Watson promises pension help, Moody’s offers warning

State Sen. Kirk Watson, D-Austin

Jubilant about his first-ever appointment to the powerful Senate Finance Committee late last week, Austin state Sen. Kirk Watson on Monday said his new position is “a great opportunity for me to push for an honest budget that provides for property tax reform, addresses our troubled school finance system and invests in our colleges, universities and aging infrastructure.”

In his weekly email update, the Democrat also said he’ll “be in a position to protect the pensions and health care of our state employees and teachers.”

State employees in particular are facing the possibility of higher pension costs and/or lesser benefits as lawmakers figure out how, and whether, to work toward making the Employee Retirement System actuarially sound so that contributions and investment returns cover expenses and payouts.

At a legislative hearing last month, outgoing ERS Executive Director Ann Bishop warned lawmakers that the plan’s current unfunded liability of $7.5 billion could at some point affect the state’s good credit rating if the Legislature doesn’t devise a plan to pay it off by either increasing contributions, cutting benefits or both.

A recent report from Moody’s Investors Service, one of the three main credit rating agencies, reached a similar conclusion.

Texas “and some of its local governments’ record of contributions below actuarial levels will drive rising pension costs for those entities,” begins the report, which found that Texas has the 14th highest public pension liability in the U.S. with costs driven largely by ERS and the Teacher Retirement System.

The report notes that ERS has requested a 59 percent, $350 million increase in the state’s contribution rate for the 2016-17 two-year budget cycle “in order to meaningfully reduce the growth rate of the plan’s unfunded liability.”

Several key House and Senate lawmakers, Democrats and Republicans alike, have mentioned the issue as a priority in interviews with the American-Statesman, but also have said it will ultimately compete with big-ticket wants like tax cuts and transportation funding.

A first draft budget that House Speaker Joe Straus unveiled earlier this month covers only the normal cost of the plan — far short of the cash infusion it needs to be shored up. (Check out the exceptional requests comparison chart at the bottom of this document).

State Sen. Kirk Watson, D-Austin

State Sen. Kirk Watson, D-Austin