Houston Mayor Wants ‘Shared Sacrifice’ to Ease Pension Shortfall


Houston isn’t ready to boost property taxes like Chicago did even as it considers extending repayment of its debt and works to plug its more than $5 billion pension shortfall, Mayor Sylvester Turner said.

Moody’s Investors Service revised its Houston outlook to negative in July in part because of the unfunded pensions, which doubled between fiscal 2009 and 2014 to $3.2 billion and rose to their current level amid accounting changes. Pensions, retiree medical care and debt consume about 30 percent of the city’s budget, according to Moody’s.

“We need to reverse the course of pension obligations,” Turner said Tuesday in an interview at Bloomberg’s Houston office. “The current course is unsustainable.”

Chicago Mayor Rahm Emanuel in October pushed through a $543 million property-tax increase to address his city’s $20 billion in pension liabilities. Houston, the fourth-largest city in the U.S., can’t simply raise property taxes because voters in 2004 approved restrictions tying property-tax revenue growth to population increases and inflation. Turner said he wants to work with all affected groups to reach a comprehensive solution by the end of 2016.

“Our situation is not as dire as Chicago’s, but if we don’t address it, down the road you are going to really face some major problems,” Turner said. “We all must engage in shared sacrifice.”

Sales-tax revenue in Houston has slipped in the past year amid a persistent rout in commodity prices led by oil’s drop below $30 a barrel. Oil and gas remains the city’s leading industry even as health care, hospitality and services have made the local economy more diverse. Moody’s sees the property-tax growth limits as credit weakness because they make it more difficult to close budget gaps.

“When the credit rating agencies looked at the city of Houston, they dinged us in three areas: the debt service will spike in 2018, they dinged us on the unfunded pension obligations and they dinged us on the revenue cap,” the mayor said. “With respect to the debt service, we may have to extend that a little bit.”

Moody’s rates Houston’s $3 billion of debt at Aa2. Standard & Poor’s rates the city AA+, its second-highest level.

Houston’s current financial projections are based on oil remaining at $30 to $35 a barrel for the next six months and eventually rising to $55 to $60, Turner said. Over time, a rebound in prices, along with significant reforms, will be needed to right the city’s financial ship, he said.

Turner, a lawyer and former state representative who was elected mayor in a runoff in December and replaced Annise Parker on Jan. 2, said there’s nothing that keeps him up at night, even the oil price slump.

“The city has challenges, but so did our forefathers,” Turner said. “We’ve always risen to the occasion. This is nothing new. It’s just happened on our watch.”