Category Archives: Pension Crises

Quick, Rearrange the Deck Chairs!

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As in, iceberg dead ahead!

Lemer/Farb/Roberts assessment of City of Houston Finances (22 October 2009)

Bob Lemer has become known as a bit of a “disaster monger”, and has been about as welcome as a global warming skeptic at a Greenpeace convention. Unfortunately, he’s also correct, and he’s not pulling his punches.

The City of Houston is financially broke and it appears that the mayor who takes office in January 2010 may have to captain the City through bankruptcy procedures.

Well if that ain’t telling it like it is.

Ok, here is my non-accountant read on it: Yes, if we honestly ‘fess up to what the (out of date and UNaudited) books say, we are flat broke. As in, we have a negative net value. That’s not the same thing as bankruptcy though, and while he confuses the point deliberately, I think he’s doing it in good faith. Bob and his co-signers, Aubrey M. Farb and Tom Roberts, are trying desperately to turn the Titanic before we hit the iceberg.

I recommend the full read above, but if Accountant Math makes your head hurt, you may want to skim at least the first half. If that’s too hard for you, I have highlights for the really attention-impaired, presented somewhat out of order, below the fold.

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Quick, While Nobody’s Looking…

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Carolyn Feibel reports at the Chronicle’s Politics blog, that the city quietly added $60 million to its debt obligation last Friday, in order to pay its obligations on HPD pensions. Amazingly, this was reported as if it were good news.

The city refinanced a portion of its pension obligation – $400 million of it, to be exact. Previously, the city had issued a $300 million promissory note to the Municipal Employees Pension System in 2004, using the Hilton Americas-Houston as collateral. That lowered the unfunded liability left over from the Brown administration. On paper, that is. But the White administration deferred both payments and interest, so the eventual obligation grew to $341 million.

Now, the city has refinanced that old obligation, and paid off the $341 million owed to the municipal pension fund. The old obligation would have cost 8.5 percent interest if the city had stuck with it. The new bond issued Wednesday is worth $400 million, with a 6.29 percent interest rate. The extra millions will be used to pump cash into the police pension, as well.

This article is pitched as good news, but what it really says is that the Cits just borrowed an additional $59 million to finance the police pension fund and $41 million just to pay the deferred interest on the previous $300 million debt. The last sentence of the quote makes it obvious that the first sentence is misleading. Worse, the math doesn’t add up. Here’s what happened, if we cut out all the smoke and mirrors.

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Quick Notes

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The mayor announced in a voice mail to all employees today that an agreement has been reached with the pension system. Highlights: increased employee contributions, no loss of benefit for current employees, new plan for new hires beginning in 2008. I’m a little skeptical of that “no loss” part; I think the DROP plan is going away. I’ll know more once there’s an official press release and HMEPS informs us how they see it.

Lake Houston residents are still in an uproar over their fees for sewage service increasing by 10x in the recent Ch. 47 revisions. These residents are not allowed to have septic tanks/fields because they’re too close to Lake Houston. They have holding tanks from which their sewage was pumped at a nominal fee ($15). Collection of the fee was pretty haphazard if at all. Implementation of the charge has been pushed back to the beginning of August, and council may change it.

The council bowed to increasing anti-illegal sentiment and did not renew funding for a day labor hall popular with illegal aliens. It may soon close. There was no point in having a “hall” anyway, as everyone stood on the street for a couple of blocks around, waiting for trucks to pull over and someone to hire them.

Metro performs to standard, firing the train operator who followed orders to proceed onto the wrong track, and then phoned in to alert dispatchers and request orders.

A year after a major scandal broke in which city employees working in the mayor pro tem’s office gave themselves raises and bonuses, council members increase their budgets by 16%, partly to fund compensation for their staff.

The 14 council offices would see 16-percent increases in the next fiscal year, from $309,000 to $362,000. The overall budget for the council department, which no longer includes the famous Office of Mayor Pro Tem, is increasing by $566,000, or 13 percent. Councilman Ronald Green: “There are those of us who can justify the increase in our budget, because most of us are using every dime that’s there. Our team members are underpaid and overworked.”

Council voted against a halfway house that asked to be placed in a prohibited location.

Update: Text of a letter sent by Mayor White to all employees.

Representatives of the City of Houston and the Houston Municipal Employees Pension System have reached a tentative agreement on a plan to strengthen the pension system and continue to cut its unfunded liability.

Current employees will retain all of the benefits they have earned.

The municipal employees’ pension plan is healthier and more secure than it has been in years, as are the pension plans for Police and Fire. Since 2004, we have cut the unfunded liability in half. This agreement continues that type of real progress.

The agreement will mean no change in benefits for current City employees and will maintain the fiscal discipline in the newly adopted Fiscal Year 2008 budget. New hires who join the City workforce after January 2008 will have more options to choose from in how to structure their pensions.

The plan must be approved by the Pension System Board, which is scheduled to meet today, and the City Council.

Under the four-year agreement, the City would contribute $75 million to the system during FY ’08, which is already contained in the newly adopted budget. The City’s contribution would rise to $78.5 million in FY 2009, to $83.5 million in Fiscal 2010 and to $88.5 million in fiscal 2011.

Bill White,
Mayor

Update 2: Ok, so the radio is so badly jammed that the employee had to use her cell phone to call in and alert operators that she was on the wrong track. So it sounds like Metro either has poor radio discipline or needs to address communications bottlenecks which are placing riders at risk. It also needs to explain why the guy who waved the train through isn’t being disciplined also, for not insuring the switch was in the correct position.

Mayor to City Employees: “Promise? What Promise?”

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“We didn’t make no steenking promise!”

The following bundle of joy from Bill “the Pill” White was in my mailbox this morning. Check the highlights I added:

The Chronicle’s May 14th headline that said that the city of Houston “can’t keep its promise to the pension fund” was simply untrue. This administration has increased the city’s contribution to the Municipal Pension Fund and made it more secure by reducing unfunded liabilities by about $1 billion.

Neither I nor anyone in my administration has ever stated that the city would pay the “statutory rate” for contributions to the Municipal Pension Fund.

In 2004, we defined annual contributions for three years and agreed to negotiate with the Municipal Pension System concerning our contribution thereafter. No other promise was made, and for years I have told all who would listen that the statutory rate is unrealistic.

The article’s sub-headline was also wrong in stating that I am citing “strained resources” as a reason for letting workers “contribute less, get fewer benefits.”

To give our work force more options, our chief pension executive has proposed to allow workers to contribute more or less, and obtain more or less pension, depending on their personal choices about retirement planning.

In March, our finance director stated that we would budget the same percentage of payroll as we did last year – this is not some breaking news. We have budgeted to pay 15.8 percent of municipal payroll into the pension fund, a higher contribution than the 14.5 percent rate which was the basis for enhanced pension benefits in 2001. The Municipal Pension Board has the obligation to bring benefits in line with the costs, which they advertised in 2001.

I assure municipal employees that our city’s contribution to the pension fund, including both cash contributions and the transfer of the Convention Center hotel, has increased pension security. We avoided massive layoffs or pay cuts to pay for the Pension Board’s 2001 mistake or outright fraud. We are fully and deeply committed to the security of the pension system.

We have not broken any promise. We look forward to working with the municipal pension board to keep the city’s contribution affordable and sustainable to make municipal pensions more secure, and to give employees more options.

Bill White,

Mayor

Translation: “We’re more or less going to fsck you over. Oh, and the pension board is a bunch of lying thieves! We never promised to obey the law!”

I don’t think I can improve much on my initial response to Kevin Whited when he asked what my thoughts were on this–but I’ll try:

“Unprintable. And besides which, I don’t think he’s got the reproductive equipment to do that with a pig anyway.”

I’ve said it before, and I’ll say it again. I don’t believe the pension is sustainable, and I have been expecting the other shoe to drop for three years now. I haven’t contributed into the pension because I don’t believe it will be there when I retire. His first attempt to fix the problem only delayed the reckoning, and while I supported the idea, I don’t support offloading the albatross of a convention center on the fund.

Nor do I care for the mayor’s weasaling and calling the board thieves. (I have my own issues with them, but claiming fraud isn’t one of them.) Every move White makes is designed to drive the city employees deeper into the unions that are in his hip pocket, while allowing him to claim to operate the city “like a business.”

I’m not optomistic about the outcome of all this.

Update: HMEPS responds. (Full .pdf text here.)

HMEPS currently has a Meet and Confer Agreement with the City, which was signed in September 2004 and amended three times. The Agreement addresses several pension matters, including plan benefits and funding. The funding provisions regarding the City’s required contributions expire June 30, 2007. At that time, the City must make its required contributions as determined by actuarial valuation in accordance with the pension statute, Art. 6243h, Tex. Rev. Civ. Stats. Ann. HMEPS provided the City the actuarial valuation as of June 30, 2006, which requires contributions of 24.63% of payroll. This actuarially determined City contribution rate for FY2008 is less than the rate that was projected by the HMEPS actuary and provided to the City during the 2004 meet and confer process. In fact, the dollar amount of the City’s required contribution is over $5 million less than what was expected for the City to contribute beginning July 1, 2007. The contribution amount is also right in line with the estimates in the HMEPS actuarial valuation as of July 1, 2005. Both valuations are available on the HMEPS web site at www.hmeps.org/Publications.

In addition, over the past two and a half years, HMEPS has consistently advised Mayor White, the City Council Pension Review Committee and other City representatives about the need to focus on the City’s funding plan for HMEPS beginning July 1, 2007. HMEPS sent letters to Mayor White on December 5, 2006 and March 1, 2007, notifying the Mayor that HMEPS was willing and prepared to meet and confer regarding the City’s plans to fund the required contributions beginning July 1, 2007. HMEPS has not received a response from Mayor White, nor has a designated City representative met to negotiate these matters with HMEPS. We would like to know what steps the City has taken to prepare for the upcoming funding period, which the City knew about far in advance, and which was structured this way at the recommendation of Mayor White during the 2004 meet and confer negotiations.

We believe it is important to emphasize that HMEPS negotiated the Meet and Confer Agreement in good faith and has met its obligations under the Agreement….

Schedule the Apocalypse Now, Please.

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I have found myself in complete agreement with both Carol Alvarado, and SEIU’s favorite council member, Sue Lovell. The apocalypse must be on the way at this very moment.

The independent investigator examining past problems at the Houston police crime lab said Monday that he needs $1.5 million to finish his work – a price Mayor Bill White isn’t sure the city will pay.

The investigator, Michael Bromwich, told a City Council committee that he needs the extra money to study recommendations for improving the lab’s operations. He said the money also would pay for an expansion of an investigation that has identified 93 cases involving DNA or serology analysis with “major issues�? that raise doubts about the reliability of work and the accuracy of analysts’ conclusions.

At this point, I don’t think the city is in any position to quibble over costs. The creditibility of the police department’s lab is shot to hell, the DA’s office is being dragged down with it; we know we have people in jail for whom the evidence isn’t worth the paper their verdict is printed on — in fact, the evidence should have helped their defense. And what does Bill “run-it-like-a-business” White say?

“I hate to spend any money on anything that we don’t need to.�?

Uh, listen really close, Bill: We need to spend on this.

Lo, and behold, who favors spending the money? Avarado and Lovell.

Councilwoman Carol Alvarado said she supports paying the extra money. She said the city should pay whatever is necessary to ferret out what she repeatedly called “intentional scientific fraud�? by some lab employees.

Councilwoman Sue Lovell agreed. “We have a moral obligation,�? she said. “There needs to be an exhaustive investigation.�?

Well, the old saying about stopped clocks being right twice a day occurs to me but I’d have called it unscientific fraud. Carol sounds particularly vindictive, though.

“This has been very frustrating for me because a long time ago I said, ‘I’m not going to rest until somebody’s head is on a platter.’ And we still have not been able to pinpoint anyone and hold them accountable.�?

Well, it was so long ago, I don’t remember that (and have no time to search for it at the moment) but I’m in full agreement with the sentiment. Unfortunately the head I think should be served up belongs to a former police chief and mayor, so “that ain’t happnin’.” On the other hand, another council member would rather use the money for a cadet class:

Councilman Adrian Garcia, a former police officer who chairs the [council’s public safety] committee, said he wants to see the work completed within the current budget. “I want to find out what needs to happen to resolve this,�? he said.

What needs to happen is that the city needs to stop quibbling and give the man everything he’s asking for. I don’t care if he pads the budget. Short of putting his children on the payroll, the city lost all moral standing to complain about potentially unjust billing when it started sending people to jail, including death row, based on compromised, if not ginned up, evidence and outright lies. Is it any good to put more police on patrol if we’re just going to send the wrong people to jail? Hey, I’m arguing in a thread over at BlogHouston that a transgendered police officer shouldn’t be on the street because of the potential for harm and making the city look bad. I sure as hell am not going to ignore this! Merely “bad” need not apply. And speaking of threads at Bloghouston I think Bill F makes the best possible point about finding money for a class:

…police and fire protection are among the primary reasons why local governments even exist. We should start the next budget from the bottom up. Put in there how much you want to spend on cops and firemen, then add in all of the other priority items in order of importance until you reach the limit of what city revenue is expected to be. Anything over that limit needs to either be funded from another source or needs to be cut from the budget.

Ah yes, the limits of what city revenue is expected to be…. Well, despite windfall sales taxes and revenue bumping up against the limits, don’t forget about the budget items to be voted on tomorrow.

KTRH-740 says the city of Houston will need to borrow and dip into its cash reserves, according to a new budget plan:

The City of Houston will borrow about $100 million against taxpayer money and spend cash reserves to make budget, according to planning documents delivered recently to City Council.

Mayor Bill White says there will be some borrowing for pension obligations, and it will use some cash surpluses that have been deliberately built up over the past two years.

And some people wonder why I don’t want to contribute to the city’s pension plan….