Houston’s Baby Step to Address Pensions; What’s Ailing Housing in Connecticut?

Categories: Commentary |

March 9, 2015

This week, we highlight a modestly positive development in Houston regarding its pension issues and look at the most recent housing price data from FHFA.

Houston Takes a Very Small, Temporary Step to Address Pensions

Last week the City of Houston reached an agreement with its Firefighters’ union regarding their pension benefits.  While the 3-year deal increases employee contributions, it appears the main benefit to Houston is pushing required pension contributions into the future.

We highlighted Houston’s pension issues in our February 17, 2015 Commentary when we discussed pension funding in Texas.

Houston is one of several Texas cities that rely on single employer plans for their employee’s pensions.  As we noted, the condition of the plans of the cities using single employer plans is generally worse than for cities using multi-employer plans overseen by the state.


Houston sponsors three different pension plans for its employees and retirees:  Firefighters’, Municipal Employees, and Police Officers.

The Firefighter’s fund is the smallest and best funded of the three.  The funded gap at the Firefighters’ fund accounts for roughly 17% of Houston’s underfunding.  The Municipal Employee’s System is funded at 57% and represents 54% of Houston’s pension underfunding.

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The requirement for increased employee contributions for Firefighters’ is a tiny (and temporary) step in the right direction, but Houston still faces significant pension challenges from its other two funds.

According to the Houston Chronicle, one candidate in the upcoming Mayoral elections, Bill King, intends to make pension reform “his signature issue during the campaign.”

“There is no pathway to financial stability for the city of Houston that does not lead through meaningful pension reform,” King said. “Anyone who tells you differently is either misinformed or is not telling you the truth.”

King stressed that he does not support changes to current city employees’ benefits, just future employees’. And he brushed off more incremental changes pushed by Mayor Annise Parker – such as winning negotiating power with the fire pension board from state government – as “window dressing.”

The importance of pension reform to fiscal stability is undeniable, however, we are skeptical of a reform proposal that only impacts future employees.

If, as we expect, the Houston economy begins to suffer from the impact of low oil prices, Houston will find addressing its pension issues increasingly difficult.

Connecticut Housing Market Lags Nation

The Federal Housing Finance Agency recently updated its Housing Price Index for the 4th Quarter of 2014.  Housing prices at the national level were up 5.6% for the year but were still down 7.7% from a 2007 peak.

Housing markets in oil states Texas (+7.7%) and North Dakota (+7.8%) remained strong.

As with many other economic indicators, Puerto Rico trails all the States in housing price change; prices in Puerto Rico have been declining steadily since their post crisis peak in early 2009.

Housing markets in Nevada, California and Florida outperformed all other states during 2014, but remain well below pre-crisis peaks.

A notable housing market underperformer is Connecticut.   Housing prices there were up only 0.7% for the year for 2014.

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While housing prices nationally are up 13% since the first quarter of 2012, prices in Connecticut are up only 1.5%.  New London County (-2.2%) and Litchfield County   (-1.2%) have seen prices decline during that time period.  Prices in Fairfield County, the economic engine of the State, increased by 3%, only a quarter of the national pace.

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Connecticut continues to have a strong economy and strong State level credit quality, but the health of its housing market should be monitored.


Have a great week,

Michael Craft, CFA


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