AP NEWS

Galveston reaches pension agreement with city police department

March 21, 2019

GALVESTON — The city of Galveston and its police union have reached a tentative agreement on a pension plan, ending months of contentious negotiations, city officials announced Wednesday.

A Tuesday meeting brokered by Republican state Reps. Dan Flynn and Mayes Middleton helped facilitate the final agreement between city officials and the Galveston Police Pension Board, which resolved governance and funding issues.

The terms of the tentative agreement are designed to put the Galveston police pension fund — which has over $32 million in unfunded liabilities — on a path toward solvency. The city will raise its contribution to 18 percent from the current 14.83 percent, an increase of more than 21 percent. The police union contributions will be frozen at 12 percent for the foreseeable future.

The city and pension plan members will equally share future increases or decreases in contribution levels, which will be based solely on “actuarial science,” city officials said.

“This will be the last time that you have this kind of hoopla or issue with the police pension,” said Brian Maxwell, the Galveston city manager. “This legislation sets it forward where nobody should have to touch this again. It’s going to move forward and that was the goal.”

State lawmakers now will draft the bill to enshrine the pension agreement into law.

While Galveston’s police pension is not as troubled as those of other Texas cities faced with massive deficits — Houston, Dallas, San Antonio, and Austin have accumulated more than $22 billion combined in municipal pension shortfalls, according to a 2016 report from Moody’s — the city has seen its police pension plunge from 99 percent funded in 2000 to 42 percent funded in 2017.

The increase in contributions will be offset by spending cuts that have not yet been identified, though the city stated that no decrease in police department staffing or services is expected “at this time.”

A key detail in the agreement is lowering the pension fund’s projected rate of return from 7.5 percent to 7 percent.

Struggling municipal pension funds face a common problem — unsustainable projected rates of return on investments that fail to account for economic and market volatility. Houston, for example, projected rates as high as 8.5 percent for its three municipal pension funds, when those returns were averaging closer to 3 percent or 4 percent.

Galveston previously had an assumed rate of return on its police pension plan of 8 percent, which had been reduced to 7.5 percent as of 2018, still one of the highest in the state.

“In working with the pension review board and Rep. Flynn, it was agreed upon that 7 percent is basically the median of what most other plans are functioning at right now,” Maxwell said.

Maxwell added the pension fund should be fully funded in 28 years at the current contribution levels, though possibly sooner if the fund overperforms its return.

Current police officers will continue to collect a normal retirement after 20 years of service at age 50. Newly hired officers will collect a normal retirement after 20 years of service at age 55.

The pension board and the city also agreed to change the structure of the board and its requirements. The previous board structure gave the police four appointees to the city’s three. The new board will have three trustees elected by the plan members, one appointed by the Galveston Municipal Police Association president, two appointed by the city manager, and two appointed by the City Council. Major decisions of the board related to benefit changes would require a supermajority of the trustees for approval.

nick.powell@chron.com