Moody's Warns of Houston Credit Downgrade if Austin Nixes Pension Plan

Will Sylvester Turner's pressure break lawmakers in Austin?
Will Sylvester Turner's pressure break lawmakers in Austin?
Michael Barajas
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Mayor Sylvester Turner is warning that Houston's credit rating could drop if the Texas Legislature fails to approve the city's proposed pension plan.

Moody's Investors Service currently rates Houston as Aa3 with a negative outlook, noting that despite having a large and growing regional economy, the city has one of the largest unfunded pension liabilities in the United States. Houston has a $3 billion general obligation debt right now, but looking toward the future, the city's unfunded pension liabilities exceed $8 billion.

The credit agency is waiting to see how things shake out in Austin before revising its rating for Houston.

Mayor Turner is trying to pressure lawmakers at the capitol to approve his pension reform plan, which gives the city more flexibility to manage the retirement funds of municipal employees and reduce costs to city taxpayers.

"This is a clear indication of what will happen if pension reform is not approved in Austin," the mayor said in a statement. "The city and Houston taxpayers cannot afford the increased borrowing costs that will accompany a rating downgrade...the stability of our finances is at stake."

Poor credit ratings hurt cities much as they do people, principally by making it more expensive to borrow money. On the municipal level, higher interest rates for bonds or loans means a higher burden placed on taxpayers. Bad credit also scares away potential private investors.

Houston's credit rating, for the time being, holds up well compared to those of cities of similar size, behind New York (Aa2) and Los Angeles (Aa2), but ahead of Chicago (Ba1).

Earlier this year, Houston City Council approved Turner's pension reform bill, 16-1. In Austin, the plan has advanced through the Senate Committee on State Affairs and the House Committee on pensions. The plan has yet to receive a vote from the floor of either chamber.

Without reform, Turner said the general fund will take on an additional $130 million in charges next year.

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