WASHINGTON — A House Ways and Means Committee panel plans to hold a hearing next Thursday on a bill that would prohibit state and local governments from issuing tax-exempt bonds unless they meet certain pension disclosure requirements.
Rep. Charles Boustany Jr., R-La., chairman of the committee’s oversight panel, announced the hearing Thursday, saying it will cover transparency and funding of state and local defined benefit pension plans.
“Whether the under-funding of state and local pension plans is $700 billion or over $3 trillion, it is a serious concern for workers and retirees, for state and local governments, and for taxpayers in general,” Boustany said in a release. “The subcommittee needs to understand how public plans are currently calculating their assets and liabilities, not just so we can get a clearer picture of how under-funded those plans really are, but also to determine whether there is adequate transparency in how these plans are reporting their shortfalls.”
The subcommittee also plans to consider “possible approaches to ensure that no … federal taxpayer bailout is ever needed” for governments whose unfunded liabilities cause them severe financial distress, he said.
The subcommittee did not release its list of planned witnesses, but said only those invited will be able to appear before the panel. However, it invited other individuals and organizations that wish to file written comments to do so.
One witness is likely to be panel member Rep. Devin Nunes, R-Calif., who introduced the Public Employee Pension Transparency Act (HR 567) on Feb. 9. The bill would require state and local governments to file reports annually with the Treasury secretary that include details about their pension plans, including expected contributions, unfunded liabilities, assumptions, investment returns for the plan year and five previous years, and plans for eliminated unfunded liabilities.
The states and localities could use a market rate to determine the value of their plan assets and liabilities, but would have to include in their report, or a separate report, valuations using Treasury rates.
While most states currently use a market rate of return at around 8%, Nunes and some other Republicans contend that when governments are required to make pension payments to plan participants, the governments should value their assets and liabilities using a much lower riskless rate, such as the rate of a Treasury bond, that they would likely earn, regardless of market conditions.
However, researchers at the Pew Center on the States, which released a report on state pension plans earlier this week, said that while a handful of states have reduced their discount rates within the past year, lowering the rate by less than one percentage point can increase their pension liabilities by hundreds of millions of dollars and double the required contributions they must make to their plans.
The Nunes bill would penalize states that fail to make the required pension disclosures with Treasury by prohibiting them from issuing any tax-preferred debt, including tax-exempt bonds, tax-credit bonds, and Build America Bonds or other direct-pay bonds.