Houston deal with firefighters to cost about $72 million annually

A proposed settlement with firefighters would cost Houston about $72 million a year to cover debt service payments on $650 million of judgment bonds and to fund pay hikes under a five-year contract, the city council learned Wednesday.

The deal announced by Mayor John Whitmore last week got its first public airing at the council meeting, where members got an opportunity to ask questions or raise concerns, including how to pay for the settlement as Houston faces a structural budget gap of about $160 million.

Whitmire, who took office in January, said the city is broke, citing widespread underfunding for essential city services and expressing confidence residents will recognize the need for more revenue to pay for the settlement.

“So how do we pay for it? We put our heads together, we look at all possibilities, we level with the public and I think they’ll respond very positive,” Whitmire told reporters after the meeting. 

In his report to the council, the mayor said the “long overdue” agreement was necessary to retain and attract firefighters.

“We have a broken fire department because they’ve not been respected for eight years,” Whitmire said.

The deal calls for lump sum payments, raised through the issuance of judgment bonds, for current and retired firefighters to cover overtime pay owed while they worked without a contract since the last one expired in 2016. It includes wage hikes through 2029, with total firefighter pay increasing by up to 34% over the life of the contract.

Houston City Attorney Arturo Michel told the council approval of the bonds from the Texas Attorney General will be sought before returning to Harris County District Court, which had been hearing litigation between the city and its firefighter union over the contract impasse. He said the settlement, including the bonds and the collective bargaining agreement, would ultimately need city council approval, warning that changes to the deal would send the parties “back to square one.”

Michel added the timing of the approvals was important because a court-sanctioned judgment that is not paid within a certain timeframe would be construed as an event of default on some of Houston’s outstanding debt.

Annual payments on the judgment bonds, which would carry a final maturity in the range of 25 to 30 years, are estimated at $36 million.

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. 

The nation’s fourth largest city has general obligation ratings of AA from S&P Global Ratings and Aa3 from Moody’s Ratings.