Taxpayer Liabilities are Growing But We are Kept in the Dark

Texas taxpayers are accumulating a massive debt but politicians won’t tell us how much we owe.  The state legislature passed a law in May banning local and state governments from reporting financial liabilities for government retiree benefits. 

Standard and Poor’s estimates that unfunded liabilities in state and local pension and benefit plans for public employees are approaching one trillion dollars nationwide.  So how big is the Texas portion?  We know that taxpayers face a $36.8 billion unfunded liability for health care and other benefits for current and future state retirees only an estimate disclosed in a national report of public-sector retirement benefits. 

The Pew Center for the States revealed that more than a dozen states have established trusts to help pay for nonpension benefits.  All states but Texas report that liability. 

The Texas problem is three-fold: the state has a large public workforce most elected officials won’t accept responsibility or plan for the future budget shortfalls and how much we owe is withheld by the government leaving taxpayers with little verified information and no government accountability.

Texas has a large government workforce with over 13 percent of the workforce employed by the state and local governments leaving us with large current and future funding obligations.

The Pew report only addressed state employee post-employment liabilities and did not include cities counties and school districts retiree benefit costs – costs that taxpayers will be responsible for too.

Governments in the Lone Star State long considered a pay-as-you-go state already have considerable debt.  Local government debt has grown five times faster than taxpayers’ incomes growing to $139.9 billion or more than $22800 for a family of four.  In other words local governments have borrowed so excessively that they carry debt equal to the cost of buying a new GMC Sierra for every family in Texas.

As more public employees retire taxpayers will be footing the bill for post-employment costs even as the state employee rolls grow.  (Texas employed 1.3 more in 2007 than in the previous year.)  As unfunded liabilities accumulate higher taxes will be required to finance the programs.

Elected officials will not accept responsibility for the liabilities since when the bills come due they will no longer be in office to deal with the fallout. 

In fact public employees might be shocked to know that during the legislative session lawmakers claimed that promised post-employment benefits are not truly liabilities as they are not firm commitments.

Texas is the only state to pass legislation that hides the anticipated costs from taxpayers who will foot the bill.

In an impressive blow to transparency and accountability legislators took the unprecedented action of requiring state and local government to prepare financial statements which remove the future financial obligations.  In doing so they mandated governments violate generally accepted accounting standards.

Texas legislators rejected the standards set by the Government Accounting Standards Board (GASB) which require state and local jurisdictions to disclose unfunded liabilities in their benefit plans for public employees.  Those standards require disclosing how the unfunded liabilities will be paid over a thirty-year period. 

By not reporting these liabilities politicians may also force higher interest rates on taxpayers.  A leading global credit rating agency announced that Texas’ failure to report post-employment liabilities has potential negative credit implications for state and local governments.  As it is just the interest payments on local debt totaled more than what local governments spent on police and fire protection combined in 2004.  Taxpayers may be stuck with still higher taxes to pay the higher interest rate on those bonds.

While Texas officials refuse to address the problem other states have rolled up their sleeves and tackled the issue.  Many across the country have enacted reforms similar to private corporations by replacing defined benefit plans with defined contribution plans the best way to resolve the problem with post-employment benefits.

But no problem can be fixed if we don’t know how big it is.  When the legislature meets again lawmakers need to reverse their decision to keep taxpayers in the dark.  Only then will responsible state and local governments begin enacting reforms them to make government programs financially solvent.

We can’t afford to stick our collective head in the sand and ignore government liabilities that leave massive debt to future generations.  It’s not the legacy we want to leave our children and grandchildren.