July 23 (Bloomberg) -- Chances are that no matter where a distressed public pension is based, it shares a pitfall with others: not getting its full required payment, says Tennessee Treasurer David Lillard Jr.
The 60-year-old Republican pushed for a law signed by Governor Bill Haslam in May that requires cities, school districts and other governmental units with retirement plans to contribute 100 percent of what actuaries say is needed to meet annual obligations. If they fail to after six years, the state can divert money it provides them to make the payments.
Lillard, a former Shelby County commissioner, has been treasurer since 2009. Tennessee is among four states in which the legislature appoints the treasurer, according to Blake Fontenay, a spokesman for Lillard.
The following is condensed from a recent phone interview:
Q. Why was it important to pass the law requiring full pension payments?
A. The hallmark of just about every distressed pension plan in the country is that at some point in time they failed to fund 100 percent of the annual payment for various reasons. That’s not the sole cause for plans becoming distressed plans, but it’s certainly a significant factor. We felt that it was very important for Tennessee. Tennessee has a reputation of being one of the best financially managed states in the union. Accordingly, we generally don’t sit around and wait for something to become a crisis.
Q. To boost its economic health, what does the state need to work on?
A. The postsecondary educational level of our population is extremely important to workforce readiness. Accordingly, that is a key priority for our state in terms of our economy. One of the refrains that you hear in a lot of states, not just in Tennessee, is that there are not enough people to fill many, many jobs that require some degree of postsecondary technical training.
Governor Haslam and the General Assembly enacted in the last session what we call the Tennessee Promise program, which makes community college education available for all Tennessee high school graduates for free.
Q. Tennessee’s debt per capita stands at $370, below the U.S. state average of $1,325, according to Standard & Poor’s. Why not issue more bonds to fund priorities such as education and roads?
A. We just have a philosophy of trying to keep debt levels at a very reasonable level per capita in our state as opposed to Illinois, which is awash in debt. I don’t know that they’ve been able to achieve much more in terms of actual success in higher-education initiatives and other things simply because they issued more debt.
A wise use of debt is our basic policy. Another example is that Tennessee does not issue bonds for highway construction. We have a pay-as-we-go road program, yet we have some of the very best-ranked roads in the nation. Part of it is because we haven’t spent a lot of money on interest over the years like many states.
Q. In terms of best practices for municipal issuers, what do you think still needs improving after the financial crisis?
A. The No. 1 thing is to look at the structuring of debt at the time that it’s issued to make sure that you are putting together a financial structure that the municipality can in fact sustain easily over a 30 year term if it’s 30 year debt. Another thing is continuing disclosure after issuance. That’s so very important to investors in the secondary market.
Q. One last question. What’s so great about Memphis barbecue compared with Texas barbecue?
A. It’s just that good Southern flavor. You can’t get that anywhere else -- barbecue that has been cut and chopped and cooked by Southern hands using Southern secret recipes from Tennessee and from Memphis. That’s what gives it that distinctive flavor.
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