The City of Austin, Texas did not save any money to pay for future retirees’ healthcare benefits in 2021, and the city’s overall financial situation is dire.
In a new report, the nonprofit group Truth in Accounting found that Austin would need $2.7 billion to get out of debt, or $9,400 from each taxpayer.
The TIA’s annual “Financial State of the Cities” report analyzed 2021 financial records from the 75 most populous cities in the U.S. Austin’s fiscal health is ranked 60th out of the 75 cities and received a letter grade of “D.”
According to the TIA, Austin has $7.6 billion in bills and only $5 billion available to pay those bills.
From the outside, it appeared as if Austin’s financial situation was improving in 2021. Austin received over $188 million in federal COVID stimulus money, and the city’s pension investments were performing well. But the cost of future retirees’ healthcare benefits increased, offsetting those gains.
In 2022, Austin’s pensions started bringing in less money, and the value of healthcare benefits that the city will have to pay for kept increasing. The TIA projects that this will either lead to a decrease in government services or to higher taxes.
Even when its pensions were performing well, the city did not save enough money to pay the benefits it promised to workers. Austin did not set aside any money to pay for future retiree healthcare benefits and saved only enough for 71% of pension benefits.
The TIA’s “Financial State of the States” report ranked Texas 33rd out of the 50 states. Texas would need $6,600 from each taxpayer to pay off its $56.6 billion debt.
The city of Austin is struggling to pay off its bills without burdening taxpayers. The nonprofit group Truth in Accounting recently ranked 60th out of 75 major U.S. cities based on fiscal health, and Texas ranked 33rd out of the 50 states. According to the TIA, Austin could be forced to choose between cutting government services or placing itself further in debt.
Q: Let’s talk numbers. What’s the debt situation like in Austin, and how could that impact taxpayers?
The TIA audited Austin’s 2021 financial reports and gave the city a letter grade of “D,” because Austin needs an additional $2.7 billion to pay its bills. That means each city taxpayer would be on the hook for $9,400. That’s slightly better than in 2020 ($318 million less debt), but it’s still concerning.
Retirement benefits are the biggest factor. Austin hasn’t set aside any money to pay the future healthcare benefits it promised to its retirees, and there’s only enough money for 71% of promised pension benefits.
Q: How exactly did Austin get into this situation?
After the pandemic, it looked like Austin’s financial situation was improving. The city was on the hook for much more in retiree healthcare benefits than it was just a few years ago, but that didn’t seem like an issue at the time. Federal COVID stimulus money was coming in, and the city’s pension investments were doing well. But in 2022, Austin’s pensions started bringing in less money, and the value of healthcare benefits just kept increasing.
All this comes along with a recent housing crisis that’s affected Austin more than any other city in Texas. The Texas Tribune reports that after the pandemic, housing prices and demand reached all-time highs in Austin, which could further strain government finances.
Q: How does Texas fare in these rankings?
A: The state isn’t doing much better. Texas also got a grade of “D,” and taxpayers would need to contribute $6,600 to pay off all the state’s debt.