Following the Midland Firemen’s Relief and Retirement Fund board voting down the City's proposed eight-figure bond agreement that, along with cuts to firefighter’s benefits aimed to bring the $109 million pension deficit into the clear, Mayor Lori Blong is responding to the fund chairman's rationale behind the decision.
“Previous city management and fund boards have repeatedly postponed addressing the imbalance, which has now reached more than a $100M deficit. The city is now willing to address the imbalance and we trust the firefighters are as well. Two outside actuaries recommend firefighters make changes to their benefit package to help reduce the liability of the fund and to help reduce the burden on taxpayers to cover the liability,” Blong told Midland Times.
“Work to address the insolvent fund began in earnest in 2021 and has continued throughout my term as mayor. This extended work resulted in the City’s proposed MOU [Memorandum of Understanding] which, if accepted, would have kept firemen retirement packages as far more generous than most Midlanders will ever experience. However, so far this proposal has been received with a mentality that much more resembles a big city union approach than a 'West Texans neighboring to help one another' mentality,” said Blong.
Midland Firemen’s Relief and Retirement Fund (MFRRF) Chairman Justin Graham explained to Midland Times that trustees were “uneasy with the City’s hasty decision-making process, which impacts public safety and firefighter retention” and that they “judged the City’s Memorandum of Understanding to be detrimental to both firefighters and Midland taxpayers, who depend on a well-staffed EMS and fire service.”
“The Pension [Review] Board was forced to consider last-minute proposals to align with the City’s deadline for placing a bond on the November election. Despite the City’s insistence on not providing the Pension Review Board with a schedule in April, the City then opted for sudden meetings in early July with a self-selected unofficial committee,” said Graham
“Those discussions should have occurred with the Pension Fund Trustees – preferably in May – to allow for Trustees’ input and subsequent actuarial and legal evaluations, adhering to professional standards and timeliness. However, the City Council instead pressured the Trustees to meet its timeline, overlooking or misunderstanding Texas’ statutory due diligence obligations for Trustees.”
Blong added, “Delaying action only increases the financial burden on both parties. Curtailing city services to fill a void left by poor financial management should not be on the table. The City Council has acted decisively, and we urge the Firefighter Fund Board to do the same," and said the City is "committed to finding a balanced and sustainable solution that protects both our firefighters and taxpayers."
But according to Graham, the City's MOU didn't consider what other cities, like Dallas, have experienced with city employee retention issues, pointing out that the approach in Dallas to address pension short comings is related to its 25% staffing shortage and "compromised response times" by police and fire departments.
“We look forward to the resolution which the Board and the City agreed to, namely finding a third-party mediator to help both parties come to a timely resolution that fully considers public safety.”
If the City’s measure had made it to the ballot and was approved by voters this November, the bond amount would have been between $60-61 million.
But first, the proposal, as prescribed by state law, requires approval by firefighters who in this case had to agree to benefit cuts of 5% or more, as determined by the City’s actuarial firm Foster & Foster, in order to ensure the longevity of the fund. Employing the recommended ratio by Foster & Foster, the City would provide 2/3 of any future adjusted fund contributions, with MFRRF members on the hook for the remaining 1/3.
This would mean that firefighters who have been hired for years into jobs with benefits that the City and/or fund currently cannot afford, may now have to give up a percentage of those same benefits to receive what they were promised upon hire.
To pay for the retirements of the fund’s 197 retirees and, eventually, its 234 active firefighters, MFRRF would need to have $190 million in current assets.
“The City MOU offered a substantial cash infusion, in addition to firefighters making a 5% reduction of benefits to balance the fund. Council cares about our firefighters and our taxpayers, recognizing we must also maintain all the other services necessary to make our city work for our citizens,” said Blong.
The longtime contribution issues of the fund recently reached an inflection point.
The PRB, in accordance with Section 801.209 of the Texas Government Code, had published the list of all pension benefit plans which had not submitted their required reports or information to it by the 60th day after the date the reports or information were due.
At the time of the list’s original publication, the MFRRF appeared on it.
Midland Times investigated the MFRRF’s initial placement on the non-compliant list and received a response from a City spokesperson, who said: “The MFRRF is currently listed as non-compliant because of the concerns found regarding the investment expense section of a 2022 annual audit. Once confirmed that either the information in the audit is accurate or that the PRB has received corrected investment expense details, the system will be marked as compliant.”
The Texas Pension Review Board met for a regularly-scheduled meeting on July 25, just two days after City Council proposed the bond, and discussed compliance of municipal firefighter funds across the state, including the MFRRF – as part of a Funding Soundness Restoration Plan (FSRP) report.
According to documents provided in conjunction with the July 25 meeting, the MFRRF is now back in line with the PRB’s reporting guidelines and has been removed from its list of non-compliant funds.
Per the Texas State Comptroller, MFRRF had $80.9 million in assets as of Dec. 31, 2022, on which it earned zero in investment income in 2023.
“For 20+ years, the Firemen Retirement Fund board chose fund managers that delivered poor investment returns," Blong said. "The fact that the fund financial managers have returned 3% or less, rather than the 7 to 8% they assumed when they set their benefit package, has resulted in a substantial fund balance deficit. While there are other contributing factors to the insolvency of the fund, poor investment returns are by far the most significant contributory factor.”
In 2022, current firefighters contributed $3.3 million into MFRRF, or about $1,185 each per month. City of Midland taxpayers gave the fund a $5.2 million subsidy.
The fund currently has an “infinite” amortization period, meaning that, based on MFRRF’s former actuarial assumptions, it would never have enough money to pay for the current and future retirement benefits it promised its retirees.
However, the PRB has now set a future deadline of September 2025 for the fund to provide a 25-year plan for amortization.
In the summer of 2023, the Midland Fire Department voted to change in part the calculation metric used to determine overtime benefits, and additionally, the City of Midland approved a 2% increase in its contribution to the Fund last December.
In 2023-24, the City of Midland’s total budget was $145.9 million.