Posted on 03/02/2004 5:51:57 AM PST by Dog Gone
The city of Houston's pension funding shortfall may be closer to $1.5 billion over 18 years, not $1 billion as earlier estimated, according to an updated consultant's report, Mayor Bill White said Monday.
At a specially called news conference, White affirmed the pension's problems as reported in Sunday's Chronicle. Many city employees can now earn more in retirement than they could while working, and a few will retire as millionaires.
The improved benefits were given under then-Mayor Lee Brown, whose administration determined the city could afford them.
Now, the city of Houston may have to issue bonds just to cover the rapidly escalating pension costs, officials acknowledged Monday. The only option White ruled out was a property tax increase.
"Property tax rates are high enough. Period. End of story," he said.
Beyond that, everything is in play and nothing is decided, White said.
In theory, options include cutting other parts of the city budget, ending or modifying the pension program for new employees, reducing health benefits for retirees or possibly making city employees pay more to stay in the pension program, if such an action is permitted under a recently adopted state constitutional amendment.
Officials who worked in the Brown administration said the benefits were increased to compensate for poor pay received by city workers. But the high cost of the obligation may make it tougher to give those workers raises.
"It depends on the nature of the resolution of this and other budget issues," said Frank Michel, a spokesman for White.
In almost any scenario, the city may have to consider bonds, normally used for construction projects, to cover its mandatory contributions to the pension, said Judy Johnson, head of the city's finance and administration department.
"I don't know. That is the truth," Johnson said, "We're looking into that as a possibility."
Unlike regular municipal bonds, pension bonds are not tax-free, meaning the city must pay a higher interest rate.
That keeps cities from selling bonds at a low interest rate, then investing the cash at a higher interest rate through the pension fund, just to earn more money.
A recent consultant's report prepared for the city urged "intense research and careful planning" before proceeding with such bonds. Voters would not have to approve them, Johnson said.
While city salaries have remained low, retirement benefits have steadily increased. In 1993, a worker with 25 years of service could expect 52.5 percent of her salary in retirement. By 2001 that figure had grown to 88.75 percent.
With Social Security benefits, that assures that many longtime employees will earn more in retirement than they did while working.
A deferred-retirement program allows some of the longest-serving employees to retire with million-dollar payouts in addition to their monthly benefits. They "retire" for pension purposes, but then continue to work for a salary while their monthly pension payments go into a special account that earns interest.
An actuarial report prepared for the Houston Municipal Employees Pension System in 2001, when the biggest changes were made, said the city could afford the changes. But by late last year, the forecast had changed drastically.
And a constitutional amendment, ratified by state voters in September, keeps cities from rolling back pension benefits they've already given to workers.
Houston's billion-dollar "shortfall" means assets of the pension fund are projected to be $1 billion short of projected payouts between now and the end of December 2022. Because the contribution of city employees is fixed at 4 percent of their paychecks, and earnings on pension investments vary, the city must pick up the rest of the tab.
If the city were to fully meet next year's projected payment, it would have to put in nearly $100 million more than this year's $55 million. White said the money did not exist to make the full payment.
The annual figure can be negotiated downward with permission of the pension's board, but ultimately a reckoning is due.
One option would be for the pension board to agree to amortize the shortfall over a rolling 30-year period, rather than the current hard deadline of December 2022. That would help but not solve the problem, city finance officials said.
Michel said White has enlisted the help of private financial experts including Bill Morgan, a founder of the Kinder Morgan energy firm.
Towers Perrin, the firm that prepared the 2001 actuarial report, has declined to comment on the major revision it made to its forecast last year.
The pension fund's professional staff has declined to respond to repeated requests for comment. Former Mayor Brown did not respond Monday to a message left on his voice mail at Rice University.
The problem is that those homeowners tend to be conservative and the bozos who run Houston are afraid of what would inevitably happen if those residents got to vote in Houston elections.
I voted against that amendment. No such protection exists for employees in the private sector.
Good grief, I wish I had a guaranteed pension plan where I only save 4% of my salary and get to retire at 90% of my base salary.
Move to Ft Bend County. The Richmond-Rosenberg area should be safe for a while longer. Is Katy in Harris County?
I can't believe this true.
If it is, you Texans are...well I'd rather not say, other than I am glad I don't live in Texas.
You assume they intend to make wise investments rather than funnel the money into the proper redistribution schemes, I'm not so sure it's a lack of intelligence causing the problems.
Don't know. I left there at the end of 1994. Brown was still the drug czar or something...anyway, he was somewhere on a government payroll.
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