Council votes to sue firm over inaccurate predictions. Mike Morris, Chron.com
Houston City Council on Wednesday paved the way for city attorneys to sue an actuarial firm the city claims gave inaccurate pension estimates that spurred costly changes to firefighters’ retirement benefits in 2001.
The story continues on to say that only two City Councilmembers voted against the plan, and their no votes were based on concerns that the contractor not be required to follow city diversity standards. In fact, nowhere in the story does it appear that what passes for leadership in Houston these days has even a basic understanding of sound financial practice. Nor do they seem to grasp the consequences of their actions.
This is not to suggest that the company in question is not at fault, this will be determined during discovery and during trial. For all I know the actuarial company could have performed shoddy, weak analysis relying on the incompetence of the Lee P. Brown administration to let it slide through. Or, they could have performed quality analysis that was turned on it's head due to the collapse of certain stocks (in which the City was highly leveraged) shortly following 9/11/2001. There could be several reasons to explain this:
Houston’s contribution rate to the fire pension skyrocketed soon after the changes were approved, despite an actuarial report from Towers Perrin, now Towers Watson, that predicted the payment rate would remain flat for a decade.
To my way of thinking, the question at hand is not with the predictions one company, hired by the funds themselves, made that turned out to be wrong, it's why did the City, under then-Mayor Lee P. Brown, not perform it's fiduciary duty to the taxpayers and do further research?
City may sue firm over 2001 pension estimates. Mike Morris, HoustonChronicle.com($)
(In keeping with the spirit of the Chron's pay wall, which seems to be designed to prevent people from reading the news on their website, I'm only quoting a very small blurb from this article and ask you to go read the entire thing if you can.)
Both reports were commissioned by the employee- and retiree-controlled pension boards; the city did not seek second opinions.
The emphasis on the quoted text is mine.
As an accountant, I find it amazing then-Mayor Brown's staff and advisors did not suggest obtaining a 2nd opinion. If they did suggest this, and the Mayor shot the idea down, then Mayor Brown would be the person most liable for this situation.
My thought is that we're dealing with some situation that's in the middle. The projections were released and only a few questioned them and their concerns were swept under the rug because the vast majority came into this situation with the expressed goal of making the pension plan much more lucrative for city employees.
Never mind that this flies in the face of conservatism. And I'm not talking about Conservatism as a political ideology but conservatism as a financial practice which more deals with the assessment of potential risk, risk tolerance and what progressives like to call "good governance". I would argue that EVERY level of government has a fiduciary duty to the taxpayers to use conservatism when making financial decisions. This means that if Mayor Brown and his staff failed in these duties when they chose to not perform proper due diligence by selecting a 2nd estimate, then they didn't properly evaluate the risk which started Houston down the path it is currently traveling.
As stated before, Mayors White and Parker hold their share of the blame for this mess as well. In 2004 & 2005 when they voted to kick the can down the road through the hotel asset transfer and the issuance of pension bonds they effectively broke the link between conservatism and fiscal policy. Instead of positioning the city for long-term success, they failed the taxpayers and pushed the burden back to today.
So now it's getting nigh time that Houston pay the fiscal piper and the Parker administration has decided to distract from the issue with trinkets. She's going to use issues like the pension lawsuit and the coming fiscal Apocalypse to distract the public from the fact that the City is still wasting money hand over fist, idly watching as City Council raids dedicated funds due to her administrations incompetence in allocating them, and adding "your trash" alongside "your bathroom habits" to the list of things they're going to obsess over. If it wasn't of such serious importance it would qualify as a Greek comedy.
Houston has been saddled with a generation of Mayors who have abandoned the fiscal concept of conservatism in the name of trinket governance and as a means to reward political friends for votes and campaign donations with favorable ordinance. While the suburban areas are thriving, the central core is slowly rotting from within both fiscally and in terms of infrastructure.
The answer to this is always presented in terms of "more money". This line of thinking has given us the Rain Tax, higher fees for conducting business with the City in almost every area, a regulatory structure that is both nonsensical and hard on small businesses, a city ordinance procedure that is nothing more than a favor to politically connected groups and is going to be used as a cudgel to beat voters over the head as simpletons who are perceived as incapable of understanding the financial requirements of running Houston or too incompetent to have a say in just how much tax income the city receives. If Parker's attitude toward the citizenry can be summed up in one phrase it's: "Just shut up and do as you're told."
The real answer should be that the voters require their leaders to reacquaint themselves with the fiscal concept of conservatism. Mayor Parker constantly likes to remind people that she is "The CEO of a Five Billion Dollar Corporation." To tell the truth, she's pretty lucky that she's not. If Houston were a real corporation she'd be voted out on the street by a board of directors who actually do understand finance and realize that she's not positioning the city for long term growth.
