Texas’ big cities get poor marks for fiscal health

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Pension

Three of Texas’ largest cities are also among its poorest fiscal performers, due in large part to unfunded retiree benefits, according to a national fiscal watchdog group.

Houston, Fort Worth and Dallas all fared poorly in an annual study by Truth in Accounting. The Chicago-based group promotes fiscal responsibility in all levels of government.

In its annual study of municipal finances, TIA found that the country’s most populous 75 cities collectively hold $330 billion in unfunded debt.

By TIA’s reckoning, Dallas has $7.8 billion in unfunded debt, Houston $7.4 billion, and Fort Worth $3.1 billion.

TIA lists more debt than cities show on their comprehensive annual financial reports because those documents don’t include unfunded retiree healthcare benefits, Bill Bergman, TIA’s director of research, told The Texas Monitor. But that will change next year, as new accounting rules go into effect.

TIA ranks cities by per capita tax burden. Dallas residents each owe $24,000, Fort Worth residents $12,500, and Houstonians $11,300. Dallas’ per capita debt load, according to the report, is heavier than all but five other cities studied.

Other major Texas cities showed much lower per capita tax burdens than the worst three. According to the TIA, Austin’s burden was $4,300 per citizen, Corpus Christi $1,100, San Antonio $3,200 and El Paso $4,500.

TIA found that cities’ poor fiscal health stems primarily from the same source as the fiscal woes of states: a lack of proper funding to meet pension and health-care promises to its retirees. Fiscal hawks have warned for years that the stock market’s gains can’t keep up with the guarantees that have been made by bureaucrats – and unwittingly backed by taxpayers.

Nearly all of the debt for poorly rated Texas cities comes from guarantees to retirees. Dallas has $7.3 billion in unfunded retiree pension and health-care debt, while Fort Worth’s tally is $3.1 billion. Houston’s debt burden to retirees is $7.2 billion.

Investor services downgraded Fort Worth’s bond rating last year, largely due to pension issues, as The Texas Monitor reported. The Austin Employees’ Retirement System is in financial crisis for the same reasons.

Two Texas cities actually showed a surplus – Plano ranked 9th with a per-taxpayer surplus of $1,800 and Arlington was 12th with $100 per resident.

Bergman said cities that file their comprehensive annual reports on time tend to be in better fiscal shape than those that file late. Plano and Arlington, for instance, both filed in a timely manner, while Dallas, El Paso and Corpus Christi filed just past the deadline.

Overall, big cities fared worse than smaller ones in his survey. In addition to the pension problem, Bergman said, big cities have deeper social service needs.

While TIA advocates fiscal conservatism, Bergman said, politicians should be willing to tax current citizens at high enough rates to meet those needs, rather than kicking the can down the road and creating debt for future taxpayers.

“If they make the commitment to the poorer people, they need to fund it,” he said.

Johnny Kampis can be reached at [email protected].

3 COMMENTS

  1. Most small and midsize cities are members of Texas Municipal Retirement System. This is a Defined Contribution plan that only pays out what the employees paid in along with the employers match. What has gotten the big cities in trouble is promising future benefits and then not booking the required $$$. That is the problem with Defined Benefit plans.

  2. At some point, government entities are going to have to go the route of many major businesses and phase out retirement pensions and the let the employees craft their own through other methods.

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