businessPersonal Finance

Relief is not in sight for Texas’ underfunded public pension plans

Out of 99 state and local plans, 68 are underfunded by a collective $86 billion. Who will cover that shortfall?

Second in a three-part series

Texas has 99 public pension plans.

It’s an amazing array.

They cover teachers, hospital workers, workers for local fire and police departments, city workers and others. The largest has 1.6 million participants. The smallest has nine. Some have produced reasonable investment results. Some have not.

A handful — five — are “overfunded.” This means their assets cover at least 100% of promised pension benefits. An additional 26 are reasonably well-funded. They have just under 100% down to 80% of the assets needed to fulfill their pension promises.

The other 68 plans cover a wide range. Some are slightly troubled. More than a few are so underfunded that failure is virtually certain.

But let’s not get hung up in the trees. Let’s see the forest.

If you put them all together, our state has nearly 2.8 million public pension plan participants. It also has total unfunded liabilities of $86 billion. That’s the amount of additional assets the plans would need to fulfill their promised retirement benefits to current and future retirees.

Actually, $86 billion should be considered a moving guess. Why?

Well, I arrived at $86 billion by adding the unfunded figure for each pension from the database on the Comptroller of Texas’ website. It shows the most recently reported figure from each of the 99 pensions. While the most recent was from the end of 2019, the majority have reported no more recently than the end of 2018. One, the Nacogdoches County Hospital District Retirement plan, last reported at the end of June 2016.

Let’s hope Nacogdoches County Hospital responds to medical emergencies in a more timely manner.

We could be optimistic and assume that the 2019 reports, when all are in, will show significant improvement. It may be hard to remember, but 2019 was a great year for investments. Then again, we have no idea how the current year will turn out.

So let’s just take that $86 billion figure and live with it. It’s the best available number.

At a time when figures from our federal government are denominated in the trillions, not mere billions, you might be thinking, “Hey, Texas is a big state, we can easily handle a piddling $86 billion.”

If you thought that, you’d be wrong.

You can begin to understand the problem underfunded public pension plans present when you compare that $86 billion to figures for tax revenue in our state. Total tax revenue for 2019 came in at $61.74 billion. Yes, there were other revenue sources. But taxes are the main revenue engine.

In other words, bringing Texas public pensions to full funding would take about a year and five months of income from every tax the state now imposes on whatever it can tax.

That’s more than a spicy meatball.

Perhaps we should look elsewhere, like the lottery. The state netted $2.5 billion from the lottery in 2019. If the entire proceeds of the lottery were allocated to unfunded pensions, it would take a bit over 34 years to bring the pensions to full funding.

Is that a bit too long? Most likely it is.

OK, let’s try a traditional favorite, sin taxes. If we doubled the current tax on alcoholic beverages, and everyone considered it their immoral imperative to continue drinking as much as they do now, the new tax might bring in the $1.373 billion it brought in back in 2019. Alternatively, we could keep the current tax on alcoholic beverages the same if we all pledged to double our drinking.

Sacrifices must be made. But don’t get carried away. Wear your mask, stranger.

Either way, it would take nearly 63 years to bring all pensions in the state to full funding.

All I can say is, “The spirits may be willing, but the liver is weak.”

Fortunately, drinking isn’t the only sin that can be taxed. There’s always cigarette and tobacco taxes. They brought in $1.41 billion in 2019. Double those taxes, and we’d bring the time required down to about 31 years.

Looks like we’re onto something.

Perhaps we should expand our notion of sin.

How about doubling the taxes on all that icky oil and natural gas production? Oil brought in $3.887 billion in 2019. Natural gas brought in $1.686 billion. Together, they brought in $5.573 billion. That’s enough, if doubled, to end underfunding in 15 years.

But why be so timid about doubling a few taxes here and there? Why focus on cigarettes, booze and energy?

How about plain old consumption?

Yes, tax it all. Double the current level.

Our current sales tax brought in a stunning $34 billion in 2019. So if the tax rate is doubled and if we all buy just as much as in 2019, well gee whiz, we’ll get those pensions fixed up in only 2.5 years!

But.

Yes, there is always a “but.” Read my lips: These changes are as likely as seeing a snowman in Dallas this summer. They should, however, give you a sense of how large the problem of unfunded public pension liabilities is.

Next Sunday: Scott examines the trees in the Texas public pension forest.

Scott Burns, Columnist. Scott Burns is the creator of Couch Potato investing and a longtime personal finance columnist for The Dallas Morning News.

scott.burns@dallasnews.com /scott.burns.52056 @scottburnsSAL
Business Briefing

Business Briefing

Become a business insider. Get the latest headlines delivered to your inbox every weekday.

By signing up you agree to our privacy policy