Houston City Council OKs $650 million bond issue for firefighter settlement

A proposed settlement between Houston and its firefighters union moved forward Wednesday with the city council authorizing the issuance of $650 million of general obligation judgment bonds, although a vote on a collective bargaining agreement was delayed.  

Both are part of a plan to end an eight-year contract impasse and litigation in Harris County District Court that Mayor John Whitmire pushed for when he took office in January.

Proceeds from the judgment bonds, which passed in a 14-3 vote, would fund lump sum payments to current and retired firefighters to cover overtime pay owed while they worked without a contract since the last one expired in 2016.

Bloomberg News

The collective bargaining part of the deal, which was held up from a city council vote by Houston Controller Chris Hollins, calls for wage hikes through 2029, with total firefighter pay increasing by up to 34% over the life of the contracts. 

While Texas law does not require voter approval for judgment bonds, Whitmire fought off efforts by council members to put the debt on the November general election ballot, warning the move would likely kill the proposed settlement, rekindle litigation, and result in a much more expensive resolution.

"We're playing with fire," the mayor said. "We have a solution that's been well negotiated, the public understands that. To start over, most people would say, is irresponsible."

Houston City Attorney Arturo Michel cautioned against delaying the bond issue, noting that the city's failure to pay a court-ordered judgment within a short period of time would constitute an event of default under covenants for some of the city's outstanding bonds. He added that in the absence of an appeal, the court would lose jurisdiction of the case 30 days after rendering a final judgment approving the settlement.   

"Then at that point is when the clock starts ticking with regard to our other debt issuances," he said. 

Ahead of Wednesday's city council meeting, Hollins sent dozens of questions to the city's administration, which provided answers on Tuesday, concerning the bonds and the collective bargaining agreement. The controller said the questions "will help my office, members of city council, and other stakeholders — including the public — to better understand key financial and operational aspects of the proposed agreement." 

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 GO ratings of AA from S&P Global Ratings and Aa3 from Moody's Ratings.