AUSTIN – For the past year, the pension woes of Houston and Dallas have made headlines. And while both cities acquired legislative patches this session, an expert who has been following the issue suspects the stitching may not hold.
Faced with billions in unfunded liability and looming layoffs, Houston leaders tweaked the police, firefighter and municipal pension funds and turned to the Texas Legislature. On May 31, Senate Bill 2190, authored by Sen. Joan Huffman, was signed into law.
The bill, which rewrites the state statute governing Houston’s pension systems, cuts future benefits from all three of the city’s plans in order to reduce the $8.2 billion pension debt.
Seeking to stay the new law, the Houston Firefighters’ Relief and Retirement Fund filed suit, arguing that the bill is unconstitutional.
“Depending on what the courts say, Houston could still be in a world of trouble,” said James Quintero, director of the Center for Local Governance at the Texas Public Policy Foundation.
“It’s an interesting iteration in the unfolding drama.”
Although TPPF testified against SB 2190, the independent research institute did fight to include what Quintero called “good provisions” that addressed some “mechanical issues” in the bill, such as making sure the legislation contained a cash balance trigger, a provision requiring voter approval of pension obligation bonds, and a tuned down rate of return.
The two major components TPPF did not get, however, were a restoration of local control for plans governed by state law and defined contribution plans for new employees.
“We fought the good fight … but unfortunately nobody wants to be seen as going against police and fire,” Quintero said. “It’s not a politically popular thing to do.”
While TPPF did not achieve all of its goals this session, Quintero believes things are moving in a better direction for Houston, especially when compared to Dallas, where taxpayers, he says, “got soaked.”
“They ended up increasing Dallas’ contribution and tacking on a supplemental contribution for the first two years,” Quintero said. “They’re just throwing money at the Dallas plan.”
Dallas’ fix, HB 3158, was also signed into law on May 31, keeping the city’s troubled Police and Fire Pension system afloat for the time being.
“Unfortunately, what’s happening in Houston and Dallas is the start of a lot of bad things,” Quintero said. “A lot of promises were made around the state that can’t be kept. And a lot of that is systematic of the defined benefit system.
“The system is simply not sustainable.”
While the private sector has all but moved away from the defined benefit system, government, on all levels, has been slow to embrace more modern options.
“Government is the only institution that seems to be holding onto that relic,” Quintero said. “When I talk about moving from a defined benefit system to a defined contribution model, I’m specifically referring to new employees only. Everybody who has been made a promise, that promise should be honored.
“But for new employees entering the system, it’s important we change the way we’ve been doing things.”
However, there are organized groups in Texas, such as police and firefighter unions, who are seemingly opposed to switching to a 401(k)-like system.
Since the 1940s, Quintero says unions, in order to get their benefit plans cemented in state statute, have worked with local officials and state representatives to “get themselves inserted into state law, which has made a lot of the grass root efforts to effect change irrelevant.”
“There would have to be a massive effort to get good conservative measures that are opposed by unions implemented,” Quintero said. “Unions have manipulated the process to create an obstacle that is darn near impossible to overcome.”
Houston Mayor Sylvester Turner recently announced the city will place a bond measure on the November ballet to help cover its pension obligation.