.
It doesn't take a financial expert to understand that paying less today, without changing the cost of benefits, will end up costing everyone more in the long run. The math shows the deal will result in $57 million less for the pension fund. In short, the agreement is bad for everyone - firefighters, taxpayers and the city of Houston.
It is hard to imagine how accepting less money for a system that is already underfunded upholds the pension board's fiduciary duty to ensure that firefighters' benefits will be paid when due.
Likewise, it is difficult to see how elected officials are protecting taxpayers' interests as the city's contribution rate will likely return to, or exceed, its currently high level once the deal expires. This will force the city and its firefighters into another showdown. At that point, the city will again be faced with difficult choices that will require it to raise taxes, reduce benefits, or cut critical public services.
City leaders need to stop avoiding the issue. They must scrap this hollow deal and implement funding policies that are consistent with the recommendations of a blue-ribbon panel on pension funding. Specifically, the city should tie its annual contributions to current interest rates instead of the pie-in-the-sky rate it is using today.
It should also adopt a pension debt repayment schedule of no more than 15 to 20 years, which is substantially shorter than its current 30-year schedule.
The city can adopt these practices and begin making responsible payments today. Yet, in order to achieve comprehensive, lasting reform, the city will need to move new employees into a defined contribution or cash balance plan such as the Texas Municipal Retirement System, which covers 844 municipalities and has been in operation for more than 60 years.
These types of plans are simpler, easier to manage, and provide a reasonable measure of cost certainty. However, the city does not have the authority to make this change without approval from legislators in Austin.
There is no reason that officials from elsewhere in Texas should be dictating how Houston structures its retirement plans.
State law already allows most cities to make these decisions locally. Houston and all of the major cities in Texas should have that same authority.
It is time for the city and the pension board to stop pushing the pension problem into the future.
Mayor Annise Parker herself has said the deal is "not pension reform," it is merely "cost avoidance." The city and the board should implement responsible funding practices now and should work with the Legislature to obtain local control of the pension system in order to implement a structure that is affordable, sustainable, and secure.
Firefighters risk their lives to protect our city. They shouldn't have to risk their retirement, too.
This piece originally appeared in Houston Chronicle