This commentary originally appeared in the San Antonio Express-News on April 17, 2015.
Texans living and working in major metropolitan areas all over the state are paying taxes to support public pension plans that they have little or no control of. As it happens, the absence of local pension control is a feature not a bug.
Over the years, more than one-dozen municipal retirement systems in seven major metros have successfully lobbied the Legislature to have some or all of their pension plans put into state statute. This means that certain pension plan elements like contribution rates, benefit levels, and the composition of boards of trustees have all but been frozen in state law.
It’s not hard to understand the motive for this sort of protectionist pension policy. Erecting a bureaucratic barrier to local reform benefits the status quo and, in many instances, prevents change from taking place, even though it might be needed.
By making it hard, if not impossible, for community stakeholders to make changes at the local level, these systems are effectively locking in place plan elements that are advantageous to its members while locking out non-members who might have other — perhaps more prudent — ideas about how these systems ought to operate. It matters not that these same non-members foot the bill.
Putting up hurdles to local pension control is more than just a bad idea in the abstract though. It’s also led to some fairly negative financial outcomes, too.
Limiting input from community stakeholders and making it hard to realize changes locally has helped put many of these state-governed systems in a difficult fiscal position. Consider some of the latest data.
According to the Texas Pension Review Board’s (PRB) December 2014 Actuarial Valuations Report, unfunded liabilities — or the difference between what has been promised to future retirees and what is actually available to provide benefits — for these state-governed systems has soared to a collective $7.4 billion or more than $150,000 per active member. That huge funding gap is expected to grow further still once new accounting standards have been accounted for.
The plans’ amortization period, which measures the number of years needed to pay off the liabilities, provides another trouble spot. About three-quarters of Texas’ state-governed systems have amortization periods beyond the recommended range of between 15 — 25 years. The state’s top pension agency considers a plan’s amortization period to be the “most appropriate measure” of financial health.
To be fair, Texas’ other local retirement systems are not without their own fiscal faults. But at least with those systems, Texans have the ability to make changes locally as they see fit.
As problematic as this policy is, the fix is relatively straightforward: remove from state statute any local pension plan that has managed to lobby its way into the Code and restore governing authority over these systems back to the community of their origin. This call for reform is perhaps best embodied by a pair of bills moving through the Legislature now.
While slightly different, House Bill 2608 and Senate Bill 1994 are right now working their way through the legislative process and would each in their own way help restore local pension control. It’s important to note that the thrust of these efforts is not to change the benefit structure, contribution rates, or any other structural dynamic. Only to restore local control.
For too long, Texans residing in some of the state’s biggest cities have not had a seat at the table when it comes to local pension issues. It’s time that Austin got out from between taxpayers and these locally run systems, and restored local pension control.
James Quintero is the director of the Center for Local Governance at the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin. He may be reached at [email protected]