At the Midland City Council meeting on July 23, the council voted unanimously to begin the process of issuing a pension obligation bond to address the unfunded pension liability of the Midland Firemen’s Relief and Retirement Fund. The bond, which also includes benefit changes affecting Midland Firefighters, aims to stabilize the fund’s finances and ensure its long-term viability while maintaining a competitive benefits package for recruitment and retention.
Current financial status
According to a recent actuary report from Rudd & Wisdom, the Fund has an unfunded liability of $120,943,577 as of Dec. 31, 2023. Without intervention, the amortization period for this liability is effectively "never," exceeding the optimal 25-year period recommended by the Pension Review Board of Texas. To meet this target, a funding gap of 19.89% of payroll was addressed during the city council meeting.
Plan to address the liability
The plan to close this gap included:
Firemen’s contributions: Firefighters will increase their contributions to 5% of payroll. The council voted in agreement with the memorandum of understanding’s established 5%, but amended it to leave open the option for the percentage to increase if firefighters wish to do so.
Pension Obligation Bond: The City of Midland will cover the remaining 14.89% through a Pension Obligation Bond.
Benefit changes
City Manager Tommy Gonzalez explained why the benefits were looked at during the city council meeting. "It's the gift that keeps on giving," he said. "When you cut benefits down, it helps the sustainability and the health of the fund.”
Midland Firefighters have agreed upon benefit changes prior to the July 23 meeting. In July 2023, members of the Midland Fire Department voted to address the unfunded liability by removing unscheduled overtime and modifying the benefit calculation to consecutive pay periods. Both measures, which received 81% approval, took effect on Jan. 1, 2024.
"That being said, when you do benefit changes, it has a bigger potential impact,” said Gonzalez. “And when you do this contribution percentage wise, where every percent is $4 million, and you look at those two changes versus percentage changes, you can see that benefit reduction actually helps the fund and the sustainability of the fund. The reason why the council is looking at the contribution as something that they did not want to do for the firefighters is because we have to also retain and recruit new firefighters."
Impact on taxpayers
The Pension Obligation Bond is expected to increase the tax rate by 2.5 cents. Gonzalez explained that the 35 cents per $100 valuation would rise to 37.5 cents. For a median-priced home in Midland valued at $339,000, this translates to an additional $88 annually, or roughly $7.34 per month.
"If you don't do an obligation bond and raise the tax, it goes up against SB2, which is a state law that if you go up against that threshold, it will trigger an election,” said Gonzalez. “So either way, there will be an election.”
Next steps
The board will submit the Proposed Revisions to the Fund’s membership for a vote following approval by the consulting actuary. The city council will also call for an election to secure voter approval for issuing General Obligation Pension Bonds.
The last day to call for a bond election is Aug. 19.