A national watchdog group says that the State of Texas’ finances are continuing to deteriorate, as shown by recent statistics on relative debt burden among U.S. states.
Chicago-based Truth in Accounting ranks Texas 33rd among the states, earning it a “D” grade in the group’s 2019 Financial State of the States study.
The group says that Texas taxpayers would each owe $12,100 if the state paid off all of its liabilities today.
That is a $2,000 increase from 2018, when the debt burden per taxpayer was $10,100.
Bill Bergman, director of research for Truth in Accounting, told The Texas Monitor that most energy-intensive states, such as Alaska and North Dakota, fare well in the annual report, “but Texas is not like that.” Those two states rank one and two, both showing taxpayer surpluses.
“We would expect Texas to rank significantly higher,” he said. “It’s surprising to see Texas where it is.”
Bergman said the financial condition of Texas has “significantly deteriorated” in the past several years, dropping seven spots on the list since 2013. While that can be partially attributed to depressed oil prices, he said the overall Texas economy is strong and should fare better.
The major issue for Texas is the same that many other states are facing: unfunded pension and health-care benefits to public-sector retirees. Of nearly $180 billion in Texas’ accumulated bills, nearly $59 billion represents pension promises to such retirees, plus more than $71 billion for health-care benefits to those same former employees, according to Truth in Accounting’s numbers.
“The state has chosen not to put money aside to pay for those benefits,” Bergman said.
In total, according to the report, Texas has $81.3 billion in assets to pay $179.9 billion in bills. That $98.7 billion shortfall is what breaks down to $12,100 per taxpayer.
Nationally, Truth in Accounting found that 40 states have racked up a collective $1.5 trillion in unfunded state debt.
The Truth in Accounting report said those numbers are more transparent than in the past because generally accepted accounting principles set by the Governmental Accounting Standards Board now require governments to reveal pension and other post-employment benefits on their balance sheets.
A February post on the Texas Comptroller website said that growing pension liabilities could affect the finances of state agencies.
“If left unchecked over time, pension costs may affect their credit ratings, which in turn could drive up their borrowing costs and deepen any financial difficulties,” wrote Spencer Grubbs and Amanda Williams.
The authors note that the estimated median assumed rate of return for U.S. public pension investments was 7.38 percent, yet a 2018 Pew Charitable Trusts study of 44 state pension systems found the actual 10-year rates of returns on those plans averaged just 5.5 percent.
The comptroller website post said that two of seven Texas public-sector state retirement plans have “infinite” amortization periods, which means they will never have enough funds to pay for current and future retirement benefits owed, based on current actuarial assumptions and contribution rates.
This kick-the-can-down-the-road mentality results in future taxpayers – including those not yet born – paying for past government services, Bergman said.
“This is a form of taxation without representation,” he said.
Johnny Kampis can be reached at [email protected].