Bill Frazer, a Certified Public Accountant and a superior (based on qualifications and knowledge) but unsuccessful recent candidate for City Controller, has weighed in against Proposition A, the “Pension Obligation Bonds” ballot initiative that is being touted by Mayor Sylvester Turner as well as some local establishment Republicans as critical to “solving” the Houston pension problem that some of us have been writing about for years.
Frazer recounts a host of problems with the reform itself, but most notably highlights that we’ve been promised POBs as part of Houston’s pension “solution” before:
Houston has tried to “extend and pretend” with the use of pension debt before and the results have been terrible. Beginning in 2004, Houston issued $300 million in “pension obligation” debt. Mayor Bill White negotiated reforms to the 2001 benefit package, coupled with the agreement by the City to make extraordinary contributions to the pension funds. In a May 2011 op-ed, White cited an urban expert who called his reforms “a roadmap” for other cities. White noted that under his leadership, the City reached “agreements with the municipal and police pension boards, requiring longer service to earn benefits, beginning more affordable pension plans for new hires, increasing employee contributions” and ultimately cutting “the then-existing unfunded pension liabilities associated with the old plans by almost a billion dollars.”
In his op-ed, White wrote: “We planned to pay for a portion of the city’s obligation to pay down the pension liability with bond issues financed within the existing property tax rate, offset by limits on debt-financed capital improvements.”
Mayor White’s words from 2004 sound eerily similar to those used today by proponents of the POBs.
White went on to write that this debt was “phased out over six years,” implying that it was paid off. In reality, the debt was refinanced just four years later and principal reductions were extended through the year 2037. Instead of being “phased out”, the obligations were simply recast into longer-term bonds held by the public. The City did not actually make a payment that reduced the principal of this note until 2014 – almost 10 years after the original note was issued! (Bill Frazer, Core Municipal Report)
In Frazer’s highly informed view (he’s one of a handful of people in town I consider true experts on Houston public finance), the latest Turner gambit is just more of the extend-and-pretend, spend-then-borrow, can-kicking that’s been going on for years. Unlike some local establishment Republican voices (I love that “conservative” reference in the article), Frazer is not willing to get on board with the recent deal based solely on the optimism of those who negotiated the so-called “corridor” and promises of employee concessions that add up to different amounts, depending on where one looks and who is touting them.
Neither am I. The City of Houston, post-Harvey, can and must do better for current and future taxpayers. I encourage you strongly to consider voting NO on Proposition A, the Pension Obligation Bond question.