Back in March, Congress swiftly approved a $2 trillion aid package which included direct payments to citizens, business loans, and buttressed unemployment insurance funding.
The bill, however, did not provide much for state and local governments. While being immune to the mandated shutdowns many businesses have suffered — and often being the source of them — state and local governments are not immune to revenue blows in their own right.
One example is Texas’ “Rainy Day Fund,” which will certainly take a hit as transportation demand has cratered.
In April, revenue from sales taxes declined by over nine percent from the same month in 2019. This has left local government officials concerned about spending cuts that come with tax revenue declines.
The City of San Antonio furloughed 270 employees after its hotel tax revenue all-but disappeared in early April.
House Speaker Nancy Pelosi (D-CA) is reportedly assembling another massive spending package which will include $750 billion in aid to state and local governments.
In their letter, the mayors state, “Congress should continue to take bold action — including broad fiscal assistance to state and local governments — to ensure that the COVID-19 does not lead to a long recession.”
The participating mayors were Sylvester Turner, City of Houston; Ron Nirenberg, City of San Antonio; Eric Johnson, City of Dallas; Steve Adler, City of Austin; Betsy Price, City of Fort Worth; Dee Margo, City of El Paso; Jeff Williams, City of Arlington; Joe McComb, City of Corpus Christi; Harry LaRosiliere, City of Plano; Dan Pope, City of Lubbock; Scott LeMay, City of Garland; Rick Stopfer, City of Irving; Ginger Nelson, City of Amarillo; Ron Jensen, City of Grand Prairie; Joe Zimmerman, City of Sugar Land.
“Despite strong Rainy Day funds, high bond ratings and lean staff-to-resident ratios, Texas cities are far from immune from the fiscal pain inflicted by this virus. Through no fault of our own, we are facing dramatic shortfalls in revenue which continue to negatively affect city budgets,” they continued.
Though many of the impacts of coronavirus cannot be mitigated against, at least part of these real and projected revenue downturns can be traced to the closure orders these entities and the state are implementing.
Nonetheless, governments at all levels will still face difficult financial times — made even more difficult by the amount of unfunded liabilities they must continue to pay month to month as tax revenues decline.
An “unfunded liability” is money promised to a payee, most often in the form of a pension, that has not yet been paid. One of the usual perks of being a government employee is the generous pension that accompanies it.
Governments backend this cost to lighten their financial burden in the short term, as a comparable salary increase would dictate.
Very often, money is not set aside to pay for these liabilities and are instead financed bit by bit when the payment due date arrives — sometimes funded by the consumption-based taxes that come in — with money that should be going to the next set of pension payments. But putting off the pension payments has resulted in large sums of unfunded liabilities.
One extreme example is the State of Illinois which currently owes a whopping $241 billion to its pension system.
As of January, Texas has over $70 billion in unfunded liabilities across its seven pension systems.
According to the Texas Comptroller’s Office, the 15 cities whose mayors signed the letter requesting federal assistance collectively owe $13.7 billion in unfunded pension liabilities — which comes out to nearly $100,000 per member (or individual payee).
For perspective, these are all pre-coronavirus figures.
Houston, Dallas, Austin, and Fort Worth make up 90 percent of that total, and Dallas is currently being sued by its Police and Fire Pension system for missing $2 million in payments.
Notably, Arlington, Plano, and one of El Paso’s pension systems are in the green, having paid in more than they owe.
Additionally, the cities of Garland, Grand Prairie, and Sugar Land do not have their own pension systems but instead pay into the Texas Municipal Retirement System (TMRS).
TMRS has $4.3 million in unfunded pension liabilities.
According to the Pension Review Board’s May meeting minutes, the City of Irving is not paying its actuarily determined contribution (ADC) — the payment it is required to make into its pension system(s) — despite saying so in its annual report.
The cities, of course, have other costs that are more directly affected by the immediate tax revenue diminution. But it is their entire debt burden that would be helped by federal funding — for the time being anyway.
Should these mayors get their wish, a stopgap measure will have been provided that may allow them to avoid addressing some of the biggest causes of their financial problems.
Borrowing money like the federal government can is not an option for localities, and so these mayors are looking to Washington for a lifeline.
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Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.