Houston City Elections - VOTE TODAY! - Bill Frazer Addresses Pension and Debt Issues for City Controller Race

As early voting kicks off in the Houston city elections, I sat down again with Bill Frazer, conservative candidate for the City of Houston Controllers Office. As the only certified public accountant in the race, Frazer is already hard at work on digging into and shining a spotlight on some of the City of Houstons biggest financial issues - pensions and debt.

We began our discussion with issues surrounding the pension funds and Houstons failure to pay its proper contribution to our citys employees. "There are three pension funds," Frazer began. "There’s the firefighter’s fund, the police officers’ pension system, and the municipal workers system. They’re all managed separately and under state law, they’re managed by the pension trust, which are appointed by the employee representatives. The city has no control over the pension funds."

On the other side of the coin; however, "We’re obligated to fund it," Frazer explained, "and under a defined benefit type plan. If the pension funds’ performance doesn’t measure up to their estimated performance, which is 8.5 percent return per year, then the city’s contributions have to increase to cover that shortfall. It’s interesting to know that on an overall basis, not on an individual, but combined, those pension funds have not in the last ten years earned 8.5 percent. It’s closer to just under seven percent."  

This, of course, leaves city taxpayers holding the bag to make up the difference. "One of the reasons why the rate of return estimate is high is because it lowers our annual pension requirements," he continued. "The higher the rate of return, if the funds earn that money, then that reduces our cost, but because it reduces our costs, it reduces our annual contribution requirement. It’s important to note that even with a lower contribution requirement due to a higher estimate, we’re still not able to make the contributions that we’re required to make each year."

In the past, I have spoken about the bankrupt city of Detroits failed financial leadership here on TexasGOPVote. Frazer explained to me that Detroit went out and borrowed money from bond holders to fund their pensions. So, as Detroit heads into bankruptcy, it is the bond holders who are left holding the bag. While Houston has borrowed some funds to pay its obligation to city workers, much of the citys contributions are actually just IOUs from the city to its employees. I asked Frazer if this meant that if Houston were to follow Detroit into bankruptcy, it would be the pensioners who would be left out in the cold.

Frazer stated, "Out of the 1.6 billion, 600 million is in pension obligation bonds. The other billion dollars, we borrowed from the pension funds themselves. Detroit, they borrowed most of their money in the form of pension obligation bonds. They contributed the money to the funds, and then those funds made really bad investments. There was an announcement just last week by Kevin Orr that he’s trying to freeze the payments out of these funds because their investments have been so bad. But they still owe the bond holders, Okay? So it’s a little bit different type of situation."

Frazer praised the work of the Houston Firefighters Union in managing their pension fund. "They have a really good investment program," Frazer expressed. "They have a chief investment officer that’s highly regarded. Their investments appear to be safe. I shouldn’t use the word safe because I don’t know what they’re in, but I do they do have a pretty good program. The point is that we don’t really know because under the state law, they don’t have to give us a deep insight into it so we haven’t had an opportunity to look into it."

On other issues, I asked Frazer why it is important that a city like Houston have an experienced CPA as its Controller instead of the trial attorney we have now. 

Frazer responded with, "All the activities of city controller, in terms of investments of the city funds and in doing the annual reports and quarterly reports and reporting on things like the drainage fund for instance, all those functions are better handled and better led by somebody who’s got a career in and a history of doing this. Trained to do it. I’m a certified Public Accountant. That’s what I’ve been trained to do. I’ve been doing this for forty years. I’ve been doing this as a CPA for 38 years. I’ve got a broad experience in doing this and I’ve got lots of contacts out in the private sector that we can pull in to be subject matter experts. I think I mentioned earlier that I was president of the Houston CPA society. There are eight thousand member of that city locally that I can draw upon. Also I’m on the board of directors for the Texas CPA societies. So I’ve got lots of contacts and insights into the accounting and reporting side of business."

It is clear, with the looming financial problems facing the City of Houston, we need a CPA in charge of monitoring the citys books and reporting to the people about the mayors spending and lack of attention to financial matters.

Early voting starts today and runs through next Friday! Lets turn out the conservative vote and turn Houston city government red on our way to restoring Harris County to the deep red values we strongly belienve in. I will see you at the polls!

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TRANSCRIPT OF INTERVIEW:

Bob Price: We’re about a week out now from the city of Houston elections and we’re back with city controller candidate, Bill Frazer. Bill, welcome back to Texas GOP Vote. 

Bill Frazer: Thank you. 

Bob Price: Let’s talk a little bit more now about the pensions we talked about in the last interview. That’s one of our biggest debts here in the city of Houston. We’ve compared Houston with Detroit among other things. Tell us about the pension here in Houston and what it looks like. 

Bill Frazer: There are three pension funds. There’s the firefighter’s fund, the police officers’ pension system, and the municipal workers system. They’re all managed separately and under state law, they’re managed by the pension trust, which are appointed by the employee representatives. The city has no control over the pension funds. When I said administered by, they do all the benefits administration. They do all the investments. Each of them has their own investment committee and they make their own investments. So, when we want to look into the pension issues, we have to have their permission to do an in-depth study. 

Bob Price: So it makes it very difficult for Houston to have really any impact on how well the pensions are performing even though we’re still obligated to fund it. 

Bill Frazer: We’re obligated to fund it, and under a defined benefit type plan. If the pension funds’ performance doesn’t measure up to their estimated performance, which is 8.5 percent return per year, then the city’s contributions have to increase to cover that shortfall. It’s interesting to know that on an overall basis, not on an individual, but combined, those pension funds have not in the last ten years have not yearned 8.5 percent. It’s closer to just under seven percent. 

Bob Price: We have to make up that difference. 

Bill Frazer: Yes. So one of the reasons why the rate of return estimate is high is because it lowers our annual pension requirements. The higher the rate of return, if the funds earn that money, then that reduces our cost, but because it reduces our costs, it reduces our annual contribution requirement. It’s important to note that even with a lower contribution requirement due to a higher estimate, we’re still not able to make the contributions that we’re required to make each year. 

Bob Price: From what I understand, the city of Detroit borrowed money from creditors to fund their pension obligations. In Houston, we’ve taken the tact of borrowing money from basically from the funds themselves. So if Houston was to get into financial trouble and go broke, it wouldn’t be the creditors that would be stuck with it. It would be the actual retirees. 

Bill Frazer: Well that to a large extent, out of the 1.6 billion dollars of pension obligations we have today. These are for earned benefits. This is not a future accounting estimate. This is for money we should have paid out already or contributed already. Out of the 1.6 billion, 600 million is in pension obligation bonds. The other billion dollars, we borrowed from the pension funds themselves. Detroit, they borrowed most of their money in the form of pension obligation bonds. They contributed the money to the funds, and then those funds made really bad investments. There was an announcement just last week by Kevyn Orr that he’s trying to freeze the payments out of these funds because their investments have been so bad. But they still owe the bond holders, Okay? So it’s a little bit different type of situation. 

Bob Price: You mentioned that when we talked once before that the Houston fire department pension is in pretty good shape compared to the others. 

Bill Frazer: In terms of their investment returns, I really haven’t compared to the others, I just know that they have a really good investment program. They have a chief investment officer that’s highly regarded. Their investments appear to be safe. I shouldn’t use the word safe because I don’t know what they’re in, but I do they do have a pretty good program. The point is that we don’t really know because under the state law, they don’t have to give us a deep insight into it so we haven’t had an opportunity to look into it. They have been audited by independent auditing firms, which gives us some comfort, but in terms of details, we don’t have any details. 

Bob Price: Without that control, it could end up in a situation like what’s happened up in Detroit where they had corruption but some missing application funds. Tell us a little about what’s happened on that. 

Bill Frazer: Well, like I said, they announced, Kevyn Orr announced that there’s been a  three or four month investigation into some of those investments. They’ve made some investments into real estate. Investments that there might have been some conflicts of interest and those investments have failed. There have been some payments to individuals that shouldn’t have been made and there’s some other accounting and administrative functions that haven’t been performed correctly. These are the kinds of things that under situations in Houston, if those things were happening, going on, the city would not have any other insights into it because we don’t have any control over our pension funds. That’s the one thing we need to do at the state legislature: is to lobby them. All the city leaders: mayor, city council members, business leaders, civic leaders, we need to get all together and on the same page and do whatever we can to get control of our pension systems on our own and not to have to rely on the state. 

Bob Price: Let’s talk real briefly about the job of city controller and why it’s important that a CPA to be at that position. 

Bill Frazer: Well. All the activities of city controller, in terms of investments of the city funds and in doing the annual reports and quarterly reports and reporting on things like the drainage fund for instance, all those functions are better handled and better led by somebody who’s got a career in and a history of doing this. Trained to do it. I’m a certified Public Accountant. That’s what I’ve been trained to do. I’ve been doing this for forty years. I’ve been doing this as a CPA for 38 years. I’ve got a broad experience in doing this and I’ve got lots of contacts out in the private sector that we can pull in to be subject matter experts. I think I mentioned earlier that I was president of the Houston CPA society. There are eight thousand member of that city locally that I can draw upon. Also I’m on the board of directors for the Texas CPA societies. So I’ve got lots of contacts and insights into the accounting and reporting side of business. 

Bob Price: I think we can show an example of that where on the drainage fee that we’ve talked about. On your website, you have a great deal of information that should be available from the city controller’s office but you had to dig this information out and talk about that a little bit. 

Bill Frazer: Well, putting that report together, first thing I did was that I went on the websites, the controller’s website, the finance department website, and the rebuild Houston website. There was some information on the rebuild Houston website as to what they were going to do going forward over the next five year. Very little information about how much money they collected and what was in that fund and how that fund was being administrated. The reports were very confusing and there was no single source of information on what was contributed every year from the very sources and how that money was being spent. I went and looked at the city budgets for the three year period and those budgets are 900 pages long and they’re two volumes. So you’ve got to dig through a lot of information in order to pull that out. I just summarized what I see happening and it looked to me like the funds are collecting 103 million dollars a year from the drainage fee. It was supposed to be, if you look at the ordinance that was passed by city council based upon the vote of the people, we were supposed to raise 125 million dollars every year. Well, we’re only raising 103 million dollars a year. When you look at the expectations of the tax payer, twenty million dollars a year or a twenty two million dollar a year shortage is a lot of money over three years. There was also supposed to be estimates initially of how much money was going to be transferred in from ad valorem taxes. That doesn’t look right to me. The first year there was zero and it shouldn’t be zero. The second year, it was 11 million and I computed it should be about 21 million. The third year they also have eleven million dollars. Steven Costello just announced that the amount was going to go up just today or yesterday, but the budget is still stuck around 11 million dollars. I think the controller should take a look at what’s going on in that fund and to make sure that we’re doing it right. We can’t mess this up. If we allow that fund to be shot changed and not funded properly, it’s going to become another pension fund over time. We’re going to go down the road and all these maintenance and street repairs that we need to do are not going to get done and we’re going to dig ourselves into a deeper and deeper hole. 

Bob Price: Even though the mayor had promised this money would go into this lockbox and it actually had been spending it on other things as well. 

Bill Frazer: First of all I don’t think the money’s going in there being spent on other things. I don’t know where the money is going. I do know that they transfer maintenance workers over into the fund. There is a provision there that a certain percent can be spent on maintenance and I think they’re spending an excess of that. Again, until somebody goes in who’s on the inside and can do a thorough review of this, what I’ve got on my website is my estimate and I think it’s pretty accurate. I’ve talked to some of the people who supported the drainage fee and the program. They tell me that what I’ve reported in their minds is pretty accurate on what’s going on. They too want a clear concise quarterly report with town hall meetings that can explain it to the tax payers and the people that need to work out what exactly is going on. They keep telling us that the money is going to come in greater and greater in the future and I believe that’s going to happen, but we need just need to manage expectations through better communication. 

Bob Price: I think over the course of these interviews, you clearly laid out why we need you and why we need a CPA in this position. Early voting is getting ready to start. 

Bill Frazer: October 21^st, Monday. So everybody go out and early vote if that’s what you ought to do. If not, then election day is Tuesday, November 25^th. 

Bob Price: We want to encourage all conservatives in the city of Houston to come out where you can truly make a difference. Voter turnout is typically very small in city elections and it gives you a great opportunity to have an impact on the future of this city’s finances. Bill thank you for informing the people of Houston about this and we look forward to the results from the election. 

Bill Frazer: Okay, thank you.