Houston eyes judgment bonds to pay for firefighter settlement

Houston will end its eight-year-long impasse with its firefighters union under a $650 million settlement financed through the issuance of judgment bonds, Mayor John Whitmire announced Thursday.

The agreement provides lump sum payments to current and retired firefighters to cover back wages owed while they worked without a contract since the last one expired in 2016, according to a statement from the mayor’s office. It includes wage hikes through 2029, with total firefighter pay increasing by up to 34% over the life of the contract.  

 “An agreement of this nature is absolutely necessary to recruit and retain firefighters in the quality and numbers needed to serve the largest city in Texas,” Whitmire said in the statement. “I want to reiterate that it helps avoid further unnecessary litigation costs, the uncertainty of multiple decisions by a court or an arbitration panel, and allows us to move forward together.”

Shortly after taking office in January, Whitmire put the brakes on ongoing litigation with the union in order to concentrate on reaching a contract.

Houston Professional Fire Fighters Association President Patrick Lancton praised the deal, saying it “is like none other we have ever seen, or perhaps will ever see.”

In response Friday to emailed questions, Whitmire’s press office said the judgment bonds will be backed by city property taxes and will likely carry a final maturity in the range of 25 to 30 years. 

It added the city previously sold judgment bonds related to firefighters. One of the latest was a 2005, $100 million public improvement refunding bond issue in which some proceeds were earmarked for the second installment of a judgment against the city over firefighter overtime pay, according to a Houston fiscal 2005 financial report.

As for the fiscal impact of the settlement, the statement from the mayor’s office said the agreement “safeguards the city’s financial stability by ensuring budgetary capacity for a new five-year contract with the competitive wages essential for firefighter recruitment and retention.”

The nation’s fourth largest city is facing a structural budget gap of about $158 million, Houston Finance Director Melissa Dubowski told The Bond Buyer in February.

Fitch Ratings has said the trajectory of Houston’s AA rating could depend on retroactive contracts with firefighters. 

A rating upgrade could occur from a contract “that results in sustainable public safety spending relative to its resource base and a reduction of carrying costs materially below 20% of governmental spending, leading to a strengthened expenditure framework assessment,” Fitch said in a September report. A deal with firefighters that weakens that assessment could lead to a downgrade. 

There was no immediate comment from Fitch analysts on the mayor’s announcement.

Houston has general obligation ratings of AA from S&P Global Ratings and Aa3 from Moody’s Ratings.

The mayor’s office said the city and the union will be in Harris County District Court Monday to outline the proposed settlement for the judge who ruled in December that a 2023 Texas law mandating binding arbitration when there is an impasse is constitutional.