I have three things to say about this.
Texas could be gearing up for its own Wisconsin-style grudge match over public employee benefits.
A group of high-powered Houston business leaders is starting a statewide campaign to overhaul retirement for future teachers, firefighters, police officers, judges and other state and local government workers.
“I think the state needs to get the hell out of this (pension) business completely,” said lawyer Bill King, who is forming Texans for Public Pension Reform with others from the Greater Houston Partnership, an über-chamber of commerce with business members representing $1.5 trillion in assets.
Taxpayers bear too much risk on behalf of public employees by providing them a guaranteed retirement that most private sector workers don’t get, King said.
But advocates of the public pension system say there are ways to eliminate or reduce risk without doing away with the program.
“They don’t have to destroy a system that works,” said Keith Brainard, research director of the National Association of State Retirement Administrators.
He said government pensions provide retirement security for millions of Texans in a cost-effective manner for taxpayers. Research by the Center for Retirement Research at Boston College shows that professionally managed pension funds produce better investment returns than 401(k)s and cost less to administer.
King said the campaign is in its infancy, and its specific goals are still being developed. It’s not clear how the campaign will get involved in next year’s elections or the 2013 legislative session, but King said he is confident the campaign will soon make pensions an issue for lawmakers.
King said he would support a constitutional amendment eliminating public pensions in the state and moving all government employees to retirement accounts akin to 401(k)s. Legislators would have to approve such an amendment on the ballot when they convene in 2013.
King, the son of a union pipefitter, said he was disappointed with the anti-worker tenor of the Wisconsin battle over collective bargaining rights. This campaign, he added, is not intended to bully public employees.
Well, that’s nice to hear, and I don’t have any particular reason to doubt King’s sincerity on this, but let’s be honest: It’s highly likely that if this campaign gains any traction, it will pick up support from people who will be happy to demonize and bully public employees. To think that won’t happen is naive. It’s also the case that no matter how good King believes his own intentions are, once the employees whose pensions are threatened by this become engaged, they’re likely to play rough, too. It will be easy to blame them for any shift in rhetoric that King’s campaign will feel the need to make down the line.
Both the Employee Retirement System of Texas and the Teacher Retirement System of Texas have more than 80 cents for every dollar needed to pay their long-term obligations, a level considered to be a benchmark of a strong fund. The state funds also have tight restrictions on contributions and benefits.
There are about 1,800 public retirement systems in Texas, the vast majority of which are small cities and counties that pool their resources for investment purposes. The big cities, however, have mostly set up shop on their own and have separate plans for police, firefighters and other municipal workers.
Given the large number of plans in Texas, Brainard said, the state “has been striking in the relative absence of abuse and pension problems.”
Where there have been problems, Brainard said, they have been in the big-city pensions. Those plans have fewer constraints on increasing benefits than do the state systems.
The sentiment that pensions are unsustainable gained traction across the country after the 2008 financial market collapse sank the value of funds everywhere. State and local governments failed to cover $660 billion of their $2.94 trillion in pension liabilities last year, according to the Pew Center on the States.
There’s nothing in this story to indicate how big a problem King is talking about. We know Houston has some pension issues, and the story gets into that, but its problems mostly stem from a change to pension benefits that was made a few years ago. If the state or other cities have similar issues, you wouldn’t know it from this story. How much money are we talking about, and how much of it is attributable to the economic downturn? If you’re going to claim there’s a crisis, then show me some numbers.
By the way, on the matter of Houston’s pension problems, one of the issues the city faces is that its options for taking action to deal with it are constrained by state laws. If King and the Greater Houston Partnership have done anything to help persuade the Legislature to give Houston more tools for taking care of this, I am not aware of it and the story does not discuss it.
The problem is that states can’t save money anytime soon by doing away with pensions.
In fact, it costs more in the midterm because taxpayers must contribute more to cover the benefits accrued by retirees and current workers because new workers would no longer be chipping in to the pension, [Stephen Fehr, a researcher with the Pew Center on the States] said.
When a Texas Senate committee looked in 2008 at a similar pension conversion, the committee found no compelling reason to do so.
The state’s Pension Review Board at the time estimated the combined contribution from the state and employees to the Employees Retirement System of Texas would have to rise from around 17 percent of payroll to as much as 30 percent if the pension were closed to new people.
In 30 years, the contribution rate would climb beyond 80 percent .
Nevertheless, King argues that finally wiping clean the public pension liabilities is worth the higher costs now.
“It will require sacrifices in city services and higher taxes than would otherwise be necessary,” King wrote. “But at least the number will be finite, unlike in our current predicament.”
Again, if you believe in this environment that there would be any kind of tax increase to help cover the cost of shifting to a 401(k) plan, you are naive in the extreme. The cost would be covered by general revenue, which would either mean further cuts to things like public education, or more budgetary flimflam like what we saw this session with deliberately underfunding Medicaid. That’s not acceptable, especially for a problem whose scope is not clear, but it’s what we’ll get for as long as we have a Lege that resembles the current one. When we get these mostly Republican-created problems that are affecting us right now under control – that is to say, when we get a different Legislature, one that really is fiscally responsible – then maybe we can talk about this. Texans for Public Pension Reform, you let me know when you’re willing to help with that effort. EoW has more.