Here’s a Way to Shore Up State Employee Pensions: Sell Unneeded State Assets
The State of Oklahoma owns a lot of property. This includes land and buildings, but it also includes valuable assets like the state-owned electric power company, the Grand River Dam Authority (GRDA). GRDA reports nearly $1.8 billion in assets on its most recent balance sheet, with a “net position” of more than $622 million. Or the Tobacco Settlement Endowment Trust (TSET), which sits on a $1.2 billion endowment that does nothing but sit and produce investment income to fund the yearly operations of TSET. To the tune of roughly $50 million per year.
We would all most likely be better off if some (probably most) of these assets were sold or leased to private entities where they could (1) be put to more economically productive use, (2) be put on the tax rolls (they are not taxed now), and (3) relieve the state from the burden of maintenance and operations expenses.
What’s more, such an asset sale/lease (a “monetization”) would generate a large financial windfall for the state, which could be used to address long-term funding challenges like unfunded pension obligations and infrastructure needs. In the case of pensions, eventually those bills must be paid by taxpayers. And those bills are not small: Oklahoma currently faces $7.9 billion in unfunded pension obligations, roughly equal to the amount of the entire rest of the budget.
Experience from other states shows that the most likely way those debts will be paid is through a combination of heavy tax increases and sharp budget cuts from other parts of government. So, to the extent the government can find sources of funds that do not punish current taxpayers for decisions made by politicians decades ago, that is a fairer way to pay for these unfunded debts. The sale of long-held state assets fits the bill.
That is the message of my paper, released today, Leveraging State-Owned Assets to Fund Pensions and Meet Other Long-Term Funding Challenges. In it, I identify nearly $6 billion in assets the state could liquidate and dedicate the proceeds to long-term funding needs. And that’s just from the 7 state-owned assets I highlighted. There are many others that should be evaluated.
Which is the other key aspect of my proposal: a process to fully review all state-owned property and vest a final decision-maker outside of the agency controlling the property with the power to make the call on whether to keep or sell each asset. The paper lays out some basic principles that should guide such a process, such as rules to maximize transparency and competition.
The Legislature recently created an ideal vehicle for leading such a process, the Legislative Office of Fiscal Transparency (LOFT). LOFT is a committee of legislators, has a paid staff, and has the ability to tap into outside expertise. Importantly, it also has the power to compel information from sometimes recalcitrant state agencies. If anyone can get the true, comprehensive picture of state-owned property, it should be LOFT.
What will be required, ultimately, is political courage. There have been discussions in the past about shedding some of the state’s assets, but local and special interests have always managed to protect their piece of the pie and kill such efforts. To some degree, this is understandable. If one of these massive government assets is in your town, you don’t want to see it go away.
But this is exactly why this type of effort is best carried out by the Legislature. Every part of the state is represented in that body, and its members are directly accountable to the people. No blue ribbon commission or appointed executive branch bureaucrats can claim that type of legitimacy.
Maybe it is naïve to believe that legislators will take such electorally risky votes. If so, maybe we should start asking them why they wanted to be in the Legislature in the first place, if not to stand and deliver solutions to vexing state problems. And maybe we should ask ourselves why we keep sending them back to Northwest 23rd and Lincoln.