Texas takes the lead on public pension transparency
Texas Watchdog.org explains how Texas is mounting the transparency pony:
A quartet of the most powerful legislators in Texas filed bills Thursday to make available to the public detailed financial information from most local taxing entities and pension systems across the state.
Senate bills 14 and 13 and their identical House counterparts establish, at the request of state Comptroller Susan Combs, new requirements for the posting of public debt, unfunded liabilities, borrowing and project costs on websites maintained by state and local agencies.
This new legislation, if passed and signed by the governor, has the potential to set the gold standard for public accounting of spending and taxpayer liabilities. The legislation would require the posting of all tax rate information:
…committing the [State] Comptroller to maintaining tax rate information for every political body collecting a sales or use tax in the state, updated by the assessors and collectors for those bodies.
Outstanding debt for each local or special district issuer would be posted:
The state’s Bond Finance Office would post on a website a list of all outstanding local securities and schedules for their repayment. In turn, the issuers of local securities would submit reports of their activities to the state.
Under SB 14, the public would get more detailed information about the issuing of bonds, the rationale for their issuance and a tally of outstanding debt incurred by the bonds.
Cities and special municipal units (sewer systems, etc.) already must disclose their outstanding debt obligations in CAFRs (Comprehensive Annual Financial Reports) for any new bond offerings. But these documents are often very complex and it is often difficult to find data. Requiring separate and public disclosure of this data would make it much easier for taxpayers to understand.
For what is often the biggest secret liability, pension funds are required to disclose data under the plan. Here is what would be required:
The bill would require from all pension systems, including the state’s two largest, the Employees Retirement System of Texas and the Teacher Retirement System of Texas, financial reports that would include:
- Net investment returns for each of the most recent 10 fiscal years
- Net rate of return for 1,3, 10 and 30-year periods
- Net rate of return from the founding of the pension plan
- Current and future anticipated rate of return on investments
This is a good start on pension disclosure, but it is not really enough to judge the soundness of a plan solely on the basis of past and future returns. This is because the assets might be too risky or the projected returns too high. Don van Deventer of Kamakura, a risk management firm, recently blogged about this issue:
Unfortunately, an obsessive focus on expected return and inattention to risk management is typical in the public pension fund arena. The results have been disastrous, and they may well get worse. This blog summarizes the reforms in disclosure and risk management of public pension funds necessary if fund beneficiaries and taxpayers are to be protected and if plan sponsors are to avoid bankruptcy.
van Deventer has some specifics:
The fund should make complete disclosure to voters, taxpayers and pension fund beneficiaries on an economic basis, not just on a statutory basis.
Fund management should explicitly model the high fee levels on current high risk asset classes and the impact of these fees on historical and simulated returns.
Texas is on an excellent path to increased public disclosure of taxpayers liabilities. Kudos to Senator Tommy Williams, Representative Jim Pitts, Senator Robert Duncan, and Representative Bill Callegari for moving this issue center stage. And a special shout out to state Comptroller Susan Combs, who has made transparency an important centerpiece in her efforts.