Houston has issued $1.01 billion in pension obligation bonds to help reduce the city’s $8.2 billion in unfunded pension liabilities.
Proceeds from the bond issuance, completed Dec. 22, were infused the same day into two of the city’s three pension funds — the $3.9 billion Houston Police Officers’ Pension System and the $2.3 billion Houston Municipal Employees Pension System. Some $750 million was targeted for the police officers’ plan and $250 million for the municipal employees’ plan.
“The city’s all-in true interest cost for this issuance came in at 3.965411% — significantly lower than we initially anticipated,” said Chris Brown, city controller, in a Dec. 22 news release. “This represents significant cost savings, and demonstrates investor confidence in this plan’s impact on the city of Houston’s bottom line.”
The bond issuance, overwhelmingly approved by Houston voters in a Nov. 7 referendum, was initially part of a pension reform package signed by Texas Gov. Greg Abbott in May. Earlier this month, a former city housing and community development director sued the city alleging the ballot description for the Nov. 7 referendum was “materially misleading” and called for a temporary restraining order on the bond issuance. On Dec. 21, a state district judge denied the plaintiff’s request for temporary restraining order, said a spokesman for Houston Mayor Sylvester Turner in an email.
The bond issuance was the only piece of the May pension reform package that went to a referendum. The package’s other reforms included benefit reductions for participants in the police officers’ fund, municipal employees’ fund and $4.1 billion Houston Firefighters’ Relief and Retirement Fund; a requirement that Houston make the full annual required contributions to the three funds; changes to the funds’ amortization periods; and reduced assumed rates of return to 7% from the previous rates, which ranged between 8% and 8.5%.