HPD 2016 Crime Stats Show Small Uptick in Crimes — Mixed Performance in Solving Them

     I recently obtained a report from HPD that shows the number of cases reported and the percentage of those cases that were solved from 2012-2016.  The report shows about an 8% increase in violent crimes in 2016 compared to 2015, while non-violent crimes held fairly steady.  HPD had mixed results in solving its cases.
     Homicides – The number of homicides hit a low in 2011 at just under 200.  Since then the numbers have been tracking back up, reaching 298 last year.  This year was little changed at 290.  However, the rate at which HPD solves murders has been falling significantly in recent years.   In the early 2000’s HPD regularly solved only about 60% of the murder cases.  After some adverse publicity about the Homicide Division, their performance greatly improved, solving 90% of their cases in 2008.  But the numbers started going south again in 2012 and it has been pretty much downhill since.  In 2016, HPD only solved 58%, the lowest number since I began tracking these stats in 2000.
      Rape – Much like homicides, rapes had been on the decline through the early 2000’s.  In 2013, only 618 rapes were reported, the lowest number since 2000.  But the last three years have seen a dramatic and troubling increase in the number of rapes, topping out in 2016 at 1,035, a whopping 67% increase in just three years.  The increase appeared to catch HPD off guard as its clearance rate for rape cases plummeted in 2014 to just 24%.  But it has since recovered, solving 41% of the cases in 2015 and 53% in 2016.  Still having almost half of all rape cases go without justice is unacceptable.
        Robbery – Robberies in 2016 held steady at about 10,000 cases, a level that has been very consistent for the last two decades.  HPD has historically solved about 20% of the robbery cases and last year was no different.
          Burglary – Burglaries fell about 8% this year.  Burglaries topped out in 2009 at just under 30,000 and have been steadily declining ever since.  But HPD’s clearance rate on burglaries continues to be abysmal, coming in this year at 6.9%.  Since 2000, HPD has never solved more that 8% of burglaries, clearly demonstrating this is not a priority for the department.
         The most recent round of stats shows that HPD has been improving its clearance rate on violent crimes over the last three years, but the rate for nonviolent crimes has fallen below what were already anemic numbers.  HPD lags behind the national average in all categories, although to be fair, so do most other large departments.  However, in the robbery and burglary categories it solves only about two-thirds and half as many of those cases, respectively, as the national average  — a pretty clear indication HPD could do better.
         Some in law enforcement argue that the clearance rate is not a fair metric by which to judge the effectiveness of a law enforcement agency.  Certainly, there are other factors that should be examined as well, but I have long argued that this is one of the key metrics we should be using.  (See, “It’s the Clearance Rate, Stupid“, Houston Chronicle, May 18, 2008).
       Overall, when you look at HPD’s performance over the last 15 years, not much has changed, except the cost of the department.  The City has gradually whittled away at the total personnel in the department (more on that later), but number of police officers has hovered right around 5,000.  The number of cases solved has ranged from a low of 22,000 to a high of 34,000.  The 2016 total of 25,000 is about average.
      However, the cost of the department has skyrocketed.  It has more than doubled since 2003, rising from $422 million to over $850 million.  And that is not even fully accounting for the cost of the department’s pensions.   If that had been fully factored in last year, the cost would have topped $1 billion.  The average cost per crime solved has risen from about $16,000 in 2003 to over $34,000 last year, without fully accounting for the pension costs.
       Public safety now gobbles up about two-thirds of the City’s general fund budget.  More money for public safety will, undoubtedly, be the battle cry for those seeking to repeal the property tax cap this fall.  But we have been throwing more money at this problem for the last two decades with little to show for it.  It is time to start rethinking public safety.  What do we expect of it?  How is it managed?  What are the mission critical functions?  We may ultimately conclude that more resources are needed.  But until we have that kind of analysis, throwing more money at the problem again should not be an option.
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Houston Does Not Have a Revenue Cap

Contrary to the claims of the Turner administration and the most media accounts, there is no cap on the City of Houston’s revenues.  There is, however, a cap on how much the City can charge in property taxes every year.  This distinction is important because property taxes only make up about 25% of the City’s total revenues and under the charter, that is the only source of revenue that is capped.  There is absolutely no cap on 75% of the City’s revenues.

And even to describe the charter limitation as a “cap” on property taxes is somewhat misleading because the charter still allows the property tax collections to increase every year by the sum of inflation and population growth.  And increase they have.

Since the charter amendment was enacted, the City’s property tax receipts have increased by 70%, rising from $646 million to $1.1 billion.  The average increase since 2005 has been just under 5%.  Twice since the charter was amended, the City has enjoyed double digit increases.  For the last three years, the average increase was almost 7%.

     And according to the City’s most recent monthly report, property taxes so far this year are up an eye-popping 15%.  Eventually, that number will come down some due to refunds from value appeals, but the City is still projecting an increase of over 5% even with these refunds.  I feel certain that the City has overestimated the amount of refunds since it is a little embarrassing to ask voters to repeal the property tax cap in a year when the property taxes are increasing by double digits.

Turner will inevitably make the case that he must be able to raise your taxes to pay for more police officers since everyone knows we need more officers.  But you might recall that we have seen this movie before.  In 2006, the City asked voters to increase the property tax cap by $90 million, which was supposed to be dedicated entirely to public safety.   So, what did we get for that $90 million increase?  A whopping increase in the HPD headcount of 212 (3% increase).  And incredibly the Fire Department actually has 244 ­fewer employees than it did in 2006.  I do not know what the $90 million was spent on, but it certainly was not spent on increasing the size of our public safety personnel.  The City did, however somehow find the money to increase the headcount outside police and fire by over 1,000 employees.

But here is the real kicker.  The charter provision that sets out the limitation on property taxes begin with these words:

The City Council shall not, without voter approval . . .”

In other words, anytime the City administration and Council believe they must increase taxes by more than the cap, all they have to do is ask your permission.  In the twelve years since the property tax cap was adopted, Council has never asked the voters for more money.

What Turner wants is the unrestricted ability to increase your property taxes.  So far the cap has had relatively little effect on the City or taxpayers.  But it has stopped City Council from indiscriminately increasing your property taxes year after year.  And therein lies its true value.

Last year, Chicago increased its property taxes by over 20% and plans to increase them by another 30% over the next four years.

That will never happen in Houston . . . . as long as we have the property tax cap.

Houston Pension Bill – As Passed

     As you have probably seen in media accounts, the Legislature has passed a bill making very substantial changes to the City of Houston’s pension systems.  The bill as passed was 260 pages and mind-numbingly complex.  When added to the existing statutory language, the Houston pension statutes will now run over 90,000 words, which in and of itself is absurd.
     The bill follows the general outline of what Turner proposed last October, but as the result of lobbying by the business community and grass roots activists, the Legislature made significant changes to Turner’s original proposal.  This is the first time that groups representing the taxpayers showed up in Austin to be heard on pension legislation.  In the past, local elected officials and the employee groups would make a deal and the Legislature would rubber stamp it.  That is not what happened this time.
Let me begin by emphasizing that while the final bill moves us in the direction of solving the City’s pension problems it is far from a permanent solution.  Many of the City’s claims about the virtues, like it will allow the City to pay off the pension debt in 30 years or it will save a million dollars a day, are patently false.  And other than the $1 billion in borrowed money, the bill actually allows the City put less money in the plans over the next 5-6 years.  Hardly a way to reduce the debt.
     So, the City will face another pension crisis.  The timing of that crisis depends in large measure on how the investments in the pension plans perform over the next few years.  If they continue to perform as they have in recent years (10-year average = 5.6%), that crisis will be sooner rather than later.
A detailed review of the bill is impossible here.  For those of you who want to take a deep dive, you can review the bill [here].  But here is the Cliff Notes version:
1.  Pension Cost Reductions for Infusion of Bond Proceeds – The only part of the new legislation that is likely to make any real difference in the City’s pension costs and debt are benefit reductions and increases to the employee contribution in the amount of about 15% or $2.6 billion.  It is important to emphasize that this reduction in pension liabilities is estimated because the actual amount of the savings is dependent on factors in the future, like interest rates.  Nonetheless, the savings are substantial and will bend the cost curve down in the future.
     The benefits reductions fall into two categories.
The police and municipal plans agreed to about $1.7 billion in cuts in exchange for the City’s agreement to infuse $1 billion from the issuance of pension bonds.  Some of you will recall that in the last mayoral campaign this was one of the scenarios I suggested as a tool to reduce the unfunded liability.  At the time, Turner was adamantly opposed, arguing, “You can’t solve debt with more debt.”  Fortunately, Turner changed his view.
     There are also benefit cuts and contribution increases totaling about $900 million for the fire fighters pension plan.  I have long criticized the fire fighters for being slow to accept that their benefit structure was unsustainable, but the changes to the fire fighter plan are deeply troubling to me.  Unlike the police and municipal plans, the fire fighters did not agree to the cuts in their benefits and will not get any bond money.
     Also, the cuts to the fire fighters’ benefits were dramatically more severe than those agreed to by the police and municipal plans.  The average benefit cut per member to the fire fighter benefits under Turner’s plan is about $150,000 compared to about $90,000 for police and $28,000 for municipal.
     There is no question that the benefits for fire fighters are the most generous benefits of the three plans and were badly in need of reform.  However, this plan does something that every candidate for mayor in 2015, including Turner, promised to never do – take away benefits that had been previously earned by our employees.  How many times did you hear all of us who ran for mayor declare “a deal is a deal” and promise that earned benefits would never, absent an agreement, be cut.  We, as a City, have now done just that and in doing so have clearly broken our word to the current and retired fire fighters.  That is not something that should be taken lightly or celebrated.
2.  Voter Approval of Pension Bonds.  One reform that was won by the business community and grass roots groups was the requirement that any new pension bonds must be approved by voters.  When the Legislature allowed cities to issue pension bonds in 2003, the legislation was silent on whether voter approval was required.  The Attorney General’s office has interpreted that silence (incorrectly I believe) to mean that voter approval is not required.  As a result, the City has already issued about $600 million in pension bonds without getting voter approval.
     That will no longer be the case.  The bill now requires the City to obtain voter approval before issuing any new bonds.  I have long said that pension bonds can be a tool to help manage our pension problems.  But like any tool, they can be used properly or they can be misused.  Voter approval is an important check to make sure any future pension bonds are not misused.
     You may recall that when taxpayer groups first insisted on a voting requirement on bonds, Turner declared it was a poison bill that would kill the bill.  But apparently after Turner saw polling that nearly 80% of Houstonians thought they should vote on any new bonds, the provision became less toxic.
3.  The “Corridor.”  The third major component of the bill is a complex mechanism that is intended to limit the amount that the City will contribute to the pension plans in the future as a percentage of payroll, which has come to be known as the “corridor.”  As nearly as I have been able to determine, no other entity, public or private, anywhere in the country, has ever implemented anything like the corridor.  It is a completely untested and experimental model.
     It is also hideously complex and the provisions are ambiguous and in some cases internally inconsistent.  That, in my experience is a recipe for litigation and I suspect you will see plenty of that in the future.  You will also see the administrative costs for the plans, which are already too high, rise even more.
     The real flaw in the corridor mechanism however, assuming it is actually enforced, is that it primarily relies on future increases to employee contributions if the City’s contribution rises above the limit.  It is highly likely this will occur because the plans are unlikely to achieve the 7% investment target over the long run.  And a small miss on the investment return equates to very large increases in the employees’ contribution.  These increases will be so large at some point in the future it will not be feasible to enforce the corridor.  That is the event that will likely precipitate Houston’s next pension crisis.
4.  Phasing out Defined Benefit Plans.  The biggest disappointment with the bill is that there is no immediate phasing out of the defined benefit model.  The bill does include a safety net of sorts that provides that if any of the plans fall below a 65% funded level, they must move all new employees to a cash balance plan.  Cash balance plans have some elements of both defined benefit and defined contribution plans.  Unfortunately, the bill also includes extraordinarily long grace periods (four years for police and fire and ten years for municipal) which will likely make the provisions meaningless for all practical purposes.  In all likelihood, the City will see its next pension crisis long before the expiration of those grace periods.
     Nonetheless, the inclusion of this safety net is an important symbolic victory, because it is a concession that phasing out defined benefit plans is the real solution to the City’s pension problems.
5.  The Constitutional Question.  There is one issue outstanding that may make this entire effort for naught.  There is a provision in the Texas Constitution that grants the right to set actuarial assumptions to the pension boards.  Of course, the entire point of the corridor is to force the pension boards to share that power with the City and the bill establishes certain limitations on the pension boards’ discretion in setting the assumptions.  While there is certainly an argument to be made that the pension boards should not be exclusively vested with the power to set assumptions, that seems to be what the State Constitution provides.  The fire fighter pension board has already filed suit to declare the legislation unconstitutional.
     The other boards currently have no plans to sue, but may find they are forced to do so to avoid liability from their members.  Also, it is possible that any member of the plans could bring such a suit.  Of course, that litigation will take time to resolve.  If the City implements the plan and then it is declared unconstitutional several years from now, we will have a real mess on our hands.
     Notwithstanding Turner’s public confidence that the City will prevail in this litigation, the City legal staff was manic during the negotiations to get the fire fighter board to agree not to sue.   I make no prediction about the outcome on the merits, but certainly on its face, the legislation appears to violate the constitution.
     There is also another practical effect of the fire fighters’ lawsuit.  The Texas Attorney General must approve the issuance of any bonds by local governmental entities.  Generally, their policy is to not sign off on any bonds when there is any pending litigation.  Whether the Attorney General’s office would find this litigation affects the issuance of the pension bonds is an open question.  But generally, that office has been pretty conservative in making such determinations.
6.  Conclusion.  Shortly after Bill White was elected in 2003, he received the bombshell that the pension plans were underfunded by over $2 billion.  White undertook a series of reforms that reduced benefits and he issued pension bonds to shore up the plans.  But he left the defined benefit model in place.  A dozen years later, our pension debt had tripled.
     White’s reforms unquestionably reduced the future costs of the pension plans, but ultimately his incremental approach proved not to be a permanent solution.  Such is the case with this plan.  It too reduces the pension costs immediately, but instead of biting the bullet and beginning the phase-out of defined benefit plans, it relies on an untested and what will be proven to be unworkable mechanism to do what moving to defined contribution plans would have accomplished without the cost, complexity, litigation and uncertainty of this plan.   And as a result, Houston taxpayers and employees will suffer in the long run.
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City’s Sales Taxes Drift Lower after Super Bowl

     The Texas Comptroller reported today that the City’s sales tax receipts for June (based on April sales) were down by slightly over 2%.  After eighteen months of consecutive year-over-year declines, the City saw an increase in its sales taxes in March and April, reflecting January and February sales, which were boosted by the Super Bowl.  Sales taxes for those months increased by 6% from last year, about a $5.5 million pick-up. In May the City showed a slight decrease before posting this month’s 2% decline.
      In the last two years, Houston has posted year-over-year declines 20 times. For the FY2016-2017, sales tax collections were down by 2.5% from last year and the calendar year-to-date collections so far this year are down by 5%, even with the one-time shot in the arm from the Super Bowl.
     On the bright side, it does appear that the precipitous decline that began in late 2012 has flattened out. Of course, where we go from here will largely be dependent on oil prices.
     The sales tax receipts for Houston’s neighboring cities were mixed. Most saw increases, but several saw significant decreases. Generally, the suburban cities on the east side of Houston have held up better, probably because their economies are more closely tied to the oil and gas downstream, which continues to do well.  Also, the suburban cities that are farther from Houston have generally done better.
     The budget just adopted by City Council for FY2017-2018 projects a 1% increase sales taxes for next year. That may be achievable if oil prices recover. If not, it is probably overly optimistic.