Legislators talked in depth about the Texas economic forecast for the 2017 legislative session at a recent conference, and in the process touched on a few other items of interest. Though teacher retirement benefits were not a focal point, one lawmaker – Sen. Paul Bettencourt of Houston – took the opportunity to assert (not for the first time) that the TRS pension plan should be restructured as a defined contribution (401k-style) plan.
The issue of public pensions arose during a conversation about debt related to the financial woes affecting local police, firefighter and municipal plans in larger Texas cities. But Bettencourt specifically included TRS when he said, “Defined benefit plans like the Teacher Retirement System and the City of Houston have to be replaced with defined contribution plans.”
This idea has been floated in previous sessions without much success. Most legislators are aware that the vast majority of Texas teachers do not participate in Social Security and need the stability of a promised monthly benefit. Despite the current market conditions that have lowered investment returns, TRS is considered to be healthy (though it is not currently fully funded).
The Texas Tribune-sponsored conference included several panels of legislators and policy experts discussing different aspects of the Texas economy and the state budget picture as the 2017 legislative session approaches. A hot topic at the conference was the specter of several unresolved matters, any of which could cost the state billions of dollars in unplanned expenditures and which, combined, could wreak havoc on the session:
- The school finance ruling is expected any day, though there is no conventional wisdom regarding how the Texas Supreme Court might rule. Previous decisions have resulted in billions of new dollars appropriated by the Legislature to shore up public education funding.
- Another lawsuit, related to whether equipment used in oil and gas production should be subject to sales taxes, could cost as much as $4.4 billion if Texas is required by the courts to reimburse taxes collected to date. That ruling is also likely to be handed down prior to the next session.
- Yet another suit against the state challenges Texas franchise tax policy. If the AMC movie theater chain prevails in its suit, Texas could spend another $6 billion in franchise tax refunds. This decision is not expected until after the 2017 session ends, but budget writers will be well aware of its potential implications for future sessions.
- Health and human services costs (beyond the “normal” increases that have skyrocketed in recent years) also are giving lawmakers heartburn. A lawsuit on the foster care system could require costly reforms if the state does not win its appeal, and Texas could face a loss of billions of dollars in federal funds if Medicaid reforms at the state level are not approved during the 2017 session.
Meanwhile, interim legislative committees continue to discuss ways to lower property and business taxes – the two major taxes that fund public education. And depressed oil prices, which have hovered well below the $65 per barrel benchmark upon which the current budget was based, have led to decreases not only in oil and gas tax revenue but in sales tax revenue.
Still, lawmakers are optimistic that the state is not in danger of a complete economic bust, in part due to conservative budgeting in 2015 but also because of economic diversification that has lessened Texas’ reliance on oil and gas since the 1980s.
Legislators won’t know how much money they’ll have to work with – and what they’ll have to spend it on – for many months, but it is certain that finding ways to meet the needs of the state while satisfying the public’s perceived demands for lower taxes will be a huge challenge in 2017.