Houston residents voted overwhelmingly to pass a $1 billion pension bond referendum that will put $750 million into the police pension and $250 million into the municipal workers’ pension to improve their funding levels, while lowering the city’s annual pension obligation.
The city has struggled with its pensions since the late 1990s, when benefit increases caused pension costs to surge. The police and municipal pension funds agreed to enact cuts to reduce the costs, but that led the pensions to take on debt totaling $8.2 billion.
If the measure didn’t pass, as much as $1.8 billion of the $2.8 billion in benefit cuts in the reform bill would have been rescinded, adding tens of millions of dollars in costs to the city budget overnight, according to the Houston Chronicle.
The bonds were used by Houston Mayor Sylvester Turner as an incentive to get the police and municipal pension systems to agree to additional cuts, and to boost both pension plans’ funding levels, reported the Chronicle.
“It doesn’t mean that all of our financial problems are solved,” Turner said, according to the Chronicle. “But it does mean that our outlook is much better.”
The pension reforms recalculate the city’s payments to erase the pensions’ debt over three decades, cut benefits by $2.8 billion, and ensure the city’s future pension costs are capped.
Proposition A “will make good on funding promises to public employees’ pension systems,” said Max Patterson, executive director of the Texas Association of Public Employees Retirement Systems (TEXPERS), in a statement. “TEXPERS encourages all Texas cities to keep pace with the funding required to maintain the health of their employees’ pension funds.”
Proposition A is also intended to quell rating agencies’ concerns about Houston’s pension debt having a negative impact on the city’s financial outlook.