By Samuel Barr
As the largest city in Texas and the oil & gas capital of the U.S., Houston’s economy is mightily impressive. But years of overspending and a steep rise in fixed costs (debt and pensions) has many concerned that the city’s public finances are moving in a troubling direction.
One of those expressing concern over the city’s fiscal position is Moody’s Investors Services, one of the nation’s top three credit rating companies, which recently revised the Bayou City’s debt outlook to “negative.”
Chief among their concerns was the ongoing struggle to meet pension promises to the city’s employees. The problem is compounded by the fact that over the years Houston’s locally administered pension plans have successfully lobbied the legislature to put certain aspects of their plans into state statute, thus making it difficult to enact reforms that will ensure the long-term sustainability of these systems.
James Quintero, director of the Center for Local Governance, was featured recently in the Houston Chronicle making this exact point:
“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.”
If Houstonians are to have any hope of addressing the fiscal problems highlighted by Moody’s and others, then it’s critical that incoming lawmakers restore local control of municipal retirement systems that are governed by the state. In this way, community stakeholders will be empowered to make good governance changes that can, if done right, bring stability to these systems.