HOUSTON (CN) — Houston can’t overhaul a state-governed firefighter pension system that the mayor claims is pushing the city towards insolvency, a Texas appeals court ruled.
Houston sued the Houston Firefighters’ Relief and Retirement Fund in January 2014, seeking a declaration that a state law setting how the fund is operated, and giving the city no control over the amount of its contributions, is unconstitutional.
The city paid $350 million in pensions to firefighters, police and city workers in 2015, but its unfunded pension debt is $6 billion and growing.
A state judge sided with the fund in May 2014 and granted it summary judgment.
The city appealed, pressing its argument that the subject state law, passed in 1997, gives too much power to the pension fund’s board that is comprised of a majority of firefighters who are beneficiaries of the fund, and thus are inherently self-interested in maximizing firefighter pension benefits to the detriment of the city’s financial health.
The 10-member board is made up of six active or retired firefighter fund members who are elected by other firefighters, the mayor or an appointed representative of the mayor, the city treasurer and two citizens who are elected by the other trustees.
Houston claimed on appeal the state law violates the separation-of-powers principle in the Texas Constitution by delegating authority to a nonlegislative entity, the fund board.
The city cited Texas Boll Weevil Eradication Fund v. Lewellen. In that case, the Texas Supreme Court ruled in 1997 that a foundation established by the Texas Legislature to exterminate boll weevils that were threatening to destroy the Texas cotton industry unconstitutionally gave too much authority to the foundation to tax private farmers to pay for weevil killing.
But the 14th Texas Court of Appeals decided Thursday that the boll weevil foundation is fundamentally different from the pension fund board because the board includes public employees.
“The purpose of that [boll weevil eradication] foundation may be construed as protecting a private industry from a blight, albeit with an indirect benefit to the public. In contrast, eight of the 10 trustees of the fund’s board are current or retired public employees…We would have difficulty classifying the board as a private entity when the mayor and city treasurer also serve as trustees in order to administer benefits to public employees,” Judge John Donovan wrote for a three-judge panel.
The panel also rebuffed Houston’s argument that the state law is unconstitutional because it only applies to incorporated municipalities with a population of at least 1.6 million and a fully paid fire department. Houston is the only Texas city that qualifies.
The city claims the special treatment violates the Texas Constitution’s ban on the Legislature meddling in local affairs.
But the appeals court agreed with the fund’s contentions that Houston is uniquely dangerous for firefighters compared to the other four big cities in Texas—Austin, San Antonio, Dallas and El Paso—so sweeter pension terms are necessary to attract and retain firefighters.
“Houston is one-third larger than the next largest city, San Antonio, and is located within a much more industrial area than the others in terms of the port, refineries and chemical plants,” Donovan wrote in the Sept. 8 opinion.
The judge added, “These factors would translate to more service calls for firefighters and greater risk of injury or death and thus a reason to treat the firefighters in Houston differently than those in the other cities with respect to benefits, including disability and survivor benefits, and encourage employment as a firefighter in Houston.”
Most importantly, the appeals panel noted, the pension fund board cannot unilaterally increase the city’s required contribution to the fund.
“The Legislature imposed reasonable standards for the increase in benefits including approval by an actuary, a majority of the fund members, and the State Pension Review Board—several levels of scrutiny,” Donovan wrote.
The firefighter fund must submit a yearly financial report to the State Pension Review Board and the board can inspect fund’s records.
The fund’s chairman David Keller said in a statement that Thursday’s ruling proves the fund is on sound financial footing despite the city’s claims.
“It appears that the lawsuit was without any basis to begin with and the city has wasted both city and Fund resources in a meritless lawsuit, which has been senselessly continued on appeal,” Keller said.
A press release from the fund says that the laws governing it “are thorough and reasonable, employing a sound formula that determines contributions and solid funding.”
The fund’s value has grown from $468 million in 1988 to $4.63 billion and the city is only paying a small percentage of firefighters’ pension tab, the release states.
The pension fund says Houston pays only about 20 percent of the cost of benefits for retired firefighters, while the remaining 80 percent comes from the fund’s investments and firefighters’ own contributions.
A perfect storm of poor planning, voter-approved financing impediments and decreased global demand for oil, the city’s lifeblood, is threatening Houston’s solvency.
Experts say the pension crisis is the result of years of city administrations striking deals with police and city workers to pay less into their pension funds than what was mandated by state law.
The spiraling pension fees are compounded by a law voters passed in 2004 that caps the city’s property tax revenue at $1.1 billion annually, and falling tax revenue tied to the drop in oil prices.
Mayor Sylvester Turner took office in January. He has vowed to put the tax revenue issue before voters in November 2017 and impress upon them the importance of eliminating the cap.
Turner’s spokeswoman Janice Evans said the city is “considering all options regarding next steps” in the litigation, including the possibility of an appeal to the Texas Supreme Court. She said she’s hopeful the city can work out a solution with the Texas Legislature during its upcoming session that starts next January.
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