Lawmakers consider raiding Texas Teachers Retirement Fund to finance speculative toll road deals
Lawmakers are looking to teachers to pay for new toll roads in the state.
by Christopher Heath
AUSTIN – The state is searching for new streams of income, especially when it comes to building roads, now the main target as lawmakers draw up the budget may be Texas teachers and the billions of dollars in the Texas Teachers Retirement Fund.
With the current gas tax of $0.20 per gallon no longer keeping up, state leaders have been exploring new ways to pay for roads. While some in Austin have suggested raising the gas tax, or at least indexing it to inflation, the idea has had little support especially during a recession.
There is, however, another idea.
On October 14, 2008, Governor Rick Perry delivered the opening remarks at the annual trade show of the Associated General Contractors of Texas saying, “I hope the Legislature will create a Transportation Finance Corporation so that Texas-based investment funds can invest directly in Texas transportation projects.”
A Transportation Finance Corporation would be able to invest state controlled funds into state projects, specifically toll roads. The Corporation would have access to all state pension funds; however, none are as massive as the Teachers Retirement Fund which currently stands at $85 billion. The state could use part of that money to build toll roads and then repay the Retirement Fund with profits from the toll roads.
Supporters of the plan like Senate Finance Chair Steve Ogden (R-Bryan) call the idea a “win-win”, saying that it would give the state the money it needs to build the roads it needs and provide a profit for teachers.
But not everyone at the capitol is convinced that the idea makes sound fiscal sense.
Senator Kevin Eltife (R-Tyler), who also sits on the Senate Finance Committee, had such misgivings about the plan that he included a letter of opposition in the Senate Finance Committee’s Interim Report to the Legislature.
Senator Eltife points out that the TRS (Teachers Retirement System) has had an average rate of return on investments at about 7%. Texas bonds road projects out at about 4%, leaving a 3% gap between free market investments and bonds. The question, according to Senator Eltife, then becomes how does the state make up the difference?
The state could pay more to use the TRS funds, costing the taxpayers an average of 3% more to build roads. Or, the state could simply use the money at 4% and leave the TRS with less of a total return.
Representatives from the Texas Classroom Teachers Association have long been opposed to the idea. The TCTA points out that the TRS already has the option to invest in toll roads, but fund managers have chosen not to.
Critics of the idea also say it creates a very clear conflict of interest for the state. State leaders being able to direct how and where pension funds are invested would be a departure from the current method of fund managers who are obligated by the fund to invest in projects with the greatest rate of return.
At present, the Transportation Finance Corporation plan is still making its way through the halls at the Capitol. Those close to the idea say it does not appear that it will have the necessary support to pass in 2009, especially considering the state of the economy both in Texas and in the US.
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