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.