The Great Texas Pension Fix

Houston, Texas

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Connecting state and local government leaders

Houston owes its police, fire, and city workers about $7.8 billion, and it doesn’t exactly have the cash on hand. Their hard-fought solution could serve as a model for the rest of Texas, and the nation.

When Houston Mayor Sylvester Turner took office last year, he inherited a sweeping pension crisis. The city had an unfunded liability of $5.6 billion, a figure representing Houston’s obligations to its fire, police, and municipal pension systems.

Then it got worse: After he took office and got a closer look at the books, Turner saw the revised figure—$7.8 billion.

Pensions are the storm clouds on the horizon that threaten to wash out the so-called Texas Miracle, the wave of new jobs that kept the Lone Star State afloat through the Great Recession. Taken together, the four largest cities in Texas—Houston, Dallas, Austin, and San Antonio—owe more than $22 billion in pension shortfalls. Dallas and Houston rank second and fourth, respectively, on the list of cities nationwide with the largest unfunded pension liabilities, per a ranking by Moody’s. (At number one? Chicago.)

The road to pension crises is paved with good intentions. Officials in Houston and elsewhere tend to plan for funding pensions with sunny days in mind. When markets tank, the investments contributing to pension funds wither. And when the economy stumbles, cities sometimes withhold pension contributions to make up budget gaps. These effects add up over time, and correcting course usually involves contentious politics. Texas cities may have it worse than most because the local political climate is so hostile to tax revenues (even when Texas cities experience miraculous growth). Anywhere, though, officials and employees tend to kick the can down the road. It’s retirement, after all.

Admitting that you have a problem is the first step toward solving it; cities in Texas, whether they like it or not, are being forced to take that step.

Houston is further along than most. A proposal that the city will put before the Texas legislature this year would restructure the city’s obligations. The new dispensation would include benchmarks for bringing all parties back to the table to renegotiate terms, as necessary, until the unfunded liability is funded. It would also set a time period for meeting that obligation: a 30-year amortization schedule, something resembling a traditional home mortgage.

Kriston Capps is a staff writer for CityLab, where this article was originally published.

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