Galveston proposes pension deal for police department
GALVESTON — The city of Galveston has proposed a 21 percent increase to its contribution to the police pension fund, a key step in breaking a months-long stalemate in negotiations with the police union and moving its underfunded pension system toward solvency.
The proposal offered to Galveston’s police pension board Tuesday could pave the way toward stabilizing the pension fund while staving off any threat that the state Legislature might step in to mediate negotiations between the city and police union, which have grown tense in recent months. The Galveston Municipal Police Association recently leased a billboard on Interstate 45 advertising Galveston as “Home of the Worst Police Retirement in Texas.”
The city’s offer would raise its contribution to the pension fund to 18 percent from the current 14.83 percent, an increase of more than 21 percent. The police union’s 12 percent contribution would be frozen for the first five years under the city’s proposal. The city would reduce its contribution once the pension fund “achieves stability,” though an exact time frame has not been determined.
City Manager Brian Maxwell said the proposal is the first step toward restoring the police pension to good financial health. The fund has over $32 million in unfunded liabilities, according to the state comptroller’s office.
While Galveston’s police pension is not as troubled as those of other Texas cities faced with massive deficits — Houston, Dallas, San Antonio, and Austin have accumulated more than $22 billion combined in municipal pension shortfalls, according to a 2016 report from Moody’s — the city has seen its police pension plunge from 99 percent funded in 2000 to 42 percent funded in 2017.
These cities’ pension funds face a common problem — unsustainable projected rates of return on investments that fail to account for economic and market volatility. Houston, for example, projected rates of return as high as 8.5 percent for its three municipal pension funds, when those returns were averaging closer to 3 percent or 4 percent.
Galveston was using an assumed rate of return on its police pension plan of 8 percent, which had been reduced to 7.5 percent as of 2018, still one of the highest rates in the state. Galveston’s sluggish returns on investment combined with a reduction in the city’s workforce since 2010 — and, subsequently, reduced contributions to the funds — led to a slow deterioriation of the police pension fund.
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Galveston’s proposal includes a reduction in its expected rate of return from 7.5 percent to “a more realistic” 6.75 percent.
The long-term goal for Galveston is to move its entire municipal pension system to the statewide retirement system, though Maxwell said the city would likely have to do that gradually over time. The civil employees pension fund, which is in better fiscal health, would be migrated first, with the police pension plan likely another 10 to 20 years down the road, Maxwell said.
Galveston Police Pension Board Chairman Geoff Gainer cautioned that while it is “incredibly premature” to say that the police union had agreed to the proposal, he is receptive to the contribution structure and has begun to discuss the plan with his members.
“One thing I told (the members) in the meeting, even if we were to reach an agreement on these things, that’s 20 percent of the battle because the devil’s in the details,” Gainer said. “It is a long way to go before it’s done and we can put it in ink.”
The contours of the city’s plan mirror an approach advocated by state Rep. Dan Flynn, R-Canton, who chaired the House of Representative’s pension committee and stepped in to draft plans to help struggling pension funds in Houston and Dallas.
The Galveston Daily News reported in November that Flynn penned a letter to Galveston city officials advocating a higher retirement age and a retirement board “heavily weighted” towards investment professionals with experience protecting pensions.
Maxwell said Flynn and Rep. Jim Murphy, R-Houston, the new House pension committee chairman, would likely take the lead in filing the bill to amend the current statute that governs the Galveston police pension plan. Gainer said he would meet Friday with Mayes Middleton, the new state representative for Galveston, to gauge his opinion.
As a show of good faith, if the police union approves of the city’s proposal, the two sides could submit a plan reflecting the changes before the Legislature amends the statute.
Gainer and Maxwell agreed that they would rather come to an agreement than punt the issue to Austin, though legislators will likely have input on the final agreement.
“I would want them to be at least in the general vicinity to keep tabs on everything so that we don’t go off the rails like we have been,” Gainer said. “The prospect of having to do this in front of, or with state oversight is what got things back on track.”