This commentary originally appeared in the Houston Chronicle on August 4, 2015.
Houston city government has too much debt and too little restraint, according to a new report from Moody's Investors Services that revised the Bayou City's debt outlook to "negative" due to concerns over its finances.
Chief among the concerns expressed by Moody's, one of the nation's top three credit ratings companies, is heightened city government spending, robust debt payments and "growing pension costs," which have soared in recent years. It's this last item – local public pension costs – that Houstonians should be especially worried about.
According to Moody's report, Houston's three local retirement systems – which includes the Houston Municipal Employees Pension System, the Houston Police Officers' Pension System and the Houston Firefighters' Relief and Retirement Fund – had a total unfunded liability of $3.2 billion as of fiscal year 2014, "nearly double the liability reported five years ago." The term unfunded liability refers to the difference between what's been promised to future retirees and what is actually on hand to provide benefits.
What this means is that the city has made billions and billions of pension promises that it doesn't have the money to keep, at least not without a massive future tax increase or some other meaningful course correction. And these shaky promises only continue to pile up.
But it gets even worse, at least for those interested in making sure that these systems are sustainable over the long-haul.
Despite Houstonians paying into and providing for the city's three pension plans, the taxpaying public has, in some cases, absolutely no say in how their pension plan is run, even though they foot the bill.
This lack of local pension control exists because, over the years, Houston's locally administered pension plans, along with several others throughout the state, have successfully lobbied the Legislature to have some or all of their systems put into state statute. This shrewd move has effectively frozen into state law certain plan elements, like contribution rates, benefit levels and the composition of boards of trustees.
It's not hard to understand why these systems would angle for this kind of sweetheart setup, even if it's wrongheaded.
By putting Austin in between Houstonians and the Houston-based pension plan for which taxpayers are footing the bill, system administrators have erected a bureaucratic barrier to reform. This barrier helps lock in a generous system while locking out everyone else. In other words, it's a way to rig the game.
But by making it hard, if not impossible, for community stakeholders to have a voice in the governance of their local pension plan, these systems have courted fiscal disaster by crystalizing policies that are expensive in the near-term and unworkable over the long run. Moody's latest ding against the City of Houston is an indication of that much.
So how do we get ourselves out of this mess?
The first step is to put Texans back in the driver's seat, empowering community stakeholders to have some oversight over the systems they support. This can be done with a simple one-page bill passed by the next Texas Legislature that removes from state law all those systems that have wriggled their way into the state's protective arms.
Once local pension control has been restored, then Texans in each of the affected communities, including Houston, can have a candid conversation about the best way to fix the problem, whether it be adjusting benefit levels or raising contribution rates or moving to another type of system altogether. Whatever decision is made, it's best made locally.
Moody's latest report ought to serve as a wake-up call that there are serious pension problems lurking in some of Texas' biggest cities, and right now the people paying for these programs don't have the tools they need to fix them.
Quintero is director of the Center for Local Governance at the Texas Public Policy Foundation.