DALLAS – Sylvester Turner achieved a long-held dream of winning election as mayor of Houston, narrowly defeating Republican Bill King in a runoff Saturday.
Now, the 61-year-old Houston native, who represents the city in the Texas Legislature, must confront financial challenges on a scale that few of his predecessors have faced.
"I know that we have to deal with the fundamentals, and we will," Turner said in his victory speech Saturday night. "We'll deal with the infrastructure. We'll make sure we have a city that's run financially well, and it will be. We'll make sure that the city is safe. And we'll make sure that every citizen knows, regardless of where you come from, that this remains a city of hope and opportunity."
Turner, who came from the Acres Home neighborhood of northwest Houston as one of nine children in a lower-income family, has run for mayor three times while serving 26 years in the legislature. He launched his career in law after graduating from the University of Houston and Harvard Law School.
Although Houston city council elections are non-partisan, Turner was clearly identified as a Democrat and supporter of term-limited Mayor Annise Parker, while King was widely recognized as a Republican. Turner won an endorsement from President Obama.
While Turner focused most of his attention on social justice and economic opportunity, King made financial issues the centerpiece of his campaign.
Based on the close contest, with Turner winning narrowly with 51% of the vote, the fiscal issues resonated with voters.
"Even though we didn't get the result we want, we have fundamentally changed the conversation in Houston," King said in his concession speech. "The word 'pension' had never even been brought up in an election before and now everyone concludes that it is unsustainable."
After a five-year economic boom that outpaced the nation's recovery from the 2008 recession, the fourth-largest U.S. city is caught in a downward spiral of plummeting oil prices, rising public debt and onerous pension obligations.
During the campaign, King said the city had gone from a pension surplus a decade ago to a projected shortfall of more than $5 billion by 2020.
King cited Moody's July 2 assignment of a negative outlook to Houston's Aa2 rating. The city, the nation's fourth-most populous with 2.2 million residents, has about $3 billion of general obligation bonds.
"The city's financial prospects are clouded by high and growing fixed costs, which are contributing to structurally imbalanced operations," Moody's analyst Adebola Kushimo wrote in an October report. "Voter-approved caps significantly limit the city's ability to meaningfully raise property tax revenues, its largest revenue source."
While Moody's considers Houston's direct debt burden "manageable" at 1.7% of assessed value, the pension problems will require remedies from the state legislature, as well as adjustments from the city and its employees.
Since 2010, the total unfunded pension liability has increased by about 43%, according to Moody's. Total fixed costs, which account for about a third of the budget, have increased an average of 2.7% annually over the past five years, and the city projects the trend to continue.
Houston is paying $282 million from its general fund to its three pension funds this fiscal year.
Parker, the departing mayor, made three failed efforts to get the legislature to change state laws that control the police, fire and municipal pension systems. During that time, Turner was pushing for those changes as a state representative.
During the campaign, Turner opposed proposals from his opponent to issue pension obligation bonds in lieu of tapping the general fund.
"Beware of politicians selling easy answers – they often have unintended consequences," Turner warned.
Houston maintains three pension plans: Houston Municipal Employees Pensions System, Houston Police Officers' Pension System, and Houston Firefighters' Relief and Retirement Fund.
The firefighters' plan includes an increase of 2% annually in contributions.
The police plan mandates additional contributions in any year the funded ratio dips below 80%, in order to restore funding to that threshold. The city projects the funding will dip below 80% in fiscal 2017. A dip of 1% equals $50 million.
For the firefighters' system, state law requires the city's contribution to be the greater of two times the firefighters' contribution, or a rate determined actuarially once every three years, with no flexibility for negotiation.
Before seeking relief from those state provisions in the legislature again – 2017 at the earliest – Houston must reach agreements with its employees on pension reforms, Turner said.
"Any wholesale changes done without buy-in from local stakeholders can put the safety of the city at risk," Turner said in a position paper. "Approximately 1,900 police officers are eligible to retire right now – when the force has fewer officers than it did 10 years ago – and nearly 1,400 firefighters are eligible to retire right now. The threat of losing so many officers and firefighters is not just theoretical."
To improve the city's debt profile, Turner said he would consider options to smooth debt service spikes in 2017 and 2018.
"Our ability to manage debt is also impacted by other moving parts such as interest rate increases and pension costs," Turner said.
Under a charter amendment approved by voters in 2004, the amount that the city can increase property taxes is limited by a formula based on inflation and population growth. Generally, the amendment limits the increase that the city can impose each year to about 4.5%.
In his campaign, Turner said he is open to trying to lift the cap. However, that move is opposed by conservatives and organizations such as the Houston Building Owners and Managers Association.
"With an over 100% increase in property valuations over the past three years, the Houston Building Owners and Managers Association believes that Houston citizens and businesses are literally being taxed out of town," the association said in a written statement. "Repeal of the revenue cap is short-sighted and will not solve the city of Houston's financial challenges."
However, the "cycle of shortfalls and short-term fixes is unsustainable," Turner said.
"Changes to existing budget allocations should be made in a deliberative process that includes all affected stakeholders," Turner said.
Turner's centerpiece campaign issue, infrastructure, could get waylaid by falling revenues and legal issues.
On Oct. 29, a state district judge voided a 2010 charter referendum that allowed the city to create the ReBuild Houston program.
Judge Buddie Hahn ordered the city to hold a new election on the $8 drainage fee levied on homeowners and businesses. Hahn agreed with a ruling issued by the Texas Supreme Court in June that said the city blurred the ballot language surrounding the drainage fee, a major funding source for ReBuild Houston.
Conservative activists, who disparaged the fee as a "rain tax," originally lost at trial court but won their appeal before the state Supreme Court.
Parker said the city has no plans to stop collecting the fee, agreeing with City Attorney Donna Edmundson's opinion that the lawsuit targets the charter amendment, not the ordinance that the city council later passed to begin collecting the fee.
While King took a strong stand against ReBuild Houston, Turner firmly supported the program.
"Repealing our current funding mechanism – ReBuild Houston – without a clear plan to replace the funding would be irresponsible," Turner said during the campaign. "Houston's infrastructure must keep pace with our growth and development – that is essential."
