Many of you have heard by now that Houstonians will be voting on a proposition on the November ballot to mandate a pay raise for Houston fire fighters. The history of how we got to this point is long and contorted. The issues regarding the merits of the proposition are complex. I wish I could summarize this in a few short sound bites, but to truly understand the issue, it is going to take some time to unpack.
The History
The following is a somewhat oversimplified version of how we got here, but I think it is a reasonably accurate summary. For most of the City’s history, police and fire fighters were paid from the same pay scale, which is sometimes referred to as “parity.” But in 2001, negotiations with the two groups separated and each had their own pay scale thereafter.
As funding the pension plans became more onerous after about 2000, successive administrations would offer City employees pay raises in exchange for skimping on the pension contributions. The police union and the municipal employees’ union generally went along with these proposals while the fire fighters would not. As a result, the fire fighters’ pay lagged, but their pension plan was significantly better funded than the other two plans.
The pay gap grew between the police and fire departments over time. Earlier this year, an outside consulting report commissioned by the City found that the fully-loaded cost of a police officer in 2017 was $124,456 versus $104,275 for a fire fighter, a difference of just under 20%.
The fire fighter’s have not had a pay raise since 2014. During 2011-2014, they received a 3% raise. So that is 3% over eight years. Inflation since 2011has been about 14%. As a result, fire fighter have seen a real pay cut of about 11%.
Conversely, the fire fighters’ pension was much better funded than the police or municipal plan. Immediately prior to the rework of the pension plans in 2017, the fire plan was about 85% funded while the police and municipal were about 60% and 50%, respectively.[i]
When Turner began negotiating a reduction in the City’s pension costs in 2017, the police and municipal were desperately in need of a cash infusion. So, Turner offered to issue pension bonds to make a one-time contribution to the plans in exchange for concessions on benefits and higher employee contributions.[ii]
But the fire fighter plan did not need any infusion and so the City had no real leverage over them in the negotiations. Ultimately the negotiations between the fire fighters and the City over the pension deal fell apart but the City was able to cram down benefit reductions and increased contributions at the Legislature over the fire fighters’ objections. Apparently because of Turner’s antipathy toward the fire fighters, the cuts to the fire fighters’ plan were significantly more severe than the other two plans. According to the fiscal note prepared by the Legislature when the pension bill was passed, the per-employee cuts were about $140,000 for fire fighters compared to about $90,000 for police and $45,000 for other municipal employees. And, significantly, the fire plan did not get any cash infusion from the bonds like the other two plans.
Current Round of Negotiations
The fire fighters believe that they were punished in the pension bill even though they had been financially more responsible by passing on raises to see that their pension plan was better funded. So, in the current round of negotiations the fire fighters have asked to be made whole on the raises the police got but they did not. Not surprisingly, the City declined.
The fire fighters and the City have completely different stories on what took place in the current round of negotiations. The City claims it offered a 9% raise which the fire fighters turned down. Actually, the offer was for a 3% raise in each of the next three years, but the City has intentionally and repeatedly suggested it was a one-time 9% raise. Even if it had been a one-time raise, it would not have matched inflation since the last pay raise.
But even that offer was not put on the table until after the fire fighters had declared an impasse. By the way, according to the fire fighters, neither Turner nor his city attorney attended a single negotiating session.
Unable to reach an agreement with the City, the fire fighters were forced to take their case to the voters. They collected enough signatures to force a vote on a charter amendment that would put them back on the same pay scale as the police, thus making the citizens of Houston the ultimate arbiters of the dispute.
How Much Does It Cost?
The City’s estimates of the cost of the proposition passing have been all over the map. Early on, they said it would cost $38 million, but more recently claimed the cost might be as high as $98 million. The truth is it is impossible to know until we see exactly how the change would be implemented.
But the consultant’s report that calculated the “all-in” personnel cost gives us some of idea of the range. According to that report, there is currently a 19% difference between police and fire ($124,000 vs. $104,000) or about $20,000 per employee. There are about 4,000 fire fighters on the HFD force. So, to bring them up to what the police are making (including all benefits) would cost something in the range of about $80 million annually. That would definitely create some budgetary pressures if the City were to implement the change immediately, but that is unlikely.
To put that number is perspective, it is about a 1.5% increase in the City’s total budget. It is about equal to the increase in the City’s general fund revenues last year. It is less than half the money that is now funneled into the TIRZs. Certainly, the City has found the money when it wanted to spend it on its pet project, like the Post Oak bus lane boondoggle ($200 million). So, the administration’s dire predictions that passage of the proposal will lead to massive layoffs or other financial exigencies are greatly overstated. Also, the fire fighters have offered to phase in the increase over several years.
What is the Effect on the Pensions?
The City administration has also made vague references that the passage of the proposition would “blow up” the pension bill passed in the last Legislature. I see no evidence that would be case. The PFM study was based on an “all-in” cost, which obviously would include pensions. So, our $80 million estimate of the fully implemented cost would also cover any increase in pension costs.
Of course, it is axiomatic that higher salaries will ultimately increase benefits in a defined benefit plan and, therefore, the ultimate cost. But, ironically, an actuarial report released by the fire fighter pension board shows the raise would actually lower the percentage of payroll the City contributes, which is the controlling parameter of the so-called “corridor” mechanism. This farcical result is just one more indication of how flawed the corridor mechanism is. More on that later.
Morale Effects.
I think what worries me more about this dispute than anything else is the effect on the morale of the fire and police departments. Turner has cynically pitted the police and fire departments against each other by refusing to give the police a raise unless the fire ballot proposition is defeated. HPOU is actually running a campaign to defeat the proposition. So much for labor solidarity. As a result, relations between the two departments have never been worse and the morale at both is abysmal.
These are the people on whom we rely to run into burning buildings, confront dangerous criminals and rush us to the hospital. We need the people in both departments to be excited about doing their jobs, not dispirited by an administration that is intentionally fermenting discord and animosity between the services.
Conclusion
Every Houstonian will have to decide for themselves how this dispute should be resolved. Personally, I hate this kind of inflexibility being written into the City charter, but I would also like an EMT to show up at my house if I have a heart attack.
No one has been more direct than I have been in telling the fire fighters that their pension plan is unsustainable in the long run. But, I also hate the fact that we, as a City, have broken our word and taken away earned retirement benefits. That is something every mayoral candidate, including Turner and me, promised to never do, and as nearly has I can tell, has never been done before anywhere in the State of Texas.
This is going to be a mess either way it works out. There will be years of litigation regardless of the outcome. I have decided I am going to vote with the fire fighters. To me, a vote against them would add insult to injury after what the City did to them in the pension deal and I fear would have a devastating effect on fire fighter morale.
[i] Please do not take these estimates of the funding at face value. The estimates of how well the future benefits costs are actually funded have proven time and again to be grossly overestimated. The point here is not whether the plans were really funded to those levels or not, but that the fire fighters’ plan was significantly better funded because they insisted that the City make payments that more adequately funded their plan.
[ii] Some of you will recall that this is precisely the bargain I proposed as a strategy during the campaign that Turner, at the time, dismissed by saying, “you cannot solve debt with debt.”
