Texas’ Retired Employees Obligations: Case Study – City of Houston

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Presentation transcript:

Texas’ Retired Employees Obligations: Case Study – City of Houston Bill King www.BillKingBlog.com www.BillKingHouston.com

Pension Plans Three Plans State law mandates defined-benefit plans Police Fire All other Municipal Employees State law mandates defined-benefit plans Contributions to trust fund City Employee Trust fund administration (also mandated by state law)

Categories of Obligations Pension Plans Underfunding Pension Bonds Retiree Health Benefits Totally unfunded

Funding Adequacy Measuring adequacy of funding Variables – actuarial & investment return assumptions 8.5% rate of return on investments Actuarial Studies - Annually as June 30

City Contributions 2000 = $100 million 2010 = $233 million More than Parks, Library, Health & Solid Waste Departments, combined 2020 projected = $505 Million Will be about ½ of all property taxes collected by the City at that time

Unfunded Liability - Actuarial Calculation 2010 Actuarial Studies $2.3 Billion Pension Bonds $.6 Billion Total $2.9 Billion

Unfunded Liability - Market Value Calculation 2010 Actuarial Studies $3.8 Billion Pension Bonds $.6 Billion Total $4.4 Billion

Funding History

Unfunded Liability Continues to Grow

Retiree Health Benefits Estimated Liability as of June 30, 2006 $3.0 Billion Annual Cost 2002 - $21 Million 2010 - $59 Million

City’s “official” numbers Perspective City’s “official” numbers Worst case Per Capita $2,521 $3,826 City’s Net Assets ($3.4 Billion) 1.7X 2.8X City’s Annual Budget ($3 Billion) 1.9X 3.1X City’s Total Bonded Debt ($13 Billion) 45% 68% City’s Annual Property Tax Collections ($830 Million) 7.2X 11.2X

Not Just the City of Houston This is a Statewide Problem Estimated Unfunded Liability Statewide as of June 30, 2010: $42 Billion Estimated Unfunded Liability Statewide if FMV of assets is used: $68 Billion

Statewide Retiree Health Benefits Estimated Liability as of 2010: $73 Billion

Total Statewide Unfunded Liability for Pensions and Health Cost at 2010 Fair Market Value Pension UAAL $68 Billion Pension Bonds $2 Billion Retiree Health Costs (OPEB) $73 Billion Total $143 Billion

Statewide per Capita Debt $5,700

www.BillKingHouston.com www.BillKingHouston.com www.BillKingBlog.com www.BillKingHouston.com www.BillKingHouston.com