This commentary originally appeared in the Austin American-Statesman on March 14, 2016.
Texas governments are making pension promises that Texas taxpayers might not be able to keep — at least not without massive future tax increases.
A recent report from the Pension Review Board reveals that state and local unfunded pension liabilities. In other words, the difference between what has been promised to future retirees and the amount of money actually on hand to provide for those benefits grew to more than $60 billion in February 2016. In less than a year, the state’s pension debt has jumped by a staggering $2.7 billion.
The gap between the promised and the possible is widening for a lot of different reasons, but one of the most glaring is the sweetheart setup enjoyed by pension plans in some of the state’s biggest cities.
More than a dozen local retirement systems in seven major metropolitan areas have successfully lobbied the legislature to have their pension plans ingrained into state law. Consequently, these plans have been able to lock in everything from benefit levels to contribution rates to the makeup of their boards, while locking out community stakeholders who don’t have the right political connections in Austin.
The appeal of using the Legislature as a shield to protect against community-driven reform is obvious. However, the scheme is flawed in more ways than one, and ultimately it has proven to be a negative for the health and sustainability of these systems — something that the data clearly shows.
Today, Texas’ 13 state-governed systems have unfunded pension liabilities totaling $8.7 billion, or an average of $171,155 owed per active member. Since June 2015, pension debt among these systems has grown by $1.2 billion.
The systems’ funded ratio, a measure of pension assets to pension liabilities, also indicates weakness. Industry standards consider a retirement system healthy if its funded ratio is at or above 80 percent; only 4 of the 13 sweetheart systems right now have funded ratios that meet or exceed 80 percent and the average among the group is 74 percent.
The facts and figures are clear: Putting Austin between Texans and their local pension plans is poor policy. It’s time for a new approach.
Rather than rigging the game in favor of a few, Texans would be better served by a system that gives everyone a chance to have their voice heard. A system that takes control out of Austin and rightfully restores it back down to the local level where people directly affected by these systems can have a say. In other words, a system that prioritizes local pension control.
Restoring local control is the surest way to bring some short-term sensibility back to Texas’ big city pension plans. The move promises to empower people most affected by the day-to-day decisions of these hulking public programs and invites a slew of new ideas and feedback geared toward achieving both short-term savings and long-term sustainability.
Deviating from the status quo like this will not be easy — especially with entrenched interests — but it is not impossible either. During the last legislative session, pension reformers worked hard to advance reform bills — House Bill 2608 and Senate Bill 1994 — and certainly gained some traction with the issue. Though neither bill passed last session, the effort clearly had energy behind it. The need for reform has only grown more pressing over the last year, with Moody’s dinging both Houston’s and Dallas’ credit ratings based, in part, on unworkable pensions. The coming legislative session promises to give conservatives another chance to empower people locally.
Providing people with control over locally run retirement systems is just common sense. If someone is expected to pay taxes into a system, then they ought to have some say over the size and cost of their programs. And by giving people back this power, we can take an important first step in getting a handle on Texas’ $60 billion pension problem.
Quintero leads the Think Local Liberty project and is director of the Center for Local Governance at the Texas Public Policy Foundation. He may be reached at [email protected].