Following Moody’s “negative” debt outlook for the City of Houston, there’s been a lot of public debate about the best way to handle the city’s huge debts ($12.5 billion in local debt outstanding as of FY 2014) and mounting unfunded pension liabilities ($3.2 billion in FY 2014, which is nearly double the amount from 5 years ago).
Some have suggested that the Bayou City can just raise taxes to solve the problem. But as Big Jolly Politics notes in a recent article, A Greek Tragedy in Houston, that’s no solution at all.
During the “special” city council meeting called by three council members to discuss the firefighter union settlement, council member Jerry Davis suggested that, “We will just raise taxes to fix the debt problem.” Senator Paul Bettencourt laughed and pointed to the facts: property taxes would have to be increased by fifty percent for ten years to pay off our current pension debt, assuming the city did not spend another dime. [emphasis mine]
And, of course, that’s just speaking to the pension part of it.
Others have suggested that the solution lies in eliminating the city’s spending limit. But as I’ve argued in the past (see Houston, We Have a Spending Problem), the city’s fiscal problems stem from too much spending, not from a lack of revenue.
Rather than raise taxes or eliminate fiscal restraints, the city would be better off using this near-crisis to implement long-term reforms that can help right the ship now and into the future. Things like:
- Instituting ballot box transparency to help educate voters on the basics of the debt propositions that they’re being asked to sign-off on;
- Requiring that a minimum number of registered voters support a debt proposition, so that a small minority can’t obligate everyone;
- Offering voters separate propositions for large-scale, costly proposals;
- Restoring local control of state-governed retirement systems so that local taxpayers have a voice in managing their pension systems; and
- Eliminating defined benefit pension plans and transition new employees to defined contribution plans, just as the private sector has done for years (see below)
Source: Texas Comptroller, Your Money and Pension Obligations
With the City of Houston facing such large and growing problems, now is the time to make bold and lasting reforms.