There was once a battle in the far away land of Wisconsin, where noble crusaders clashed bitterly with the clinging, desperate remnants of unions over a collapsed and unsustainable public pension system. The crusaders won, though the peace was fraught with tension and recall elections. Meanwhile, back in Texas….
A situation is brewing that has received scant attention in the Lone Star State, but that will add to the list of budgetary issues that must make legislators and taxpayers sit up and pay attention. Retirement benefits for state employees, extended to teachers, judges, public safety employees and more, may be in danger if reform isn’t taken seriously now. Right now, retirement benefits are considered funded, though skating perilously close to the edge. As the liability for such benefits grow every year, and the state’s obligations grow as well, the likelihood that the current system is sustainable shrinks. We’re looking at continued conflict even when revenue is up and the economy balanced; the current state of things provides us a unique opportunity to seek and salve the worst wounds now.
Defined benefit plans were scrapped in the private sector precisely because they were considered unstable; there was no way to guarantee payment long-term as the burden became greater. The public sector is not tied to the same financial requirements that exist in the private sector, and the political pressure (and political ignorance) stopping reform has been so far successful. It seems, though, that the heat may finally be turned up in favor of reform, as activists come forward. The burden on local governments has been apparent to many for years, and other states face dire financial hardship as a direct result of their own encumbrance.
There are solutions for Texas. Texas Public Policy Foundation’s Talmadge Heflin (a former state representative who saw the problem firsthand) testified before the House Committee on Pensions, Investments, and Financial Solutions in April with ideas such as moving Texas to defined contribution plans, using Health Savings Accounts to cover unfunded medical liabilities, freezing the defined benefit plan for new employees, and more. Rep. Warren Chisum (R-Pampa) introduced HB 2506 in an effort to kickstart reform, though it was left pending in the midst of an already tense session. The question is now whether there is the political will for reform, especially as Texas seeks to address school finance and the increasingly horrifying health care and Medicaid situation.
Texas needs to learn from the states that are refusing to institute reform even in the face of financial ruin, to prevent the same situation from occurring here. It isn’t a scary bedtime story – it is the future, and action must be taken to prevent the worst. The next legislative session to-do list is getting ever longer, but Texas cannot afford the simple lip service paid to this issue in various 2010 election contests elsewhere. The interim is a great time to build a reform agenda, ready for a big push come January 2013.