THE CHRONICLE ran a brilliant op-ed recently on Houston's coming pension tsunami.
Liabilities -- or promised benefits -- are much larger than the assets that have been set aside to fund them in the future.
(John Diamond, "Next mayor must fix pension problems," Houston Chronicle, October 11, 2009) [The Chronicle's link is dead, but the essay is still available here at the Baker Institute Web site.]
[The] problem is much worse than the current city government appears willing to admit. . . .
. . . .
As of July 1, 2008, future taxpayers are on the hook for $2.3 billion -- a $1.7 billion unfunded liability in the pension funds and $567 million in general fund liabilities. Unfortunately, this is almost certainly an understatement of the true future taxpayer liability . . . .
. . . .
Current city policies are also contributing to this problem, and disastrous consequences are inevitable if they are not abandoned. Most troubling, the city's contributions to the pension fund have been below the actuarially required rate . . . in every year since 2004. . . . The fact is that city projections assume an 8.5 percent return (after expenses) on invested assets, which is on the high end of reasonable estimates. . . . [It] is always easier to push costs on to future taxpayers rather than deal with them now.
Solutions to this mess are not going to be easy or painless, but the sooner the problem is addressed, the better.
Read the whole thing for Dr. Diamond's sensible solutions.
And remember that the chart below understates the problems facing our children and grandchildren. It covers only federal spending. Houstonians, already set for ruination by their national government, will also need to scrape up extra dollars for retired city employees.
UPDATE: Thanks for the links from Harris County Almanac and blogHouston.
* * *
BlogHouston also linked to Mayor White's response to Mr. Diamond's op-ed. Money quote:
The reality is that the existing, vested pension liabilities are a long-term debt. So by funding them in part with debt we do not increase the city's liability. We would have had to raise city property taxes by more than 50 percent in one year to have reduced the same amount of pension liability with no debt.
By converting part of Houston's unfunded pension obligations into bond-financed debt, the size of the overall liability was not increased, as the mayor correctly argued. But he then suggested in a very misleading way that financing part of those obligations with debt had somehow reduced the outstanding pension obligations in the same way that the obligations might have been reduced by hiking taxes and tossing the new money into a reserve fund.
It did no such thing. In essence, the city simply moved the liabilities out of one account and put them in another.
The mayor's comparison between borrowing and higher taxes is a red herring. The proper comparison is between leaving pension claims as unfunded liabilities or covering them, in part, with borrowed money -- a bookkeeping transaction, really.
The mayor's response is an example of how a politician, by stringing together a lot of authoritative-sounding verbiage, can give the impression that he has answered a question that he has not really answered. Far better would have been for the mayor to agree that Houston has a problem and forthrightly suggest some answers. Instead he said, in essence, "Don't blame me."
Mr. Diamond's point is that Houston has a big problem and needs to do something about it. Nothing the mayor said changed that. He followed the time-honor practice of kicking an intractable problem down the road for our children and grandchildren.
The original OpEd can be found at:
http://www.bakerinstitute.org/publications/TEPP-pub-ChronDiamondPensions-101109.pdf
Posted by: Joan | November 1, 2009 at 08:43 AM