Taxpayers locked-out of pension plans
By James Quintero - Guest Column
March 21, 2017 at 4:42 p.m.
Public pension problems plague major metropolitans throughout Texas, prompting many to call for decisive action. But putting out these fiscal fires has been next to impossible thanks to the schemes of a few.
Throughout the years, 13 local retirement systems have successfully wiggled their way into state law, cementing in statute certain aspects of their plans, like benefit levels, contribution rates and the composition of the boards of trustees.
By embedding these provisions in state law, this wily group has shrewdly positioned Austin between themselves and the taxpaying public that supports them. Instead of good government reforms being advanced locally, the current system requires community stakeholders to have the right political connections and to successfully navigate the legislative process - no easy task.
As a result of this sweetheart setup, these state-governed systems have managed to lock-in generous retirement benefits for themselves while locking out virtually everyone else. But while this may have held some short-term advantage, it's turned into a long-term liability.
As of November 2016, Texas' 13 state-governed systems had amassed almost $11 billion in pension debt, an average of $825 million owed by each and every one. That's a dramatic increase from the prior year, and the ocean of red ink looks likely to swell further in the coming year.
The plans' amortization periods, or "the most appropriate measure" of a system's financial health according to the Pension Review Board, are similarly discouraging. Whereas the Pension Review Board recommends that a sound and sustainable plan maintain an amortization period of between 15 to 25 years, only four of these 13 systems actually achieve that mark. The amortization periods for much of the remaining group exceeds 30 years and one plan - the Dallas Police and Fire Pension System, even forecasts infinity as the length of time needed to pay off its unfunded liabilities.
The data as well as the drama unfolding in Dallas, Houston and elsewhere, clearly show that the current rigged system isn't working and that reforms are sorely needed. So the question becomes: What can be done to protect today's taxpayers and tomorrow's retirees?
The simplest and most straightforward answer is to restore local control of state-governed pension plans. Communities that are home to a state-controlled system should have their rightful governing authority restored and stakeholders empowered to make good government changes as needed. Doing so will not only help to address anxieties about affordability but also ease concerns over sustainability.
A restoration of local pension control would likewise let needed adjustments happen sooner rather than later. Under the current system, many changes have to be approved by the state legislature which only meets every other year and for a short time at that.
Letting communities have control and oversight of their home-grown pension plans is a commonsense idea whose time has come. And now that the 85th Texas Legislature has convened, it's fast-becoming time to turn this idea into action.
Encouragingly, there's already been legislation filed to do exactly this.
Late last year, a prominent member of the Texas Senate filed SB 152, a bill that would, among other things, restore some semblance of local control by letting city councils pass ordinances and resolutions to "supplement or supersede" their plan's provisions for new public employees. If passed, the bill would give voice to an otherwise voiceless group - the taxpayer.
Continuing to let local retirement systems use the legislature as a shield against good government reforms is bad public policy, and it all but ensures a future of higher taxes, fewer services, reduced benefits or some combination of all. It's time that Austin gets out of the business of managing these systems.
James 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 firstname.lastname@example.org.