Imagine a state where the pension system is in a desperate state of disrepair. Decades of underfunding by the legislature and “kick-the-can” politics have pushed the funds to the brink of insolvency and credit rating agencies are considering downgrading the state’s bonds. This is the kind of horror story one typically hears about Illinois or Detroit, but this could very well be Texas’ future if legislators continue to ignore the major problem with the state pension system.
Pension systems are important to anyone who lives in Texas and plans to continue doing so in the future. The pension system is directly tied to the state’s budget and long term prospects as a competitive place to work. If this session’s crop of politicians are serious about addressing the problem of pension debt plaguing the state budget, they need to break with tradition and provide full funding to the system.
According to an actuarial valuation of the Employee Retirement System of Texas released last August, the fund is currently actuarially unsound. That means that returns on investment and new contributions won’t cover long-term payouts and other expenses.
In fact, Texas has a major problem adequately funding the system on a year-to-year basis. The Texas Senate’s website notes that state Sen. Kirk Watson (D-Austin), has argued the state has failed to adequately fund the pension system in 19 of the past 20 years, an alarming number shows even a legislative branch dominated by self-identified fiscal conservatives lacks the political will to spend today’s money on long-term gains.
What’s more, a change in the Governmental Accounting Standards Board rules for public pension accounting has shown that public funds across the countries are far more underfunded than previously thought.
A report this month issued by Reuters said that the ERS of Texas is only 63 percent funded under the new accounting rules, down from 77 percent under the old rules.
Under these new rules the state will be adding half a billion dollars in deficit a year to the already $7.5 billion it has accrued in debt, according to an editorial in the Dallas Morning News. Employee Retirement System Executive Director Ann Bishop told senators in testimony to the Finance Committee this month that "if [the pension liability] is not addressed one way or another, the debt is going to keep growing."
Bishop took particular care to point out that major credit rating agencies could consider downgrading the state’s credit rating at some point in the future if the problem persists.
“The bond houses do consider this a debt,” Bishop told the committee. Texas rightly prides itself on a AAA credit rating during a time when many states are struggling with their spending. However, if lawmakers refuse to make the kind of hard financial decisions that put Texas in the favorable position it’s in today, the credit rating agencies will downgrade our bonds.
Moody’s warned the state as much in January. State Sen. Kevin Eltife, R-Tyler, has the right idea, saying in the Finance Committee that he’ll oppose cutting taxes until the ERS is appropriately funded, according to the Texas Observer.
“We should have made the tough decisions to either raise taxes or cut [benefits],” Eltife is quoted as saying. “The reason we’re in this mess is because we haven’t made the tough decisions over the last 10 years.”
Watson, also of the Finance Committee, expressed similar sentiments about the urgency of taking action to address the growing problem.
However, not all legislators felt the same way. State Sen. Charles Schwertner, R-Georgetown, shrugged off the problem, saying, “Texas is doing much better than other states.”
This kind of cavalier attitude toward an impending problem like credit downgrades is unacceptable and shows Schwertner doesn’t have the political courage to hold the state to obligations it has already made. Public service is a noble calling and we owe people who dedicate their working lives to it a debt of gratitude.
If we ignore promises we’ve made to people who run this state every day, we’re sending a powerful message, not about how Texas treats the people who serve but about how the popularity of policy solutions is more important than the long-term solvency of the state. Should we see our legislators shy away from making these tough choices and instead focus on popular campaign promises, they need to surrender the prized title “fiscal conservative.”
Watching unfolding budget chaos in far-flung corners of the U.S. while smugly patting themselves on the back for making wise fiscal choices is practically a ritual for Texas politicians. If they show us this session they don’t have the wherewithal to deliver on our promises to public employees and plan for a sustainable financial future, we as voters need to show them what matters.
Matula is a finance senior from Austin. Follow Matula on Twitter @chucketlist.