The Impact of Inaction
As you might know, we’ve been spending a lot of time talking about pension reform at City Hall lately.
The conversation has touched on dense topics — amortization schedules, cost corridors, interest rates, discount rates, defined benefit vs. defined contribution plans, etc. These have all been central themes of our discourse as we’ve worked to solve an issue that is having its impact felt on the city we call home.
If you’ve heard me speak on Houston’s pension reform efforts, you likely know that I’ve focused on a very specific topic — the cost of inaction.
In other words, what happens if the Texas Legislature does not pass Houston’s pension solution?
While there are significant, very real financial implications to inaction, it’s important to understand that these reforms will not occur in a vacuum. The decisions made on Houston’s pension solution in Austin will impact every Houstonian in one way or another and, I believe, it is important to understand the true impact of inaction.
Let’s take a look at the human side of Houston’s pension reform.
“Failing to pass this reform package is simply irresponsible at this point.”
Nancy Radecki is a mother, long-time resident of west Houston, and an active community leader.
“The city has put forward a plan that has near-consensus support and that, from what I can tell, finally resolves this issue.”
The Houston Pension Solution has received support across the local landscape and across partisan lines. The pension reform package has support from Houston City Council (on a 16–1 vote), the local business community, two of the three pension boards, and all other involved stakeholders.
“I think it’s critical that our city takes care of the people who have taken care of us. Our police officers, firefighters, and municipal employees have given themselves to our city, and we must do everything we can to make sure they are taken care of.
That’s why I think the time is now for the Legislature to pass this reform package — it’s time to secure a fair and stable retirement for all of our public employees.”
Reforms have been made to the city’s three pensions systems in the past — most notably in the early 2000's. While reforms were made, they only impacted future employees and not existing employees — where the bulk of the cost savings are found in the Houston Pension Solution. Mayor Turner’s reform package provides a long-term, sustainable plan that fully addresses the unfunded pension liability.
“I’ve heard that there are efforts in Austin — and by my state Senator — to put a provision of the pension reform package to a public vote in November,” added Ms. Radecki.
A provision in the Houston Pension Solution calls for the issuance of $1 billion in pension obligation bonds to inject liquidity into the city’s pension systems. The provision has faced some push-back in the Texas Senate.
“I’m not sure why now these bonds must be put to the voters, since the city — and cities across the state — have issued pension obligation bonds in the past without going to the ballot. What’s more is that the issuance of pension obligations bonds is not the creation of new debt for the taxpayer.’’
“This [growing unfunded liability] has been an issue for as long as I can remember in this city. It’s time that our leaders in Austin stop worrying about the politics of this issue and start worrying about what long-term impact the decision of not passing these reforms will have on every Houstonian.”
“Failing to pass meaningful pension reform legislation in Austin means that our legislators are saying ‘no’ on behalf of all Houstonians.”
Mr. Hayes is the Chief Operating Officer for the City of Houston as well as its Director of the Solid Waste Management Department.
“Not only are they saying ‘no’ to a financially sound reform package that finally solves a decades-long problem, they are also saying ‘no’ to Houston becoming a world-class city.”
Early projections show that the City’s budget deficit could double in the upcoming fiscal year if Houston’s pension reform package does not pass through the Texas Legislature. Early estimates illustrate that the city’s roughly projected $100 million budget deficit could balloon up to $230 million if pension reform efforts fail. A deficit of that size will require the city to make significant cuts that could include widespread layoffs, as well as the scaling-back of some city services.
“By not passing this reform package, the Legislature will be telling citizens that they do not want Houston to have all of the essential amenities of a world-class city. They’ll be saying ‘no’ to world class facilities and parks. They’ll be saying ‘no’ to high-quality services that help improve the lives of all Houstonians. Saying ‘no’ impacts Homeland Security, public safety and other critical infrastructure that is important to the City, which is a key economic center to the State of Texas, the USA and world.”
“Passing pension reform legislation is really about securing the sustainable health of the City. By saying ‘no’ to Houston’s Pension Solution, the Texas Legislature will be saying ‘no’ to the long-term financial stability of the city we all know and love.”
“There’s no way to sugar coat this — if the Texas Legislature fails to pass Houston’s pension reform package we will be facing not only a financial crisis, but a crisis of public safety, as well.”
Mr. Hunt is a decorated law enforcement veteran with nearly 30 years of experience as a police officer. He is also the President of the Houston Police Officers’ Union.
“The city is facing the very real possibility of layoffs that could impact every department — police included. If we’re forced to make layoffs, we could be at a shortage of police officers. This could jeopardize the effectiveness of our police force, as well as the safety of the public that we have sworn to protect.”
If Houston’s pension reform package fails to pass in the Texas Legislature, the weight of the outstanding unfunded liability owed to the city’s pension systems will be reflected on the Fiscal Year 2018 budget. This impact will be felt in the long-term, as well — for every day that the Texas Legislature does not pass the Houston Pension Solution, an additional $1 million is added to the outstanding unfunded liability. $1 million per day.
“With all of this uncertainty, there is also a possibility that we could see high quality police officers [new and current] move to other municipalities where their pensions are more secure. This creates a long-term retention issue and could create a scenario where we won’t have enough police officers to adequately protect the city.”
“I do understand people’s hesitancy toward this plan, though. This is the first time a true solution has made it this far in the legislative process, and that alone can create its own kind of uncertainty. What I am certain of is that sacrifices have been made across the board to ensure that this solution — Houston’s Pension Solution — is the long-term solution we’ve been seeking.”
“I encourage our leaders in Austin to pass this pension reform package — there is simply no other option.”
“This will have a significant impact on my department. I’m concerned that not only will we see layoffs, but that we also won’t be able to provide the same quality of service for the residents of Houston.”
Ms. Abdu is a Financial Analyst in the city’s General Services Department. She has been an employee at the City of Houston for more than five years.
“I also worry that Houston's financial situation could impact its ability to attract the same level of global attention it has in recent years. For example, if the city can’t afford to provide basic services will we be able to attract events like the Super Bowl in the future? This type of global attention is not just good publicity— it’s also a way for the city to generate significant economic stimulus.”
“More than that, not passing Houston’s pension reform means that we’ll be in a financial hole year over year. That‘s an untenable financial position to be in, and will bar us from continuing to build a strong city. That means fewer resources will be available for community development , capital improvement projects, and ‘livability’ initiatives. This will make it more difficult to attract residents, families, and workers to our city in the long-term.”
“I hope that the Texas Legislature will resolve any issues it has with the reform package and pass it in order to secure the long-term health of our city.”
As you can see, there’s more to Houston’s pension reform than numbers.
As Houston’s Pension Solution is debated in the Texas Legislature, it’s important that our leaders in Austin remember this simple fact — there are people behind these pensions and the decisions made today will impact countless lives for generations to come.