Op-ed: Council member wants to cap appraisals and reform pensions

Houston Council Member Dave Martin, this week, reignited an old debate as well as issued a challenge to the state legislature to address the cost of living.

Following a presentation last week by Houston City Controller Chris Brown highlighting the growing Houston budget shortfall, Martin discussed some of the driving factors, one of those factors is the pension liability. Martin says Houston should be more like corporate America and move toward defined contribution, rather than defined benefit, pension plans for its public employees.

“My proposal will be in this year’s budget, every existing employee that works for the City of Houston today will continue with a defined benefit, we’re not going to not live up to the obligation we gave to you when you first came on board,” he said. “But any employee beginning July 1, 2022, the new fiscal year, should move towards a defined contribution plan.”

Employer-sponsored retirement plans typically fall into two categories: defined benefit or defined contribution.

Simply put, a defined benefit pension plan specifies exactly how much retirement income an employee will receive upon retirement. A defined contribution plan only specifies what each party, the employer and the employee (in the case of the public sector, the taxpayer and the employee), will contribute to an employee’s retirement account.

Many employees prefer a defined benefit plan because of its predictability. It’s easy to determine exactly what benefits they will receive depending on the specific factors of their employment and retirement.

Defined contribution plans are often held in a separate tax-deferred investment account. While the employer contributions are defined, it’s hard to determine what the exact value of that account will be upon retirement as it is influenced by market forces.

This debate isn’t new, Martin is just breathing new life into it.

Back in 2015, the city, plagued by ever-increasing unfunded pension liabilities, proposed a state-level effort to reform its local pension systems. At the time, there was a broad conversation about converting current or new public employees’ retirement plans although it never materialized.

During the most recent legislative session, State Sen. Joan Huffman filed and passed SB 321 to address a $15 billion unfunded liability for state employees by moving new employees to a defined contribution plan. Martin hopes to do the same for local employees by proposing the reform in this upcoming budget.

Another reform he hopes to see is the state move to cap appraisal increases.

“If anyone is looking at a house right now, they will realize the appraisal value has gone out of the roof,” he said. “The state of Texas controls the property tax rate, I would recommend to them they impose a property tax appraisal cap.”

This comes weeks after the Texas Association of Appraisal District said that regions across the state have seen appraisal increases between 10-50% this year.

“State legislature in your next session, which begins in January, take up property tax appraisal caps and we’ll see how the Senate votes on that,” Martin said.

Charles Blain is the president of Urban Reform.