Fort Bend County’s near $500M liability for retiree health care benefits remains unfunded

Andy Meyers, Fort Bend County Precinct 3 commissioner, continues to express his concern for a looming $495 million debt over the county, which threatens to negatively affect its credit rating and lower the amount it can ask for during bond elections.

This debt is from the county’s financial liability for its retiree’s health care benefits, a balance referred to as “other post employee benefits,” or OPEB.

The multimillion dollar liability has made Meyers vocal in opposition of many initiatives that make claims toward any county funds—such as the transitional housing proposal to help the county’s homeless, and advanced funding for the segmented Grand Parkway frontage roads projects in Precinct 1, where congestion is often bottlenecked.

“We have a gargantuan unfunded liability sitting out there that we are still not doing anything about,” Meyers said during a March 7 discussion on the potential for a 2023 mobility bond. “That is $500 million of unfunded health care benefits for our employees and our retirees that we are not addressing. What happens to the county’s credit rating if we do not adequately address that issue?”

According to County Auditor Ed Sturdivant, inaction toward the mounting debt threatens to impact Fort Bend County’s debt rating.

“We stand to have a negative outlook opinion from our rating agencies, whether on our next transaction, or in an interim review of our debt,” Sturdivant said in response to Meyers’ question at the March 7 Commissioners Court meeting. “If unaddressed, it will eventually result in a downgrade of our bond rating.”

Currently, there is $5.6 million in a trust for the county’s OPEB liability. A trust does yield greater returns on investment with a 10-15 year term, which is much lengthier in comparison to the three-year term afforded to county investments.

However, Sturdivant said this is insignificant in the shadow of the massive OPEB debt.

“So we have to start getting aggressive with that,” Sturdivant said. “And the only way for us to get aggressive is to at least start to fund the annual contribution amount, which is $35 [million] to $40 million.”

Potential solutions

Fort Bend County has made attempts in the recent past to wrangle its financial obligation toward retiree health care. Both Meyers and Sturdivant outlined these efforts, which include changing the vesting period from eight to 16 years in 2010, then from 16 to 20 years in 2019.

A vesting period is the amount of time an employee must work before for an employer before they are entitled to the employer’s contributions to a tax-advantaged retirement plan.

The county even, at one point, reduced the health care benefits for county retirees and made small payments into the fund—but none of these actions relieved the debt’s pressure, Meyers said.

“The increase in health care costs, together with the increasing number of staff that we have to qualify for health care, have outrun our attempts to basically get our arms around and control the thing,” Meyers said. “And so here we are with a $500 million unfunded obligation that we are not doing anything to fix. We need to fix it.”

Sturdivant said the best way for the count to reduce the debt would be to contribute a large sum of $100 million to $200 million to the OPEB trust. That way, he said, the trust will self-perpetuate itself because of the increased investment returns.

But the county would need to dedicate dollars from its own general fund toward the trust, as the Texas Legislature does not currently authorize county governments to issue bonds to fund OPEB liability—the way it often does for mobility and parks projects.

Cities, however, do have the statutory authority to do this. The city of Houston, for example, issued $1 billion in 2017 for pension obligation bonds.

“We have asked the Legislature in this session for that authorization for county governments. They are not being very receptive,” Sturdivant said. “They are focused primarily on reducing taxes, and that means anything that results in debt—which is funded from that service tax rate—means that we’d be hitting our taxpayers. And all we were asking is to let us do what the cities can do.”

But Sturdivant’s plan is to propose to take every dollar that is not need in the annual budget and shift it to the retiree health care trust. He expects there will be an excess by the end of the 2023 fiscal year, which concludes in October.

“[We have to] at least [do] something,” Sturdivant said. “We have to demonstrate to the public, to our retirees, our employees working toward retirement, our bond rating agencies, [and] our underwriting team, that we are not just sitting here waiting for this to go away—because it won’t.”

Editor’s Note: Upon further information from the Fort Bend County Auditor, the liability amount total has been updated.