For years, Houston city officials brought their issues to the Texas Legislature. We asked the Lege to mediate between opposing viewpoints and solve our problems. This session, I bring the Lege not a problem, but a solution to increasing pension costs in Houston.
Houston's situation is not as bad as many, but it's bad enough. Our three pension systems — police, firefighter and municipal employee — are 89, 80 and 54 percent funded, respectively. That is completely unsustainable, and costs are rising. If we continue on this path, we will face significant layoffs and service cuts in the very near future. With over 1,900 officers of the Houston Police Department and 1,100 members of the Houston Fire Department eligible to retire right now, the governance of the city weighs heavily on this agreement.
In my 26 years in the Texas House of Representatives, city leaders and union members came to me and others in the Legislature asking us to pass laws taking their various positions on pension issues. My response, and the response of my colleagues, was, "Bring us something everyone agrees on, and then we'll act."
In my speech at my inauguration as mayor of the City of Houston almost a year ago, I promised to work toward a resolution on pension issues with which everyone agreed, a plan we could take to Austin as one. I spoke of "shared sacrifice." When we hosted House Pensions Committee Chairman Dan Flynn and other members of the panel earlier in 2016 for a hearing at City Hall, it was very clear what they were asking of us: get us an agreed-to plan that fixes this pension problem.
The Sustainable Pensions Plan, a unique Houston solution approved by City Council and our three pension boards representing police officers, firefighters and municipal workers, is the answer our city needs, and I ask the Legislature to approve it.
What we've negotiated in Houston is a not a temporary fix but rather a permanent solution, forged through shared sacrifice on the part of both employees and the City, to both bring our payments to a feasible amount and pay off the existing debt for good over an established 30-year schedule. And it's budget neutral. It is a plan that has been called a "national model" by the Kinder Institute for Urban Studies at Rice University.
This plan keeps our promise to first responders, city workers and retirees by both maintaining their pension system and making it sustainable so that they can count on receiving their benefits through retirement:
· It recognizes all gains and losses and assumes a more realistic 7 percent return rate for investments.
· It sets us on a closed amortization schedule so that the existing unfunded liability is paid off at a set date in 30 years – just like a mortgage.
· It calls for $1 billion in pension obligation bonds. Over the years, the city has borrowed $750 million from the Police retirement system and more than $250 million from the municipal employee retirement system. The bonds are putting back into the system what in part we have borrowed. It was not my intent to use bonds, and I campaigned against their use, but they ultimately were necessary. Because of the bonds, pension boards have agreed to cut $2.5 billion in benefits — meaning for every dollar we borrow, we get $2.50 in cuts. That's why I call it "shared sacrifice." The City has failed to make its annual contribution for years, so this is money we owe the pension systems anyway.
· Most importantly, the Sustainable Pensions Plan implements a "cost corridor." The City's contribution is capped; if investments perform too far below established levels, the pension boards will cut benefits or increase employee contributions to bring costs in line.
I implore every member of the Texas House and Senate to approve this plan. You will also be hearing from other community leaders, such as the Greater Houston Partnership, asking for your vote. The pension issue has gone unaddressed too long, but we have now all approved one solution that will set our city on the road to being able to provide for our hardworking employees.