City Has $1.5 Bil Pension Shortfall -- Thanks Mayor Brown!

dc sports · Mar 2, 2004

The man's fiscal incompetence never ceases to amaze.

http://www.chron.com/cs/CDA/ssistory.mpl/topstory/2428243

March 2, 2004, 6:19AM

Pension shortage now placed at $1.5 billion
City bond issue seen as option to cover cost
By DAN FELDSTEIN
Copyright 2004 Houston Chronicle

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.
Click to expand...

rrj_gamz · Mar 2, 2004

I read this a little bit ago and this is typical Brown...Again, White has inherited all this crap and has to clean up Brown's mess, ala Clinton/Bush...

Brown was such an idiot and how he was mayor for two terms is beyond me...

pgabriel · Mar 2, 2004

Oh my god, here we go,

I guess all the success the city had in pulling in the Superbowl and getting ready in time had nothing to do with the Brown Admistration. It was all bad, nothing got done, damn that Brown.

Rocketman95 · Mar 2, 2004

Good thing we have Orlando Sanchez around to clean up the mess...

goophers · Mar 2, 2004

Originally posted by rrj_gamz
I read this a little bit ago and this is typical Brown...Again, White has inherited all this crap and has to clean up Brown's mess, ala Clinton/Bush...

Brown was such an idiot and how he was mayor for two terms is beyond me...
Click to expand...

I agree, I hope White is able to clean this mess up. It's this type of thing that I worry about with Bush II/ his successor. The economy may be 'better' by some indicators but there are some fundamental problems (i.e., ballooning deficits). Bush II came into a slight mess....things were starting to get bad and he inherited a bad situation. Unfortunately, he solved some problems while creating so many more....

Troy McClure · Mar 2, 2004

Originally posted by rrj_gamz
I read this a little bit ago and this is typical Brown...Again, White has inherited all this crap and has to clean up Brown's mess, ala Clinton/Bush...

Brown was such an idiot and how he was mayor for two terms is beyond me...
Click to expand...

I guess you meant Bush to Clinton right?? Because inheriting a record surplus and an economy that created 22 million jobs is pretty damn good. You'd think George Jr. would be good at inhereiting too.... unfortunately not with americas money.

Maybe you meant Bush to Kerry/Edwards ??

dc sports · Mar 2, 2004

Originally posted by pgabriel
Oh my god, here we go,

I guess all the success the city had in pulling in the Superbowl and getting ready in time had nothing to do with the Brown Admistration. It was all bad, nothing got done, damn that Brown.
Click to expand...

That's not completely correct, but pretty close. Bob McNair was the key player in this -- and as far as mayors go, Lanier. The Superbowl Host Committee put everything together.

I'm not saying that everything Brown did was bad -- but a lot of the good he did was outweighed by the bad -- especially his fiscal irresponsibility. This is one of the latest things to come out -- and one of the worst.

Let's keep this local -- not presidential. We have scandals here too.

krosfyah · Mar 2, 2004

fact 1:
An independant consultant firm, Tower Perrin, wrote the pension plan.

fact 2:
The consultant firm was hired by the pension board, which is controlled by employees and retirees. Nobody questioned it.

fact 3:
City council voted on and approved the pension package in 2001.

fact 4:
Towers Perrin revised their figures and offered dramitically different figures than in 2001. Nobody forsaw the problems.

fact 5:
Mayor Brown only has one vote in city council.

This is a more descriptive article.
http://abclocal.go.com/ktrk/news/022904_APlocal_pension.html

This article from Feb. 10 says that neither Brown nor White had any clue what was going on with the Pension Plan because we were given bad numbers.

http://www.chron.com/cs/CDA/ssistory.mpl/metropolitan/2397006

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City Has $1.5 Bil Pension Shortfall -- Thanks Mayor Brown!

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