Sunday, April 05, 2015

Planning for City's Unfunded Pension Liability

San Angelo's City Council will hear financial audit results this Tuesday.  The Comprehensive Annual Financial Report will cover the state of the city's finances as of the end of its last fiscal year, 2013-2014.  The partner presenting last year alluded to a monstrous pension liability, one that would be revealed in 2015.

Employee pay made the list of strategic plan priorities but benefits/retirement did not.  The City of Houston faces a $3.2 billion pension deficit.  Their City Controller wrote:

As I wrote in the city's most recent Comprehensive Annual Financial Report, the options - service and employee reductions, increasing property tax, restructuring the pension plans - are not easy choices for elected officials.

San Angelo faces other needs, in addition to funding pensions and retirement health benefits.  Streets and water pipes will require hundreds of millions to update and repair.   The pursuit of new water sources will be similarly expensive.  Recall the Hickory Water project cost $120 million.

Houston wants to kick their problem to the Texas legislature:

Clearly, at some point (hopefully, sooner rather than later) the city's administration and City Council, pension boards and Texas Legislature will need to work together to ensure fair pensions for city employees who have invested years of dedicated service, at a price that is not an unfair burden upon taxpayers.
I look forward to hearing what the auditor cites as San Angelo's unfunded pension liability, why council has been quiet on this looming obligation and options for addressing this gap.  Consider what the city wrote while seeking audit bids last August:

What do you consider the most significant risk at this time facing the City?

Grants have been an area of risk in the past. However, there were no findings or questioned costs in the FY 2013 audit. Part of the reason for the improvement is that the City hired a Grant Manager who now has the role of grant oversight and compliance monitoring. Pension funding, while not necessarily a risk, will be an upcoming issue.

I anxiously await former Police Chief Russell Smith's advice for Council.  It's the last item on the agenda before their customary closing.

Update 4-9-15:  Auditors stated the net pension liability is "unknown at this time."   One of their pension tests showed a $97 million unfunded pension liability.  We'll find out next year the estimated number.  How much debt will be committed to other purposes (streets and water) by that time?  Employees, especially those that helped the city come in under budget, should pay attention.

Update 4-10-15:  For every issue there is a time.  San Angelo's pension situation has been worthy of discussion for years, but City Council kept kicking the can down the road, much like our street situation.  Council will have no choice but to face its pension situation next spring.  The City may benefit from a national campaign to reform pensions, one orchestrated by a former Enron trader and hedge fund manager.   That bit of information alone tells you who wins in reform.  It's not the little guy. 

Update 4-12-15:  GASB states on the new pension accounting requirements:  "This Statement is effective for fiscal years beginning after June 15, 2014. Earlier application is encouraged.

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