The Austin American Statesman recently reported that a group of Houston corporate executives want to eliminate public pensions for future teachers, fire fighters, police, and other state and local government workers. Bill King, an investor and principal in several companies including Global FBO Holding, Inc., Politicalendar, LLC, and EmLogis, told the Statesman that public pensions are too risky for taxpayers.
King is heading a group of business people in the Houston area who are forming Texans for Public Pension Reform. The group is composed of Houston-area business people, who own assets totalling $1.5 trillion. The group plans to initiate a public relations campaign to build support for ending public defined benefit pension plans, which guarantee retirement security, and replacing them with defined contribution plans such as 401(k) plans, whose value depends on the ups and downs of the stock market.
If King and his well-heeled group succeed, Texas taxpayers could be the biggest losers. For one thing, public pension funds pump billions of dollars into local economies. The Perryman Group, an economic and financial firm based in Waco, reported in 2009 that pension payments to members of the Texas Teachers Retirement System are “a notable economic stimulus to communities across the state,” generating $12 billion a year in business activity, 87,000 jobs, and $8.5 billion in state and local tax revenue.
Other public pensions such as the Texas Employee Retirement System for state workers and local government pension plans while not as large as the teachers’ pension system also pump billions of dollars into local economies of all 254 Texas counties.
If the state and local governments stop or reduce funding for pensions as would happen if King’s proposal succeeds, pension payments for millions of Texans would either be substantially reduced or possibly eliminated, hurting not only those who receive pensions but local businesses where retirees spend their money as well.
Maintaining public pensions, on the other hand, is a good bargain for taxpayers. The promise of a secure pension and other benefits help attract and retain qualified people to teach our children, protect public safety, and provide other essential services. These benefits help offset the lower pay that public service workers receive. The Center for State and Local Government Excellence estimates that public service wages in Texas are 16 percent to 17 percent lower than pay for comparable work in the private sector.
Furthermore, the pension benefit comes with a very low price tag. According to the National Association of State Retirement Administrators, public pension contributions comprise only 1.95 percent of state and local government budgets in Texas.
And as far as risk to the taxpayer goes, in Texas that risk is very low. Both the Texas Teachers Retirement System and the Texas Employee Retirement System have more than 80 percent of the cash and assets on hand right now to pay their future obligations.
Finally, it will cost quite a bit to eliminate public pensions and replace them with defined contribution plans. During the last session of the Texas Legislature, Rep. Warren Chisum sponsored HB 2506, which would have converted teachers’ and state employees’ pension plans to defined contribution plans. The Legislative Budget Board estimated that doing so would cost Texas taxpayers $3.1 billion over just a two-year period between fiscal years 2012 and 2013.