White: City can't/won't meet pension funding obligations
The Chronicle's Matt Stiles reports today on Mayor White's latest response to the massive underfunded liability in the municipal employees pension fund:
Short of layoffs, the city won't meet its full obligation to the municipal pension fund in the next fiscal year, Mayor Bill White says, citing rising public safety and health care costs that are expected to strain resources.
In the next budget, expected to be unveiled Wednesday, White's administration will propose paying only two-thirds of the statutorily required pension contribution — an arrangement that still would need approval from a skeptical pension fund board.
[snip]
The city has prepared for some of these looming payments, White said, building up tens of millions in an undesignated fund in recent years. But that is not enough to meet the additional $39 million for the increased pension obligation.
That has sparked concern from David Long, the fund's executive director, who said the system needs full annual payments to remain viable over time. He also said White's move could upset morale among the 12,000 civilian city employees.
White said he can't make the payment, which he agreed to in 2004....
[snip]
Facing the prospect of having to make huge annual contributions to comply with state law, the city got the fund's board to agree in 2004 to reduced payments for the past three years. The contribution was to increase in this year's budget.
[snip]
Controller Annise Parker said she's concerned the city hasn't started negotiations with the pension fund, but she said the statutorily required contribution — roughly 24 percent of payroll — isn't supportable.
Long, who's asked the mayor in writing for meetings but got no response, called it "disappointing and frustrating."
"We're hoping at some point that they will answer our letters, and he'll appoint somebody to sit down and have a discussion with us to try and figure out what we can do to bridge this gap," he said. "Ultimately, we're sort of coming to the end of the line here."
The massive underfunded liability and the requirements of the 2004 agreement (that Mayor White now says he won't honor) haven't been a mystery over the last few years (just search the blog for "pension"), so it's really strange that the administration has not been engaged in meet-and-confer negotiations with the pension board to work on the problem.
Perhaps the administration simply hopes to roll the board, however, and doesn't see much need for the niceties of meet-and-confer (why negotiate agreements if you're only going to break them a few years later?). That could be one conclusion drawn from this bit of reporting from Stiles:
White hopes to reduce the liability further by proposing a hybrid approach that would allow employees to opt out of contributing a portion of their pay in exchange for a reduced retirement benefit.
"The big question is — and this needs to be hammered out — how do you get from where you are now to this new structure?" said Craig Mason, the city's point man on pension policy and planning.
He said the city could apply the hybrid idea to new employees, which would have a slower impact, or try to make it apply to everyone. Both ideas would require approval from the council and the fund's board, a prospect that could prove difficult.
If Mason is the city's point man on this issue, then why isn't he meeting with the HMEPS representatives?
Here is an excerpt from the response (pdf) posted today by the Houston Municipal Employees Pension System (HMEPS) on their website:
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....
[snip]
HMEPS remains open to good faith negotiations with the City to address the important pension matters at hand. We are hoping the Mayor will respond to our requests.
The municipal employees pension is a moral as much as a financial obligation. Lee Brown may have put the city in a bind with his handling of the pension, but real leaders fix problems. If Mayor White truly hopes to be a statewide leader, then working with HMEPS to solve this major local problem would seem to be in his best interest. Not to mention an obligation of the office he holds currently.
UPDATE (05-15-2007): Mayor White weighs in with an inflammatory letter to the Chronicle:
The Chronicle's May 14 Page One 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 subheadline also was 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 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.
We agree with the mayor on the Chronicle headline. My choice would have been "won't" instead of "can't." Since this Mayor has proven very adept at getting Council to rubber stamp his other priorities, one simply has to assume this matter isn't a priority.
Still, it is distressing that the mayor has resorted to non-accusation accusations about the HMEPS board ("mistake or outright fraud"). If the Mayor has evidence of outright fraud, then he should present that evidence. Otherwise, he needs to work with HMEPS and other stakeholders to fix this problem. Namecalling and inflammatory accusations are not leadership.
Additionally, Matt Stiles stands by the accuracy of his original reporting, and passes this comment along via email:
You'll notice that he [Mayor White] takes issue with the headline and subhead, but not with the story. He called me yesterday to say my reporting was accurate.
Readers here can certainly read the story and decide for themselves, but in my view, the headline and subheadline reflect the content of the reporting (which the mayor says is accurate) fairly. The mayor may not be happy with the ensuing criticism of his handling of this problem, but it seems to have been reported accurately and fairly.
BLOGVERSATION: Off the Kuff, Lose an Eye, It's a Sport, Houblog, Newswatch: City Hall.
Posted by Kevin Whited @ 05/14/07 10:50 PM | Print |
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