Category Archives: News – Houston Local

The problem that no big city mayor wants to confront

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gpensionThe turmoil in the municipal bond markets over the past week got me thinking.

Bill King has done a great job (and see generally here) of explaining how Houston’s unfunded public pension obligation represents an untenable burden on the city government’s financial condition. The problem is not just Houston’s, either.

So, it was refreshing to come across this Maria D. Fitzpatrick/Stanford Institute of Economic Policy Research paper (H/T Craig Newmark) that indicates that now may be the best time for Houston and other over-stretched local governments to attempt to do something about this mess:

ÔªøÔªøÔªøÔªøThe results show that the majority of Illinois public school teachers are willing to pay just 17 cents for a dollar increase in the present value of expected retirement benefits. The findings therefore suggest substantial inefficiency in compensation as the public cost of deferred compensation exceeds its value to employees.  .   .   . [. . .]

In this context, the main finding of this paper, that the majority of IPS employees value their pension benefits at about 17 cents on the dollar, has two important implications. First, it suggests a possible Pareto-improving and politically feasible solution to the current inability of states to pay their promised pension benefits to public employees. Governments could offer to buy back pension benefits from teachers and other public sector employees. If the results here generalize, governments may be able to buy back promised employee pension benefits, or at least some of these promised benefits, for as little as twenty cents on the dollar. Doing so would draw down the pension obligations of governments both significantly and immediately, rather than waiting for a reduction in benefits to take effect years in the future.

Meanwhile, in this WSJ op-ed, Roger W. Ferguson, Jr. passes along an innovative approach that Orange County, California – the site of one of the largest municipal bankruptcies in U.S. history back in the mid-1990’s – is taking to deal with its unfunded pension obligations:

The plan is a hybrid model: It combines contributions by the county and its employees with both a traditional defined-benefit pension and individual accounts, which the worker can take with him from job to job.

Here’s how it works: New hires can choose either the old defined-benefit plan or the new hybrid plan when they sign up for benefits. The plan maintains a strong traditional pension, but it reduces the requisite contribution for both the county and its employees. It also redirects a portion of that money into the defined-contribution part of the plan where the money can grow over time.

Unlike a typical 401(k), the defined contribution part of the hybrid plan emphasizes retirement income as the primary goal. It incorporates affordable deferred annuity options during employees’ working years that can deliver income in retirement that compares favorably with what workers can expect from the traditional pension plan alone. The hybrid plan also increases workers’ take-home pay because workers’ contributions are lower than they are in the old defined-benefit plan.

This new program helps workers to think about how much monthly income they will need in retirement–as opposed to how big a nest egg they’re building. [. . .]

Sometimes real change begins with compromise. A new approach on pensions won’t close the gap between current pension promises and the public’s ability to afford them. But it points the way forward and acknowledges the reality that we have to start somewhere to address our nation’s public pension woes.

Are you listening, Mayor Parker?

“I think you’re a shot better in blue”

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Stooges golfersOne of the many endearing qualities of golf is the cast of characters that the game attracts. So, it naturally follows that the game generates wonderful stories, many of which are hilarious.

Golf Digest‘s December issue passes along a couple of dozen of those funny anecdotes (see more here) and I can think of no better way to start off the New Year than to take a few minutes and enjoy them all. One of my favorites is one that NBC golf commentator Roger Maltbie passes along about an interview with the legendary Sam Snead:

It’s 1999, and we’re doing the U.S. Open at Pinehurst. I’m in the tower at 18 with Dan Hicks. We decide to do an interview with Sam. He was what, 87 or something?

We were advised that Sam had good days and bad days, so we decided to do the interview on tape. The last thing you want to do is embarrass anybody.

It started slowly, but all of a sudden Sam turns to Dan and says, "You know, I sat down and thought about it once, and if I had shot 69 in the final round of the Open, I’d have won eight of them."

From that moment, he snapped in and he was lucid. Clear as a bell. So then Dan asked him about his longevity.

Sam said, "Well, I never drank much. Always took pretty good care of myself. Got to bed early, got a lot of sleep."

Then, with an old Sam Snead grin, he looked at Dan and said,

"Course, I did shake those bedsprings every now and then!"

With that, we lose it. So the interview never aired, but it was tremendous.

There are many other classics, such as the one about Boo Weekley’s boxing match against an orangutan and Gary McCord’s first meeting with Ben Hogan. And an article about funny golf stories would not be complete without one from Clear Thinkers favorite Dan Jenkins, who describes his nervousness in addressing his first tee shot while playing an exhibition with Arnold Palmer and Dow Finsterwald in front of a big gallery:

I simply stood there, waiting for some divine power to move the clubhead back. I don’t have any idea how or where the ball went. All I could hear was Finsterwald saying, "Go ahead and hit another one."

I suavely turned around, pitched the driver to my caddie and said, "Let’s play it, baby."

"It’ll be kind of tough off that roof across the street," said Palmer.

Houston is well-represented, with anecdotes from longtime residents Jackie Burke and Steve Elkington, who tells a great one about watching Colin Montgomerie polishing off a massive dessert before a big match.

But the late Dave Marr — who was one of Houston and golf’s finest storytellers – takes the top prize among Houstonians with this anecdote about a pro-am incident involving the legendarily caustic wit of the late Tommy Armour:

The best one I remember hearing involved Tommy Armour, who was acute, to say the least, in his observations of people.

He was playing in a pro-am with a guy who showed up the first day in an all-blue outfit, including his bag and headcovers — even his shoes. And he shot a 95.

The next day he came out in an all-red outfit — bag, shirt, shoes, everything — and this time he shot a 96.

And he said, "Mr. Armour, I’ve played two days with you, and I would really appreciate any comments you have about my golf game."

Armour looked at him a minute and then said,

"I think you’re a shot better in blue."

A Couple of Houston Dealmaking “F’s”

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f-gradeSteven M. Davidoff, the NY Times Dealbook’s Deal Professor on the world of mergers and acquisitions, includes Landry’s Restaurants, Inc’s Tilman Fertitta – for many of the reasons chronicled over the past several years here –  in the group of businessmen getting an “F” for dealmaking in 2010:

Others deserving an F are Tilman Fertitta, chief executive of Landry’s, for his second buyout effort of the restaurant company. Mr. Fertitta initially obtained the agreement of Landry’s board to $14.50 a share to take Landry’s private. He was then effectively forced by the hedge fund Pershing Square and the Delaware courts to raise his initial lowball bid to $24.50 a share.

Meanwhile, Dynegy, Inc’s management team also gets an “F” in the category of shareholder communications:

COMMUNICATIONS In this perennially competitive category for bad grades, the F this year goes to Dynegy. The energy company threatened its shareholders with possible bankruptcy if a sale to the Blackstone Group was not completed at $4.50 a share. The threat made the company appear heavy-handed with its shareholders and was ill conceived, because only a month after the Blackstone sale was canceled, the company agreed to sell itself to Carl C. Icahn for $5.50 a share. This latest sale is also being challenged by one of Dynegy’s largest shareholders.

Can’t really argue with either evaluation.

Braeburn Country Club

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As the warm autumn days of southeast Texas give way to the cooler days of winter, I want to pass along some photos that I took earlier this fall of the Braeburn Country Club golf course, which is one of Houston’s oldest and most interesting tracts.

A group headed by Houston’s legendary PGA professional Jimmy Demaret developed Braeburn on what was then a suburban piece of property off of Bissonnet Road  in the the mid-1920’s. The group hired well-regarded architect John Brademus (Colonial in Ft. Worth; Memorial Golf Club in Houston) to design the course, which turned out to be a short but challengingly tight tract.

Unfortunately, as with many clubs developed during the Roaring 20’s, Braeburn fell on hard times after the stock market crash of 1929 and was sold at a foreclosure sale by the bank that had financed Demaret’s group. Jack Burke, Sr. – then the pro at Houston’s River Oaks Country Club – formed another group that purchased the golf course from the bank in the early 1930’s.

Interestingly, Demaret and Burke’s son – Jack Burke, Jr. – went on to develop Houston’s storied Champions Golf Club 25 years later in the late 1950’s.

But the defining moment for Braeburn came almost 60 years after its creation when the club entered into a creative deal with the Harris County Flood Control District in which the district allowed the club to use almost $2.5 million in funds earmarked for flood control to renovate the course in a manner that transformed it into a flood runoff area for a nearby bayou during periods of heavy rains.

The club hired the late Carlton Gipson to oversee the renovation of the course and the result was a masterpiece that ranks among Gipson’s best. Gipson had his crew move over 300,000 cubic feet of dirt in creating the flood retention areas and, in so doing, transformed what had previously been a flat-land Houston course into one that has numerous elevation changes that are rarely seen on Houston-area golf courses.

So, say good-bye to autumn by taking a tour of Braeburn in the slideshow below or download an MP4 version of the slideshow here. Enjoy!

Will justice be done in Jeff Skilling’s case?

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skilling Oral argument before a Fifth Circuit Court of Appeals panel in Houston occurs today on the U.S. Supreme Court’s reversal and remand of former Enron CEO Jeff Skilling’s appeal of his criminal conviction.

Although the Supreme Court did not overturn all counts of Skilling’s conviction, it remanded the remaining counts to the Fifth Circuit to determine whether any of them should stand given the Supreme Court’s reversal of the other counts based on the invalid “honest services” wire fraud charges.

In essence, Skilling is arguing on remand that the government relied on the amorphous nature of that invalid theory of criminality in obtaining a conviction against him on numerous different charges. Having relied on that invalid theory of criminality, Skilling contends that the government cannot now prove that the jury didn’t rely on it in convicting Skilling on the other charges, too. Although results rarely occur as they should in misdirected criminal prosecutions, Skilling really should win his release and a re-trial.

Meanwhile, rather than address the merits of Skilling’s important case, the Wall Street Journal – which already has a dubious record of coverage in Enron-related criminal prosecutions – serves up the following characterization of the Enron-related prosecutions in this recent article on another miscarriage of justice related to the demise of Enron:

The U.S. government’s Enron Task Force criminally charged about 30 individuals, including Mr. Brown, but said there were more than 100 other unindicted co-conspirators. The task force got guilty pleas from more than a dozen people and won a 2006 fraud conviction against former Enron President Jeffrey Skilling.

Some of the group’s courtroom victories have been upended on appeal. Mr. Skilling’s conviction and 24-year sentence are under appeals-court review following a Supreme Court decision invalidating part of his case.

“Some of the [Enron Task Force’s] courtroom victories have been upended on appeal“? In reality, not any of the criminal convictions that the Enron Task Force obtained after a trial have been upheld on appeal. Not one.

Seems like something that the nation’s leading business newspaper would get right, don’t you think?

Metro, Proposition 1 and competing costs

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News-Shelby-Buffalo-Bayou-Park-flood-May-2015_110239Given the regularity of gully-washers in Houston, flood control is something near and dear to the heart of any Houstonian.

So, the Renew Houston organization reasons, who could possibly be against Proposition 1 in the upcoming election? That’s the referendum that seeks to raise about $8 billion of dedicated taxes over the next couple of decades to fund flood control projects and other infrastructure improvements.

Well, I doubt many Houstonians oppose improving flood control and other reasonable infrastructure improvements. But reasonable folks can certainly differ over how to pay for it. And more precisely, whether local governments have already committed limited tax dollars to boondoggles such as the Metro light rail system that should have been used for the more beneficial projects that Proposition 1 proposes.

Metro’s defenders – many of whom are supporters of Proposition 1 – typically rely on the 2003 referendum as the primary basis for their continued support of the light rail boondoggle.

But the problem with the 2003 referendum and Proposition 1 is that they ask voters to approve large public projects in a vacuum while ignoring Peter Gordon’s three elegantly simple questions regarding economic choices:

1) At what cost?

2) Compared to what? and

3) How do you know?

For example, let’s assume that voters in 2003 had been informed that the expenditure of a billion or so of public money on building a lightly-used light rail system has real consequences, such as leaving inadequate funds available to make the improvements to Houston’s flood control system and infrastructure that Proposition 1 now proposes.

No one knows for sure, but my bet is that voting results would have been dramatically different if the foregoing alternative had been a part of the 2003 referendum.

Unfortunately, the relatively small groups that benefit from urban boondoggles have a vested interest in preventing the voters from ever examining those threshold issues. The primary economic benefit of such public projects is highly concentrated in only a few interest groups, such as representatives of minority communities who tout the political accomplishment of shiny toy rail lines while ignoring their constituents need for more effective mass transit; environmental groups striving for political influence; engineering and construction-related firms that profit from the huge expenditure of public funds; and real-estate developers who profit from the value enhancement provided to their property from the public expenditures.

As Professor Gordon wryly-notes “It adds up to a winning coalition.”

Once such coalitions are successful in establishing a governmental policy subsidizing boondoggles such as the Metro light rail system, it is virtually impossible to end the public subsidy of the boondoggle and deploy the resources for more beneficial projects.

How do these interest groups get away with this? The costs of such boondoggles are widely dispersed among the local population of an area such as Houston, so the many who stand to lose will lose only a little while the few who stand to gain will gain a lot. As a result, these small interest groups recognize that it is usually not worth the relatively small cost per taxpayer for most citizens to spend any substantial amount of time or money lobbying or simply taking the time to vote against a boondoggle such as a light rail system.

But would the citizenry react differently if they knew that their lack of action in the face of an urban boondoggle might prevent the funding of much more beneficial projects?

Writing about Phoenix’s new light rail system, which is just as uneconomic as Houston’s, Warren Meyer analogizes the funding of these systems to dubious household purchases:

[The] Phoenix light rail reminds me of a home I visited recently that had a $50,000 super-size 100-inch flat screen TV. That TV was gorgeous. Everyone who saw it immediately fell in love with it.  It worked flawlessly, and everyone at the party wanted one. In fact, it was probably the greatest, most sensible and successful purchase of all time .   .   . as long as one never considered the cost.  This is exactly how light rail seems to get evaluated.

In building a light rail system, did Houston buy an expensive flat-screen TV with funds that would have been better utilized taking care of the drainage problem in the back yard? Or are things going so well at work for Houston that it can do both?

We will soon find out.

A fascinating season so far, Part III

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case keenum Finally, over on Cullen Avenue, the University of Houston has endured the most disheartening start of the college football season. But with that disappointment comes a fascinating challenge.

The disappointment is the college career-ending injury to QB Case Keenum, who had one of the best seasons in college football history last season and who was primed to improve on that performance this season.

After directing UH to two easy wins against overmatched opponents, Keenum blew out a knee attempting to make a tackle in the third game against UCLA and – “Poof” – the collegiate career of one of the best college QB’s of this era was ended.

To make matters worse, a hard-hitting UCLA defense subsequently ended the career of Keenum’s backup – Chase Turner – about a quarter later. That leaves a good UH team with no experienced QB going into the meat of their schedule, which is not remotely where the Cougars expected to be after four games this season.

In addition to being a fine young man and a team leader, what made Keenum so much fun to watch was his uncanny field presence. He was literally a coach on the field during the game.

UH opponents often dropped eight defenders into coverage in an attempt to slow down the Cougars’ high-flying passing attack, so Keenum simply checked-off at the line of scrimmage and unleashed Houston’s formidable rushing attack. Then, when opposition defenders crept closer to the line to stop the run, Keenum scorched them with quick-hitting passes to over a half-dozen different receivers.

With a quick release, excellent reading skills and a commanding field presence, Keenum may be that special combination of talent – similar to Drew Brees – who can overcome physical limitations (he is just a bit over 6 feet tall) to make it in the NFL. Everyone in Houston will certainly be pulling for him.

But aside from Keenum’s future, there is an interesting subplot arising from the Cougars’ troubled start.

Cougars head coach Kevin Sumlin – one of the top up-and-coming coaches in the college game – now faces the toughest challenge of his three year head coaching career.

That’s not to suggest Sumlin hasn’t faced difficult challenges before. In his first season as UH coach (2008), he somehow kept his team and coaching staff together when Hurricane Ike pummeled the Houston area and a clueless UH athletic administration inexplicably forced the Cougars coaching staff and players to play two road games while their families were dealing with the difficult aftermath of that devastation.

After enduring that, Sumlin gamely guided the Cougars to a successful season and their first bowl victory in almost 30 years, primarily on the back of Keenum and Sumlin’s innovative variation of the Spread offense. Sumlin’s scheme continued UH’s legacy of being an incubator for creative football offenses that began with Bill Yeoman’s Veer 50 years ago, then Jack Pardee and John Jenkins’ version of the Run n’ Shoot in the late 1980’s and early 90’s, and more recently, Art Briles’ idiosyncratic version of the Spread.

Houston’s successful campaign in Sumlin’s first season set the stage for last season’s even better UH team that was one of the best non-BCS teams in the nation. The Coogs beat three teams from BCS conferences, two of which (Texas Tech and Oklahoma State) ended up in post-season bowl games. Even though the season ended on down note with a close loss in the CUSA championship game and a dispiriting loss in a meaningless bowl game, Sumlin had reason to expect big things this season with Keenum and many other offensive stars returning.

Alas, with Keenum’s injury, those high expectations have been downsized considerably. Sumlin and the Cougars now must face the remainder of their schedule with two true freshman QB’s, Terrance Broadway of Baton Rouge and David Piland from the Southlake Carroll QB factory near Dallas.

Broadway got the nod in UH’s first post-Keenum game this past Saturday against Tulane and the results were about what you would expect from a freshman making his first collegiate start. Broadway generated about a third of Keenum’s usual production and had three turnovers in a 42-23 Cougar victory over a team that would probably rank about 110th out of the 120 major college teams.

To make matters worse, UH’s schedule gets much tougher quickly with SEC opponent Mississippi State coming to town next Saturday. In fact, the Cougars will probably be favored to win only two (Rice and Memphis) of their remaining eight games.

Thus, the Cougars have gone quickly from the expectation of a 10+ win season to one in which four or five wins is a distinct possibility if their freshman QB’s struggle. Moreover, Sumlin was already dealing with other issues before the injury to Keenum.

For example, Sumlin is in the initial season of working with a rearranged coaching staff. After losing talented offensive coordinator Dana Holgorsen to Oklahoma State after last season, Sumlin decided to replace his defensive coordinator, John Skladany, who specialized in coaching up undermanned defenses such as the one that Sumlin inherited at UH from the Art Briles coaching staff.

Although Sumlin’s replacements are all experienced coaches (Jason Phillips and Kliff Kinsbury on the offensive side, Brian Stewart on defense), Sumlin must now also replace an effective on-field coach in Keenum with an inexperienced freshman. And three years of recruiting defensive players and the hiring of Stewart has not yet produced any better defensive performance than what Skladany generated for the Cougars with inferior talent to what the Coogs have on defense now.

Accordingly, it’s reasonable to ask whether there is any hope for the Cougars this season?

Well, except for the UCLA debacle, the Coogs’ offensive line has played capably in the first four games. As a result, the Cougars RB tandem of Bryce Beall and Michael Hayes has been quite effective. Moreover, Houston’s receivers – who also man the Cougars’ formidable kickoff and punt return positions – remain one of the fastest and most dangerous groups in all of college football. And maybe, just maybe, the Cougars defense will finally start to realize some of the potential that Sumlin and his staff have recruited over the past three years.

So, the Cougars are not without weapons. But without an experienced triggerman, will Sumlin be able to figure out a way for the Cougars to harness those weapons effectively?

The answer to that question may well be the defining moment in Kevin Sumlin’s bright coaching future. Yet another reason why this football season is shaping up as one of the most interesting in years.

Lightnin’ Time

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Another one of Houston’s treasures, the late, great Lightnin’ Hopkins.