Mayor's Office Press Release
City Council Endorses Historic Pension Reform
October 26, 2016 -- On a 16-1 vote, Houston City Council has endorsed Mayor Sylvester Turner’s historic package of pension reforms. The vote clears the way for the City to move forward in partnership with the pension systems to seek legislative approval of the reforms.
“I am bubbling over on the inside,” said Mayor Turner. “I am thankful to everyone who has helped get us to this point. That includes City Council, the pension systems, our City employees and many others. This plan is historic, transformative and budget neutral. We are solving our pension problem permanent and we are doing it without needed a tax rate increase. There is no other plan out there offering the same benefits. The Houston solution can be the model for other cities with similar challenges.”
The police, fire and municipal pension systems all signed off on the package of reforms prior to today’s City Council vote, marking the first time that the City and all of the pension groups have been united.
The plan immediately reduces the City’s nearly $8 billion pension debt by over 30 percent and then sets a 30-year fixed payoff schedule for the remaining $5.3 billion of debt. This immediate reduction is accomplished through a combination of benefits changes that include scaling back cost-of-living adjustments, higher employee payroll contributions and phasing out of the Deferred Retirement Option Program, known as DROP, which allows employees to accept retirement benefits while continuing to work for the City. In return for the concessions, the City has agreed to issue $1 billion in Pension Obligation Bonds to make up for years of prior underfunding of the pension systems.
“It is a big deal that employees have agreed to these benefit changes,” said Turner. “I know this has not been easy, and I thank each of them for their patience, understanding and service. This plan will provide stable and sustainable retirements at an affordable cost to the taxpayers who foot the bill. Retirees won’t have to worry if the check will be there.”
Moving forward, predictions about the anticipated performance of pension system investments will be based on a more conservative seven percent assumed rate of return. If there are market changes that cause costs to exceed pre-agreed limits, there is a mechanism to force additional changes in benefits to bring everything back in line. A requirement that both sides share information will ensure compliance with the required 30-year payoff schedule.
State Senator Joan Huffman and State Representative Dan Flynn are expected to carry the Houston pension legislation. Bill filing for the 2017 legislative session begins mid-November 2016.