Texas Comptroller Warns of Dangers of Unfunded City Pension Debt

The Texas State Comptroller, for the first time, is sounding the alarm over the rising burden of debt the state’s cities are carrying to pay promised pension and retiree health care benefits, saying it may be rising to the point where it could damage state and local finances, News Radio 1200 WOAI reports.

A recent study by Truth in Accounting, which tracks municipal debt, reveals that in San Antonio, the average taxpayer, in addition to the usual tax burden to cover the costs of bond issues, city programs, and the general fund, owes $3200 to cover unfunded liabilities for city retirement benefits. In Dallas, that debt is $21,000 per taxpayer.

“Keep in mind that the retire health care promises are not as well funded as the pensions,” Truth in Accounting CEO Shiela Weinberg said of Texas urban pension and retirement debt. “There is only 40 cents for every dollar that they have put aside to pay for those promises.”

She says San Antonio’s situation is pretty standard for large cities, not just in Texas, but across the country.

“The city has $1.7 billion in unfunded pension promises, and another $1 billion in unfunded retiree health care promises,” Weinberg said.

And the report by the state Comptroller says these debts are beginning to affect the financial health of cities.

“If left unchecked over time, pension costs may affect their credit ratings, which in turn could drive up their borrowing costs and deepen any financial difficulties,”” Comptroller Gelnn Hagar said in his report.

There are two reasons for this shortfall, Hegar said. First, sinced they are not ‘immediate debts,’ the responsibility for the costs of city employee health benefits does not have to be included on the city’s annual balance sheet, meaning a City like San Antonio can legally claim to have a balanced budget, which is required by state law, and still have a billion dollar plus debt overhang.

Also, since frequently city governments can’t match the salaries which a person could make in the private sector, the promise of a cushy pension is frequently used to attract employees. Many police officers and firefighters, for example, say the pension and retiree health care benefits were a major reason they signed on with the City to begin with.

And municipal pensions are not ‘defined contribution’ plans like the 401-k style retirement plans most private sector workers have.

They closer resemble the ‘defined benefit’ pensions which used to be standard in the private se

“A pension provides monthly payments to employees upon retirement, generally based on their pre-retirement income and years of service to the employer. Both the employer and employee typically contribute a percentage of salary each month to a fund until the employee is “vested” — eligible to receive pension benefits from the fund after working a certain number of years — and has retired,” Hegar said.

And that, according to Weinberg, will be the problem dealing with these pensions. She says since the private sector taxpayers who would be asked to cover the debt in any ‘bail out’ plan can’t look forward to receiving anywhere near the level of retirement benefits which are enjoyed by the government sector workers, it will be difficult to get people to vote to pay for benefits for somebody else that they can’t receive themselves.

“Their pension plans went away, but the city and state workers still not only still have pensions plans, but most cities have ‘Cadillac level’ retirement health care benefits,” she said.

The problems with rising costs of health care benefits are seen in the lengthy battle between the City of San Antonio and the Firefighters Union. The key which has led to the four year standoff has been a city demand that the firefighters accept a contract which includes the employees paying more of the costs of their health care, to avoid what City officials call a ‘crowd out,’ where the costs of employee health care ‘crowds out’ available city resources needed for everyting from street repair to libraries.

“When the bills come due these cities are going to face a lose-lose dilemma,” she said. “Renege on promised benefits to public servants, or else fix the problems on the backs of future taxpayers.”

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