State of Texas Debt has nearly Doubled in Last Seven Years

Want a killer Trivial Pursuit question?  How about this?

While Barack Obama was President, did the debt of the Federal government or the State of Texas increase more on a percentage basis?

Republicans are quick to point out that while Obama was president the federal debt increased far more than under any other president.  But what they rarely share is that during that same period, the debt of the State of Texas rose even faster, at least, on a percentage basis.

At the end of 2009, the Federal government was just under $12 trillion in debt.  By the end of 2016, the number had grown to $19.5 trillion, a 64% increase.  For the same period, the State’s debt went from $62 billion to $121 billion, a 92% increase.*

 

You may be tempted to explain this unfavorable comparison away by noting that Texas is growing faster than the rest of the country and, therefore, a larger increase is to be expected.  There is some validity to this argument, but even if we look at the growth of the debt on a per capita basis, Texas still comes out ahead, 70% versus 54%.  And these numbers do not count the billions in debt incurred by local governments.  We’ll be looking at that in the coming weeks.

To be fair, the State was starting at a much lower base.  Its per capita debt as of 2016 was about $4,300 compared to over $39,000 for the Federal government.  And as a percentage of GDP, the State’s debt is also much lower, although I am not sure the comparison of that metric means much in this context.

The lion’s share of the increase in the State debt has come from an explosion of its unfunded pension liability.**  I will be writing more on this issue soon, but the State’s pension debt, based on its own accounting, has gone from zero in 2000, to over $60 billion at the end of 2016.  In other words, according to the State Comptroller’s numbers, the Legislature has “borrowed” over $60 billion from the State’s pension plans by not contributing enough to fund the benefits they have promised.

It is important to note that both the Federal government and the State dramatically understate their liabilities associated with future retirement payments.  A recent Moody’s report has calculated that the State’s true pension liability is over $100 billion and, of course, the Federal government has never included a realistic estimate of the future cost of Social Security or Medicare in its accounting.

Please do not misunderstand.  I am not a debt-phobe.  Every businessperson knows that there is a time and place to use debt.  Some of you will recall that during the 2015 mayoral campaign I was the only candidate who advocated using pension bonds as tool in solving the pension crisis.

But the reality is that government at every level and both of our political parties are drunk on debt.  The Democrats gorge on debt to increase expenses; the Republicans to cut taxes, or to keep from increasing them.  Neither want to have an adult conversation with their constituents about what services do we really want government to provide and what does it costs to provide those services.  Instead, one party demagogues social issues and the other engages in class warfare and identity politics to distract the public from the fact that both are bankrupting future generations.

*  This graph begins with the increase in debt from 2009 to 2010.  Those who argue the Federal debt doubled during the Obama administration begin from the time he was sworn into office.  However, since the federal budget fiscal year ends in September, the incoming administration has a limited impact on the financial results for its first year.  It would probably be fairer to included FY2017, but those numbers are not yet available.  It is interesting to note that the rate of increase did not slow down when the Republicans took control of the House of Representatives in 2010 or the Senate in 2014.

**   Much of the increase in the pension debt was realized when the accounting rules changed in 2015 forcing governmental entities to more realistically report their pension liabilities.

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Time to Tap the State Rainy Day Fund for Regional Flood Projects

The State of Texas prudently maintains a “Rainy Day” fund.  Currently the fund balance is just over $10 billion.  The technical name for the fund is the Economic Stabilization Fund.  Either of its monikers strongly suggest that it should be tapped at this time to jump start critical flood control projects in the Houston region.

Our region is subject to two types of flood risks.

The first is a storm surge from a hurricane.  A storm surge from a “Scenario 7” storm, a Category 4 or larger that makes landfall near Freeport, is an existential threat to our region.  Such a storm would flood all of Galveston County, about half of Brazoria County and about 20% of Harris County.  It would kill thousands, cause billions in property damages and inestimable ecological damage as the surge overruns sites with decades of industrial pollution.  It would also wreak havoc on the State and national economy as a large percentage of the refining and petrochemical capacity would be offline for months.

The second risk is from massive rain events which outstrip our drainage system’s ability to move the rainwater to the Bay.  Of course, the recent Harvey flooding was an extreme example of such an event.  These events are occurring more frequently because we are getting more rain than we have in the past and because we poured concrete and asphalt over soil that used to soak up some of that rainfall without making adequate provision for the resulting increased runoff.

The good news is that there are solutions to both problems.  The bad news is that the solutions are expensive. . . . and I mean really expensive.

The solution to storm surge flooding is a coastal barrier, as originally conceived by Texas A&M Galveston’s Bill Merrill, and subsequently refined by input from a variety of stakeholders.  The cost is $10-15 billion.

The solution to Harvey-type flooding is more multifaceted and probably still requires some additional study.  But it clearly must include shoring up the Barker and Addicks reservoirs, adding massive amounts of additional detention, tightening up detention regulations and building codes, and potentially building a third reservoir.  The costs for these measures is less certain but could easily be another $5 billion.

I am not suggesting we should drain the Rainy Day fund to build these projects.  Most of the tab will have to be picked up by the Federal government.  But the Federal government gives preference to projects where local and State governments are willing to pick up a share of the costs.  If our State leadership goes to the Feds with a commitment to use some of the Rainy Day fund, say $2 billion, we will stand a much better chance of getting Federal funding.

If we fail to address these risks there will be long-term adverse economic consequences for our region, the State and indeed the entire nation.  The Houston region accounts for almost 30% of the State’s total GDP.  As goes Houston so goes the State.

After a week of nonstop national news coverage about how vulnerable Houston is to flooding, what corporation is going to relocate here?  Would you schedule a convention in Houston during hurricane season?  How many companies are going to build a new plant in a place where it could be inundated by a 25-foot storm surge?

Now is the time for bold leadership, not Republican primary posturing.  There is nothing conservative about failing to make investments that we know are needed to avoid future losses.  In fact, it is grossly irresponsible not to do so.

A hundred years from now no one is going to remember anything about bathroom bills or even know what that the hell a sanctuary city was.  But, as we remember the construction of the Galveston Seawall over a century after it was built, our grandchildren will remember whether we, as a generation, stepped up and ended the threat of devastating flooding to our region and the State’s largest economic engine.