Mayor Sylvester Turner’s Testimony before the
Texas House Committee on Pensions
Good morning, Chairman Flynn and members of the committee. It is a pleasure to be with you today.
I am here this morning to discuss the City of Houston’s approach and progress toward resolving the financial challenges we face with regard to employee pensions. The City’s fiscal situation is well-documented; our circumstances are challenging. Population growth drives increasing service demand, while our response is limited by a variety of factors. Cost increases, property tax revenue limitations, a broken appraisal system and the economic downturn all complicate one of our greatest challenges: reforming the City’s employee pension systems.
The City’s pension liability presently stands at 5.6 billion dollars and is still increasing. This debt threatens to overwhelm us in its size and volatility. The City’s pension contributions total about 31 percent of payroll for the current fiscal year. If we paid the full actuarially determined rate, as we should, the City’s pension contributions would total about 35 percent of payroll for the current fiscal year. That marks a dramatic increase from where we stood just 15 years ago, and today’s required contribution would be even higher if it was based on more conservative and realistic assumptions regarding rates of return. We expect our obligations to grow significantly if we do nothing. Failure to reverse the current trend jeopardizes the City’s ability to provide basic services on which Houstonians rely. I am not alone in recognizing this: the ratings agencies that gauge the City’s creditworthiness have expressed concern about the City’s mounting pension debt and the absence of a long-term strategy to address it. Our city’s economic future depends on our success in reducing long-term pension obligations to manageable levels, and we must achieve this while keeping our promises to City employees and retirees.
Our goal is clear: we must bring down the cost curve by making sustainable changes that ensure our City's long-term financial strength and stability, and we must do so in a manner that respects the service of workers past and present by providing them with reasonable, affordable pension benefits. I know that some of you favor a shift toward defined-contribution plans, but I will not consider proposals that eliminate the City’s current defined-benefit structure. All three pension systems oppose a move away from defined-benefit plans, and so do I. This position must come with tradeoffs, and we are compelled to look at options including cost-of-living adjustments, contributions, and retirement age, but we will not give in to the temptation to reduce our employees’ financial security. The hardworking men and women of the City of Houston have dedicated their careers to serving us, and we must do the right thing by treating them and their families with the care and respect they have earned.
I’ve had the good fortune to work with many of you, and you know me. We will achieve our goal by working with all parties concerned, by negotiating in good faith, and through shared sacrifice. We have already begun this process with numerous meetings with representatives of the three pension boards. There will be many more meetings, many more discussions. I have laid out three specific objectives:
1. We must reduce the City’s unfunded pension liability now and in the future;
2. The annual cost the City is obligated to pay must go down now and in the future, and
3. We must have an agreement by the end of this year for the Legislature to enact in the 2017 session.
My goal is to have a proposal that is worthy of support not just from City Council and the pension boards, but from our business and community leaders as well, and ultimately from you, our state legislators. We can do this. As evidence, you need look no further than Houston City Council’s recent adoption of the City’s FY2017 budget. Faced with a shortfall of 160 million dollars, we worked closely with all members of Council, our TIRZ boards, City departments and other stakeholders to achieve a balanced budget that included close to 55 million dollars in recurring improvements and moved us closer to long-term financial stability. That budget was passed by unanimous vote – the first time that’s occurred in recent memory – and in record time. We even finished before lunch, and on the same day debate began.
So we have demonstrated our ability to work together to solve big problems. But we are not finished. Without a deal on pensions, the 2018 fiscal year will be daunting. Without a deal on pensions, we face the prospect of massive layoffs and service reductions. We must have a deal. Our employees and our taxpayers deserve a retirement system that is sound and dependable, one that is not subject to the political whims of whoever is in office, or running for office. We can and must forge agreements that will remove the City’s pension systems from the political radar, but to achieve this we all must share in the sacrifice. If we attempt to hold on to all we have, then we cannot achieve our goal of long-term stability and certainty for our employees and taxpayers. So we must work together. We must negotiate remembering the words of Benjamin Franklin: “We must, indeed, all hang together or, most assuredly, we shall all hang separately.” In the spirit of shared sacrifice, we will create a solution that is fair to all concerned: our retirees, our present and future employees, and all the people of Houston.
We will not rest until this, one of our biggest challenges, is resolved and we have taken another step in our journey toward a sustainable and structurally balanced budget where revenues are equal to or greater than expenditures. As we work toward answers to these pressing questions, there will be concerns, and I understand that. But we must focus on reaching the solution, not on those issues that hold us back. This is not about control, this is about results, and we need everyone on board if we are to achieve the results our situation demands.
I would welcome the opportunity to provide this committee with updates on our progress as we move forward, and will be glad to answer any questions you may have at this time. Again, thank you for your time.