Houston speeds $1 billion pension bond deal after voter approval
DALLAS – Houston plans to get $1 billion of pension obligation bonds to market as soon as possible after winning voter approval for the key element of the city’s pension reform.
“There’s a pretty significant urgency,” said Houston Controller Chris Brown.
The pension bonds are expected to price Dec. 18 and close Dec. 28 to conform to an agreement with city employees that the debt be on the market by March, Brown said. Barclays and Jefferies are co-senior managers on the deal.
The city also expects to get $495 million of public improvement bonds, also approved Tuesday by the city's voters, to market before the end of the year.
Mayor Sylvester Turner called the election results historically significant because it was the first time voters in Texas had voted on POBs, which usually do not require an election.
City officials were surprised at the strength of the support for the pension bonds, which passed by a more than three-to-one margin. Fears that the damage from Hurricane Harvey might cause some voters to tighten the purse strings proved unfounded as $495 million of bonds for more traditional city projects also won easy passage.
The Houston referendums were among the many successful bond measures Tuesday in Texas and around the nation.
Voters in the hurricane-ravaged Houston area approved every major bond proposal, including nearly $900 million for the Spring Branch Independent School District, $609 million for Katy ISD, and $445 million for Lamar Consolidated ISD, all west of Houston. Voters in the Tomball ISD north of Houston approved $275 million of bonds.
The Houston-area bonds were among a record $11.7 billion of bond proposals on local ballots across the state, with all of the largest issues winning approval.
In Dallas, voters approved $1.05 billion of bonds in an election that was postponed from May because of that city’s Police and Firefighters pension fund troubles. Dallas Mayor Mike Rawlings said he took the approval of all 10 measures on the bond ballot as a signal that voters are satisfied with the direction the city is taking.
Voters in the Austin Independent School District approved a record $1.05 billion of bonds and neighboring Leander ISD, one of the fastest-growing in the state, won approval of $454 million.
In North Texas, voters approved a record $750 million bond proposal for the Fort Worth Independent School District.
The largest bond proposal to suffer defeat came in West Texas, where voters in the Midland-Odessa oil producing region rejected $291 million of bonds and tax-rate proposals for the Ector County Independent School District. Unofficial results showed more than 61% of voters opposing the debt.
Houston will invest $750 million of the pension bond proceeds into the police pension and $250 million into the municipal workers' pension to improve their funding levels and lower Houston's annual payments into its pension funds.
Brown earlier this year said the city wanted to get the bonds to market as soon as possible and would have issued them by now if the Texas Legislature had not required a vote.
Separate bills from the state Legislature were needed to change the governance structure of the Dallas Police and Fire Pension Fund and to allow Houston to reduce benefits for some employees under agreements with employees.
Calling the public vote a “poison pill,” Turner feared that voters would not understand how critical the bonds were to settlement of the dispute with city employees.
Had voters rejected the measure, up to $1.8 billion of the $2.8 billion in benefit cuts in the reform agreement would have been rescinded, adding tens of millions of dollars in costs to the city budget overnight.
"This effort has not been easy," the mayor said at an election night party. "Tonight is not a victory for Sylvester Turner. Tonight is not a victory for the members of city council. Tonight is not just a victory for the employees. Tonight is a victory for the city of Houston."
Houston’s agreement with its employees is designed to erase all pension debt over 30 years, reduce benefits by $2.8 billion and include a mechanism to limit future pension costs.
Turner offered the bonds as an incentive to get the police and municipal pension systems to agree to cuts and to strengthen both funding levels.