Court Rules Montrose Management District Illegally Collected $6 Million in Assessments

The trail of TIRZ/Management District horrors continues.  This time it is the Montrose Management District (MMD).

The MMD was formed in 2011 from the merger of two earlier improvement districts which had been authorized by the Legislature.  Since the merger in 2011, MMD has collected over $12 million in assessments from businesses in the Montrose area.  Last week, a District Judge ruled that the petition used by MMD to assess a tax against Montrose businesses did not have the requisite 25 signatures.  Of course, the fact that the Legislature passed a law that would allow as few as 25 property owners to authorize a tax on hundreds of property owners is absurd on its face.  But MMD, according to the Court’s ruling, could not even meet this ridiculously low bar.

Most problematic for MMD is that the Court ruled that it must reimburse the $6.5 million in illegally collected assessments.

[Click [here] to see the Court’s ruling.]

Of course, the MMD does not have anywhere close to $6.5 million.  According to its most recent audit, it only had about $600,000 in cash at year-end and according to recent monthly reports, it appears to have even less now.

But MMD’s problems don’t end there.  After it levied the 2011 assessment, property owners in Montrose began collecting signatures to dissolve the MMD.  According to the statute, that requires property owners owning 75% of the land in the District.  Pretty fair don’t you think?  It only takes 25 property owners to authorize an assessment, but 75% of everyone in the district to undo it.  Just in case you had any doubt about our Legislature being in the bag for these special districts.

Over several years, the dissident owners collected nearly 900 signatures which they contend constitutes over 80% of the land in the MMD.  But when they submitted the petitions, MMD took a page out of the City of Houston’s playbook and invalidated about a third of the signatures.  One of the property owners I interviewed said the MMD invalidated his petition on the four properties he owned without anyone ever contacting him to verify whether he owned the properties or had actually signed the petitions.

When you look at how the MMD has been spending its money you can understand why the vast majority of business owners in Montrose want to dissolve the district.  The following is a table of the revenue and expenses taken from the MMD’s audits.

From 2011-2017, the MMD has collected over $12 million from Montrose businesses and has spent about $11.5 million.  Forty-three percent (43%) of its expenditures, right at $5 million, have been for administrative expenses, legal fees and business development expenses.  The management consultant for the MMD alone has been paid nearly $1.5 million and is currently being paid over $30,000 per month.  No wonder the property owners want to get this monkey off their backs.

Management districts and TIRZs were originally formed to assist neighborhoods with redevelopment.  If they are doing their jobs, they should be welcomed by the businesses and residents they serve.  Increasingly though we are seeing situations like the Uptown TIRZ and now the Montrose Management District where these entities are at war with the neighborhoods they are supposed to be serving.  And to make matters worse, the bureaucrats and lawyers running these districts are getting rich in the process.

Hopefully the next Legislature will take a hard look at these special districts.  But given some of the conflicts of interest that abound with respect to these districts in the Legislature, that may be wishful thinking on my part.  More on that topic soon.

The next meeting of the MMD Board is next Monday (November 13) at noon at University of Saint Thomas, Carol Tatkon Boardroom, 3807 Graustark, Houston, TX 77006.  Parking is available at the Moran Parking Garage.  The vast majority of Montrose business owners who are opposed to the continued existence of this district should show up at this meeting and make it plain to the board:  Go away!

James Baker:  The Need for Civility in an Uncivil World

The following is a speech that Secretary Baker recently gave to a group at St. Martin’s Episcopal Church.  I pass it along to you without commentary other than a hearty “Amen.”
 

I have been asked to speak tonight about the need for civility in an uncivil world.

It is a complicated question, one that robustly challenges Christians because it puts us directly in the crosshairs of a critical theological question: How do we reconcile our Christian desire to confront what we consider wrongdoing in the world with Our Lord’s endorsement of tolerance toward others?

Further, it is a complicated question at a time when many of our values are being challenged by today’s culture.  Basic Judeo-Christian values that were generally accepted during the first two hundred years in America are now being questioned.  How do we deal with this situation?

As I consider my response, I want to make it clear that I’m no theologian and this question is probably above my paygrade!  But I am a former public servant, an attorney, a father, a grandfather and a great grandfather who is now in my 88th year. And I suspect that the some of the same things that have become apparent to me are also apparent to many of you here tonight.

The world, it seems is going through a tectonic transformation — one that brings tremendous opportunities. And with them, great risks.

In many ways, the future looks brighter than ever.  Technology and science are marching at the fastest paces connect us with one another around the world. Mankind will be heading to Mars by 2030. And long before then, most of us will have self-driving cars.  Our health is better than ever before. Globally, we are living twice as long today as we did less than century ago. And the average life expectancy continues to rise.

Wealth, meanwhile, is spreading around the globe as more and more countries adopt America’s successful paradigms of democratic governance and free-market economics. Last year, the World Bank announced that a smaller percentage of the world’s population lived below the extreme poverty line than at any other time in recorded history.

And if you can pull your attention away from the constant deluge of negative news, you might be surprised to learn that we are living in one of the most peaceful times during the past century. The annual global death rate due to war is down from an average of 22 deaths per 100,000 people during the Cold War years to 1.4 deaths per 100,000 in 2014, the latest year with complete numbers.

Yes, there are risks in the world today. Global climate change, nuclear proliferation and radical Islamic terrorism are three, to name just a few. And violence and economic disparity remain difficult challenges around the world.  On balance, however, more people may be living in relative peace, better health and greater prosperity than during any other time in world history.

At the same time, sadly, our own country is going through a period of great civil unrest, perhaps the most toxic I have experienced in my life. The tenor of our national discourse is tinged with an aggressive anger and a virulent rhetoric that threatens our society. We seem to prefer arguing over statues and other symbols of the past rather than building projects for our future.

When you open the newspapers or watch television, it’s sometimes hard not to cringe at the bankruptcy of our public debate. We hear shrill cries for the removal of the Jefferson Monument because that Founding Father owned slaves. We are scolded that “safe places” are needed on college campuses to protect our students from discussions they don’t agree with.

America’s national ideal of e pluribus unum-“out of many, one”-threatens to become a hollow slogan as jaded Americans constantly are confronted by tidal waves of animus from their televisions and smartphones.

The practice of identity politics increasingly divided us along lines of race, ethnicity, gender, religion and sexual identity. Countless demagogues stand ready to exploit those differences. When a sports reporter of Asian heritage is removed from his assignment because his name — Robert Lee — resembles the name of Robert E. Lee,  it shows the insanity of the principal of “political correctness.”

The one thing that has united us in the past has been love of country, patriotism and respect for our flag and our national anthem. Now, it seems, some believe it is ok to disrespect those symbols in order to call attention to grievances they hold.  Obviously, they have a constitutional right to do that. But doing so risks unraveling what in the past has unified us.

Symbolic of our national anger is the partisan animosity between Republicans and Democrats that has brought Washington to a standstill. We can’t seem to get anything done because our government isn’t working for us.

These divisions are real. In our national politics, and particularly in Washington maintaining lines of civil and constructive communication seems increasingly more difficult.

There are, of course, several reasons for our hyper-partisan political environment:

First, there is a redistricting process that pushes congressional districts to the fringes of the political spectrum. As result, the reasonable center is being squeezed out of our politics. The art of compromise is now missing from our polity.

Second, there is the simple fact that we live in a fairly evenly divided red-state, blue-state country, with the two sides seeing the world through vastly different prisms. The problems confronting a Democrat on Chicago’s South Side are different than the ones facing a Texas Panhandle Republican.

Third, our rapidly developing social media lowers our national debate into an angry brawl. Through social media, people throw the wildest allegations against the wall to see which ones stick. Further, the spreading of fake news via social media undermines real news, and creates a jaundiced society that doesn’t know who or what to believe.

And fourth and finally, the press no longer objectively reports facts but rather acts as an advocate and player in our political debate. If you watch FOX, you think you’re watching the house organ of the Republican Party. And if you watch MSNBC, you know you’re watching the house organ of the Democratic Party.

So what can we do to revive the type of bipartisanship that is necessary for our  government to accomplish anything for the American people?

In Washington, it will take leadership in both parties!  Republicans and Democrats will have to, once again, work together and compromise if they want to get things done.  But all Americans must also shoulder some of the responsibility. Each of us needs to look inside our own heart.

The harshness of our political debate has been matched  It is becoming uglier and more crass.  The norms dictating decent behavior are eroding; and it seems that we’ve lost sight of the basic regard we owe our fellow men and women.  Rather than blame others for our myriad of problems, we should recognize that in a democracy, no one side gets to make all of the rules.

Our country has survived and thrived for so long, in large part, because we have learned how to work together on important issues. Compromise in a democracy is essential.  Our Founding Fathers differed on many issues, but they worked out compromises to define our core principles that still hold today.

As followers of Jesus Christ, when thinking about our role in society today, it’s important to ask ourselves, “What Would Jesus Do?” How did Jesus respond to the chaos of the day and the lifestyles that were antithetical to his morals?  He looked at people with hope, whoever they were. And all were invited to follow him — the good Jew AND the hated Samaritan.  He says in the book of John, “I am the light of the world.  Whoever follows me will never walk in darkness, but will have the light of life.”

Jesus didn’t focus on the political upheaval of the day, but on each individual’s heart. He calls us to love God with all of our heart and to love our neighbors as ourselves.  Jesus’ parable of the Good Samaritan makes it clear that our neighbor is not just someone we agree with. Our neighbor is everyone with whom we have contact. He teaches us NOT to judge others, but to examine our own hearts and repent of our wrongdoing.

Jesus challenges us to love our enemies, to do good for them, and to forgive those who have wronged us. He cautions that if we aren’t willing to forgive others, God can’t forgive us.

In politics, compromise is essential. But being a practicing Christian requires us to be respectful of our neighbor even when compromise is not possible.  Working hard for our political beliefs and values is very important, but it is more important to never lose sight of walking in the light of Jesus.

Thankfully, we have been given the Good News that Jesus will never leave us or forsake us, and we have also been given prayer as the way to live. We are continually told to pray in both the Old and the New Testaments.  In II Chronicles it says, “If my people who are called by name, will humble themselves and pray and seek my face and turn from their wicked ways, then I will hear from heaven, and I will forgive their sin and will heal their land.”

We have work to do in the civic arena, but we also have much work to do in our hearts if our land is to be healed.  When we look at our world in the context of our faith, we could despair if we didn’t know about God’s grace and mercy. The bottom line for us Christians, however, is that we are called to show grace and mercy–even to our philosophical opponents–just as we ourselves are shown mercy.

And so, when someone makes a point, listen to it, regardless of how incorrect it may seem to you. Don’t discount people just because you don’t agree with what they say. Or the way they look. Or where they live.  Listening is an important part of learning about one another.  And in this country, we need to do more of that, and do less of the screeching that too many people today think passes as discourse.

During the six weeks since Hurricane Harvey hammered the area, Houston has demonstrated many of the attributes I’ve been talking about. In the midst of the biggest crisis our community has ever experienced, we stopped being Democrat or Republican . . . rich or poor  . . . black, white, or brown . . .  Christian, Muslim, or Jew.

Instead, we’ve all been Houstonians — first, and foremost. With the single focus of restoring and healing our community, we’ve prayed for one another, we’ve helped one another and we’ve looked out for one another.  This dynamic and broad-gauged response by Houstonians has been simply remarkable. And it is precisely what we need nationally.

Yes, we have many differences among us here in Houston — just as we do in Texas and across the nation.  But in the end, we are all Americans living in the very finest country in the world — the country everyone wants to come to, and no one wants to leave.  Realizing and respecting that phenomenon is what unifies us when times get tough.

It SHOULD unify us ALL the time.

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Fact Check before Forwarding/Sharing

     Like most of you, I regularly get emails and social media posts from friends forwarding a “news story” that turn out not to be news at all.  Two, in particular, stand out.
     Just before the election I received an email forwarding a story that then Chairman of the Joint Chiefs of Staff General Joe Dunford had resigned and written a letter to President Obama essentially accusing the President of treason.  There was just one problem.  General Dunford had not resigned and had not sent any letter.
     The second was an email forwarding a supposed story from People magazine claiming that Donald Trump in a 1998 interview had said the Republican voters were stupid and he could lie to them and they would “eat it up.”  But same problem, the interview never took place.
     Both of my friends who sent the emails are intelligent, well-read, well-intentioned individuals.  But in both cases, the emails they received fit nicely into their predisposed beliefs about Obama and Trump.  It is human nature for us to embrace validations of what we believe and to discredit facts that are at odds with our beliefs.
     Before cable news and the internet, we had a more balanced national conversation.  We were all exposed to a more or less similar set of facts from which to inform our beliefs.  But today, information outlets are highly compartmentalized.  Our outlet selections and targeting by advocacy groups make it more likely we will only hear “news” that reinforces what we already believe to be true.
     Of course, the pursuit of truth requires exactly the opposite.  Science has taught us that we validate theories by testing them objectively and actively looking for data that contradicts the theory.
    I was skeptical of both of these emails and so I ran them through www.snopes.com.  Within a few seconds, I had determined that both were hoaxes.  If you are not familiar with Snopes, it is a website devoted to debunking fake internet and email stories.  There are several other sites that perform similar research such as www.FactCheck.orgwww.TruthorFiction.com, and www.Politifact.com.
     I “replied to all” to both emails, politely pointing out that each of the stories had been debunked.  I only received two emails in reply, one from each instance.  Both asked me to never email them again!
     Here is my suggestion.  If you receive an email of see a social media post that you are inclined to share with contacts, before you hit “forward” or “share”, run the story through Snopes or one of the other fact checking website.  I think you maybe surprised how often the “news” you receive in your inbox or on your social platforms are complete hoaxes, or at least, hugely taken out of context.  Let’s all endeavor not be part of this problem.
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Secret Pension Plan Revealed

A few days ago, I received an unmarked envelope.  Inside the envelope was a copy of the draft bill that the Turner administration is proposing to amend the police pension plan.

Because of the secrecy in which this process is shrouded, I am not certain that I have the most recent version.  The mere fact this process is being carried on in this cloak-and-dagger fashion is shameful and, of course, very telling about the proponents’ confidence in this plan.  Of course, we still do not have any of the financial data that backs up Turner’s claims about the plan.

You can review the police pension statute as it would be amended by this bill by clicking Article 6243g-4 – Police (w proposed changes).  The comments in the margin are mine.  Also, you can read my detailed analysis of the bill by clicking WEK Bill Summary.

But here are the highlights:

Not a Permanent Solution – At the outset, everyone should understand that Turner’s proposal is not a permanent solution to the City’s pension woes.  It does, however (1) represents about a 14% cut in the City’s costs of the pension plans and (2) establishes a hideously complex mechanism that, if enforced in good faith, would limit the percentage of payroll the City must contribute to the pension.  These improvements are not trivial, but neither are they an ultimate solution to our pension woes.  As I have said many times, there is no pathway to real pension reform that does not entail phasing out our defined benefit plans.

However, if defined contribution plans for new employees were added to this plan and the “corridor” mechanism were tightened to be both effective and enforceable, especially restricting the issue of pension bonds, we would be much closer to a real solution.

Pension Debt Not Paid in 30 Years – Notwithstanding the Turner administration’s repeated promises that the plan would retire all of the City’s pension debt in 30 years, that is clearly not true.  Any year in which the pension plans do not make the 7% investment goal as they have not in three of the last five years the losses for that year are added as an additional layer of debt that is amortized over thirty years from that loss.  For example, if the plans miss their investment goal in 2037, 20 years from now, that ensuing debt would not be paid off until 2067!

No Vote or Restriction on Issuing Pension Bonds – Part of the Turner plan is to issue $1 billion of new pension bonds without voter approval.  But worse, this bill imposes no restrictions on future pension bonds nor does it require voter approval.  The bill has provisions that may require additional bonds to be taken into account when calculating the City contribution, but it also appears to allow the City to borrow its annual contribution each year.

Future COLAs (Cost of Living Adjustment) Tied to Investment Returns – This may be the most surprising, and potentially most impactful provision of the plan, both to taxpayers and retirees.  In the term sheets, future COLAs were frozen for some retirees for three years and then tied to Social Security’s COLA adjustment.  But in this bill the COLA is set to 5% below the pension plans’ investment return.  Over the last ten years the plans have averaged about 5.5%.  If that trend continues, this provision would virtually wipe out COLA adjustments for all retirees.  While the current COLA provisions are unrealistic and need to reworked, this provision would dramatically impact older retirees, especially those who retired prior to the big run-up in pension benefits at the end of the Lee Brown administration.

Pension Debt will go Up, not Down – As we suspected from the term sheets, the bill adopts a repayment schedule that negatively amortizes the pension debt.  If the City’s contribution hits the maximum allowed by the bill, which just about every expert predicts it will, the pension debt will go up an additional $1 billion.  In addition, because of other factors (e.g. lag times, asset-smoothing, etc.), it is a virtual certainty that the pension debt will rise for the next decade or so, at least.  We could easily wake up 10 years from now with several billion dollars more in pension debt than we have today.

No Consequences if “Corridor” is not Enforced – This may be the most serious concern I have about this bill.  There is no consequence to the City if it elects not to enforce the corridor mechanism.  The bill requires the pension plans to reduce benefits if the corridor maximum is reached.  But the bill does not specify what happens if they refuse.  The only remedy would be for the City to sue.  First, do we really have confidence that an administration and City Council that accepts hundreds of thousands of dollars in campaign contributions from employee groups would really initiate such litigation?  And even if they did, the complexity of the plan and the glacial pace at which our courts move would keep enforcement action in limbo for years.  I think we have been in litigation over the drainage fee for seven years now and it still is not over.

Huge Loopholes in Bill – As you will see if you review my bill analysis, there are huge loopholes in the bill’s corridor mechanism.  Whether these are intentional or just oversights, I cannot say.  But if we are to go forward with the corridor mechanism, these problems in the draft bill must be addressed.

Conclusion – There are very significant issues with the changes to the City’s pension system that are proposed in this draft bill.  But, if it were amended to address some of these issues, it would represent a real improvement in the current situation.  The two most important changes to the plan are the addition of defined contribution plans for new employees and giving voters the right to approve pension bonds, and these points should be non-negotiable.  Anyone not prepared to support these common-sense ideas is not serious about pension reform and certainly not a fiscal conservative.

Secret $2.5 Billion of Pension Savings

     From the moment Sylvester Turner announced his new pension scheme roughly two months ago, the principal sales pitch has been that it would produce $2.5 billion in immediate savings from benefits reductions to which the pension boards had agreed.  At that original press conference, reporters pressed Turner for specifics on exactly what the cuts were.  He refused to provide details.
     Finally, about 48 hours before Council voted on the outline of the plan, the City provided some details about the benefit reductions.  They are largely cuts around margin, reducing the cost-of-living adjustments (COLAs) and making some changes to the deferred retirement optional plans (DROP).  While the benefits reductions outlined in the term sheets are substantial, there was no documentation or back-up on how these cuts totaled $2.5 billion in immediate savings.
     Many of us attempting to vet this plan have been asking for that back-up since the plan was announced.  Administration officials have repeatedly promised it was about to be released, but so far, nothing has been forthcoming.
     Last week, City Controller Chris Brown and I appeared at a forum to discuss the new plan.  When I pressed Chris on why the back-up on the $2.5 billion in supposed savings had not been released, he said that the City had signed non-disclosure agreements with the pension boards that prevented them from releasing those numbers until a bill has been filed with the Legislature!!
     I have skimmed through recent City Council agendas and I cannot find where any such agreements have been approved by Council.  But even if they exist, what possible justification can there be for the City agreeing to keep these calculations hidden from the taxpayers?  After all, they are the ones who are going to foot the bill for this debacle.
     Obviously, someone in Turner’s administration did some calculations prior to his press conference in October to come up with the claim that these changes would save $2.5 billion.  Where are those calculations and why have they not been released to the public?
     Being somewhat of a skeptic (understatement), I suspect the reason the calculations have not been released is that they will not withstand independent scrutiny and that, if we ever see them, we will find out there are not $2.5 billion of savings from the cockamamie plan that has been put forward.
     But, I could be wrong.  In any case, the issue could easily be resolved.  Release the damn numbers now!

Open Letter to City Employees & Retirees: Why You Should be Demanding Defined Contribuion Plans for New Employees

The City and your pension plans’ management are leading you down a path that will seriously impact your pensions for years to come.

Defined benefit pension plans are a broken financial model.  They were originally put in place in a time that most people only lived a few years after retirement and financial markets were much more stable.  Neither of those conditions exist today.  As a result, the costs of defined benefit plans have inexorably risen over the last several decades causing the private sector to almost completely abandon them.

Every new employee added to this broken model makes your pension plan weaker and your pension less secure.

This is not an opinion.  It is just math.

The latest data from the City (which is still unrealistically optimistic) shows that the City would have to contribute over $8 billion just to pay the benefits that you have earned so far.

The proposed plan represents an average 12% cut in the benefits you thought you were going to get.  Of course, this comes after City leaders repeatedly promised you they would honor all pension commitments.  And trust me, these cuts will not be the last you see.  In fact, this is just the beginning.

Automatic Future Benefit Cuts or Increased Contributions

The term sheets agreed to by your pension boards include automatic additional cuts if the City’s costs exceed the “corridor”.  The term sheets specifically say that once the corridor is exceeded that the pensions will further cut the cost-of-living adjustments (COLA), extend retirement ages, and/or increase contributions.

Of course, no one can predict the future, but it is highly likely that the corridor limits will be exceeded sooner rather than later, as was suggested by Tuesday’s Houston Chronicle story.   Many investment professionals question whether the new 7% return assumption is reasonable.  Warren Buffet has said that pension plans should not be using anything above 6%.  His company’s plan is based on 4.5%.   Over the last two years your plans have averaged returns of less than 3%.  Both the police and fire plans lost money last year.

You have been told that this plan provides certainty about your future benefits, when the exact opposite is true.  And the plan is so complex it will undoubtedly result in years of litigation over how it is to be interpreted, if it ever passes.

Forget about Future Raises or Increasing Staff

The proposed plan sets the target contribution for the City at 32% of payroll.  The upper limit is about 37%.  How can the City possibly afford to hire new employees and pay them a decent salary when it must put up an additional 37% in a pension plan?   And what do you think are the chances of existing employees getting any kind of respectable pay raises with a 37% add-on for pensions?

Practically speaking, you can also forget about there ever being two officers in a patrol car, the City ever building any new fire stations, or hiring enough building inspectors, or addressing any of the other hundreds of critical needs Houston is facing.

The Causes and The Cure

There are two reasons that the City is in this mess.  The first is that the increases to pension benefits during the Lee Brown administration turned out to cost vastly more than was understood at the time.  This is what is frequently referred to as the “legacy costs” and we must come up with a plan to deal with those costs.

But an equally important driver of the out-of-control costs is the City’s blind commitment to indefinitely continue defined benefit pension plans.  The notion that we can hire people today and promise them a benefit based on their salary thirty years from now and have any idea what that is going to cost is absurd.  If the City continues to cling to defined benefit pension plans, the City’s – and your pension plans’ – finances will continue to deteriorate.

The Right to Opt Out

In addition to other needed reforms, you should have the right to opt out of the existing pension plans and to put your money in your own retirement savings account.  That may not be for everyone, but if you want out of the interminable controversy that has been and will be the history of these plans, you should have the right to do so and to take control of your future.

Property Tax Cap Will Not be Repealed

Many of your leaders are assuring you that some of the financial pressure on the City will be relieved if voters repeal the property tax cap that was passed in 2004.  It is a fantasy.  It is not going to happen.  This issue has been polled extensively and over 70% of Houston voters oppose repealing the cap on property taxes.  And with tax bills already skyrocketing, can you blame them?

Conclusion

I am not predicting an imminent crisis or financial collapse of either the City or your pension plans.  But if we do not reform the City’s finances and begin providing reliable services at reasonable tax rates, the City will suffer a long, slow decline, or hollowing out, like other great American cities that failed to tame this problem.  And there will be a tipping point at which this becomes a crisis, just as it has in Dallas.  That should concern you because your benefits are paid over the long term as well.  If the City suffers financially, so will your pension plans.

We don’t know what all will be required to put the pension system on a sound footing and probably will not know for some years.  But the most obvious change that should be made immediately is to convert new employees to defined contribution plans.  This will not, by itself, solve the pension problems.  But as the old saying goes, when you are in a hole stop digging.

Every city employee and retiree should not only be supporting defined contribution plans for new employees; they should be demanding it.

Many of you have been upset with me for the last several years because I kept raising the alarm about the condition of your plans.  But I think if you look back at what I said and predicted about the City’s pensions, everything I told you or predicted was true or has come true.  In contrast, all the assurances you repeatedly got from your pensions’ management and the City, that there were not any problems, has proved completely wrong.

 

And please do not ever lose track of the fact that there is a whole cottage industry of pension executives, Wall Street bankers, lobbyists, accountants, actuaries and others that make a very nice living off your pension.  For example, why don’t you inquire about what the executive director of your pension plan is paid and compare that to your salary?

Last year, your plans paid $50 million in expenses.  That is $50 million that could have gone to shore up your pension funds, but instead went into the pockets of bankers, pension bureaucrats and lobbyists, to name a few.  They are petrified that their gravy train might end someday, which switching new employees to defined contribution plans would eventually do that.  So, they will continue to spread misinformation about your plans, just like they have been doing for the last 20 years.

I, on the other hand, have zero financial interest in this issue one way or the other.  My only interest is seeing that the City I love so dearly does not go the way of Detroit.

So, before you blindly follow your leadership and the City into yet another plan that is going to kick this can down the road until the current elected officials are out of office and your current leadership is retired, perhaps you should consider what is best for you. And believe me, that is not the continuation of defined benefit plans for new employees.

City Sales Tax Take Serious Nose Dive: Worst First Half-Year Since 2013

Any hopes that Houston’s sales tax decline was about to ease were dashed yesterday when the Texas Comptroller reported that the City’s sales tax receipts for December were down by 7.5% from last December.  In the last ten years, Houston has only seen a 7% or greater decline in monthly sales tax nine times.  Three of those have been in 2016.

The report is based on October sales and completes the first six months of the City’s fiscal year.  Year-to-date collections are now off by 4.4%, which is the worst start for sales tax collections since 2013.  Year-over-year collections have now declined for 16 consecutive months.

The last time the City saw a year-over-year increase was August, 2015.  The trend line on collections has been in decline since October, 2012.  This the longest period of depressed sales tax collection for as far back as I can find records.

It is time for the City to stop whistling past the graveyard and realize that it is in both cyclical and structural deficit and take action accordingly.  It is certainly no time to be committing 50% of our property taxes for the next 30 years to pension contributions.

Turner’s Pension Plan Will Require 50% of Property Taxes for 30 Years

Yesterday, the City posted more details about the proposed pension plan.  The plan commits the City to pension payments in a range of approximately 27-38% of its payroll for the next 30 years.  Based on the assumptions being used, the actual payments will almost certainly rise in short order to the upper limit of that range.
That means that the City will pay $26 billion in pension payments over the next 30 years.  The payments will average about $850 million each year.  But, of course, those payments are back-end loaded so that the current mayor and council will avoid most of the pain of paying for this plan.
But here is the real kicker.  If you assume that property tax receipts will increase by 3% annually, the payments under this plan will equal about 50% of property taxes collected by the City for the next 30 years.
 
50% of property taxes!  That is before you hire a police officer, buy a fire truck, fix a pothole or provide any of the services we expect from our City. Obviously, that is not sustainable.  So get ready for you property taxes to skyrocket if this deal is enacted and voters remove the property tax cap next year.

Counsel Should Delay Vote on Pension Plan

Turner’s Bum’s Rush on $20 Billion Pension Deal
 
For the last month Sylvester Turner has been negotiating in secret with the same employee groups that donated hundreds of thousands of dollars to his campaign over the future of their pension system.  No one else has been at the table, certainly not Houston taxpayers.  Other than vague briefings to a few in the business community and think tanks, there has been a lock down on information about the new “plan.”
In the last week, the first details have begun to emerge about Turner’s proposal.  Some of those details are encouraging, but other are equally troubling and there are still vast gaps in the information available.
Here are some of the things we do know and don’t know:
  • There will be no transition, in the long or short term, to defined contribution plans.  A transition to defined contribution plans for new employees is favored by 70% of Houstonians. Turner took it off the table because the employees would not agree to it.  Exactly why our employees, most of whom do not live in the City, should have a say in what kind of retirement plan we, as taxpayers, offer to our new employees is beyond me.
  •  The plan will commit the City to spend $20-26 billion on pensions over the next 30 years.
  • The City’s assumptions are based on the plans’ assets earning a return of 7% for the next 30 years, down from the old assumption of 8.5%.  But in 2015, the plans earned less than 3%.  They have not released their returns of this year.  Rumor has it that they were less than 2015.  The firefighters’ plan’s numbers were so bad this year it did not release the draft of the actuary report that was prepared.
  • The employee groups’ leadership have tentatively agreed to about $2.5 billion of benefit cuts.  This is about a 12% reduction.  Various actuary groups are grinding away on whether the cuts actually add up to $2.5 billion, but my guess is that will be pretty close.  It is less clear whether the rank and file in the employee groups are on board with their leadership’s agreement with Turner on these cuts.
  • In exchange for these benefit cuts, the City will issue $1 billion of pension bonds and give that money directly to the pensions.  This will be the largest general obligation bond issuance in the City’s history and there will be no voter approval of these bonds.
  • The target contribution for the City is approximately 32-33% of payroll.  That is, of course, a staggering number compared to private industry.  But the plan will allow that level to rise to 37-38%, which is supposed to be the maximum the City will ever have to contribute.  But the details of how that limitation would work have not been disclosed or apparently even worked out with the employee groups.
  • The repayment of the pension debt is back-end loaded so that the real fiscal pain is conveniently delayed for about eight years.  I am sure that is just a coincidence.
This is the largest financial commitment in the City’s history by far and may well be the largest it will ever make.  Turner is asking Council to approve this plan after less than a week since he released additional, but far from complete, details about the plan.  There are still enormously important questions for which we have little or no information.  In fact, as of yesterday at 5:00 pm, Council had not even seen the language of the resolution they are being asked to approve.
What is the rush?  Well, apparently Turner is going on his second foreign trip in as many months, this time to South Africa.
I have found in my business career that when anyone was trying to rush me to agree to deal, that was exactly the time I needed to sit down and take my time to make a decision.  That is exactly what Council should do now.  To vote on a $20 billion financial commitment that will obligate the taxpayers of Houston for the next three decades based on the skimpy information we have now would be irresponsible in the extreme.

Tips for Straight Party Voting in Harris County

Those of you have who were regular readers of my column know that I am not a fan of straight party voting, on either side. But I must admit that when facing the longest ballot in the country, it is tempting in Harris County to hit the straight party button to avoid going through 50-odd individual races. If you do plan to use the straight party lever, here are a couple of tips that you may find helpful.
 
Deselecting a Candidate – Suppose that you are inclined to vote a straight party ticket but do not want to vote for one or more of the candidate that party has nominated. In that case, you can select the straight party box, but then go to any of the races and change your vote in that particular race. Selecting that particular election will deselect the candidate that was selected by the straight party vote. The machine displays a note that you are changing your straight party vote in that race. At that point, you can pass and not select any candidate or one of the other candidates.
 
Non-Partisan Votes – It is also important to realize that if you just cast a straight party vote and don’t do anything else, you will not vote in any of the non-partisan elections. For example, voters in HISD are being asked to vote on a controversial proposition regarding state school finance. If you live in HISD and just vote a straight ticket, you will not vote on that issue. There is also a HISD trustee election in some areas and other ballots measures in various parts of the county. So be sure and go all the way to the bottom of the ballot.
 
Our County Clerk, Stan Stanart, has developed a very helpful webpage that allows you to find your polling location and preview the actual ballot you will see in the polling booth. [click here for election day polling location and sample ballot].  There is also a page that shows all of the early voting locations and the schedule for when they are open.  [click here for early voting locations & schedule].  It is much easier to early vote so take advantage of it.
 
The good news is that early voting starts today and in a couple of weeks this miserable campaign season will be over.