The two candidates vying to be the state’s chief money manager have starkly different views on how to best oversee the state’s retirement fund for public employees.
The fund, known as the Public Employees’ Retirement Association, or PERA, does not have enough money to cover the benefits promised to future retirees. This unfunded liability, estimated at least $32 billion, puts the retirement security of about 585,000 public employees at risk and the state’s credit rating in jeopardy.
Democratic Rep. Dave Young of Greeley, who worked as a public school teacher for over two decades, wants to roll back austerity measures lawmakers passed during the 2018 legislative session. The Republican contender, Brian Watson, who founded a real estate investment company in Denver, wants to take those measures even further, upping the retirement age and flat-lining retirement benefits.
The state treasurer has a seat on the 16-member PERA Board of Trustees that oversees the fund. The treasurer can also use the office as a bully pulpit to advance his agenda.
Both candidates’ personal backgrounds are likely to shape not just their views on reforming the state’s pension fund but also their approaches on managing the state’s multi-billion-dollar investment portfolio.
Two-term Republican Treasurer Walker Stapleton is running for governor against Democratic Congressman Jared Polis, leaving the office up for grabs on Nov. 6. Since 1978, all state treasurers have gone on to run for governor or Congress, including Roy Romer, Bill Owens and Cary Kennedy.
‘I’m going to be an active, full-time treasurer’
Watson, 47, who grew up on the Western Slope in Olathe, said his bid for state treasurer isn’t about a political career.
“We don’t need career politicians looking for the next paid political job,” Watson told The Colorado Independent.
The self-proclaimed battle-tested investor is no stranger to politics, though. In 2012, while living in Greenwood Village, Watson campaigned unsuccessfully against Daniel Kagan, a Democrat from Cherry Hills Village who is currently serving in the state Senate, for the newly drawn House District 3.
Although Watson has never served in elected office, he points to his experience managing over $1 billion in assets as a key reason he’s qualified to oversee the state’s money. In 2000, Watson founded Northstar Commercial Partners, a commercial real estate investment company headquartered in Denver.
“My opponent has never invested capital on behalf of others. For me, I have my whole career,” he said.
Watson, however, faced financial hardships during the Great Recession. In 2010, he filed for Chapter 11 bankruptcy for a company that owned properties in Gunbarrel, Twin Lakes Business Park LLC, court records show. And in 2011, the IRS filed a lien against an Aspen-based company of which he was a part owner, Peak Party Rentals, state records show. Watson told The Colorado Sun he has paid off his share of past due taxes and capital owed to investors in these companies.
To critics, including the Colorado Democratic Party, Watson’s financial problems are examples of mismanagement. To others, including Watson, they are a testament to his financial prowess.
“We all went through a down economy, and you learn lessons,” he told The Colorado Sun. “I’m thankful for those lessons. We did the best that we could. I want to use that personal experience of growing through such an economy to represent the people of Colorado.”
On the campaign trail, Watson frequently says he will refuse a state salary if he wins the race for treasurer. He said he will keep his position as chair of Northstar Commercial Partners.
He brushed off concerns that keeping his investment job while managing state investments poses potential conflicts of interest.
“If there is, I just won’t do the deal,” Watson said. “I could resign as a manager of a particular investment, which means I am giving up all my investment interests.”
He added, “We’ve analyzed it already. There is no conflict of interest.”
According to the Department of Treasury’s website, the state manages more than $6.5 billion in more than 750 funds.
Moonlighting is not unprecedented among Colorado elected officials. Secretary of State Wayne Williams works part-time as a private attorney, and Treasurer Stapleton drew a salary as a private consultant.
Watson said he’s not fazed by the potential workload.
“No one puts in more hours than me,” he said. “I’m going to be an active, full-time treasurer.”
When it comes to PERA, Watson wants to raise the retirement age for new employees from 64 to 67. He told the Denver Business Journal he wants to freeze the cost-of-living adjustment for retirement benefits until the pension is fully funded. He did not directly answer questions about whether the state or public employees should contribute more to the fund.
PERA invests in oil and gas companies, including Anadarko Petroleum, the company linked to the Firestone explosion in April 2017 that killed two men, and gun manufacturing companies, including American Outdoor Brands, the manufacturer of the AR-15 used in the Stoneman Douglas High School shootings in Florida in February.
Watson did not say if he would divest from such companies. Instead, he said he wants to be a conservative steward of the fund.
“I think we need to look at things that provide good returns,” he said.
‘I’ve got a track record’
Young, a 65-year-old term-limited state representative, told the Denver Business Journal he wants to take the state’s money out of Wells Fargo and other banks that have violated federal rules. He took a more measured position when asked about divesting PERA’s investments from gun manufacturers and fossil fuel companies.
“I think it’s an ongoing dialogue that we can have,” he told The Colorado Independent.
Young said he’s a numbers guy. He was first appointed to fill the House District 50 vacancy in 2011 and has served on two powerful money committees, the Joint Budget Committee and the Appropriations Committee, since 2014.
Prior to serving as a lawmaker, he was an educator. He worked at Heath Junior High School as a math, science and technology teacher for 24 years before working as an instructor at the University of Colorado-Denver for ten years.
Young said his work in the education system shaped his view on the state public pension system. He said PERA — and the security of a defined benefit pension plan more generally — can be used as a recruitment tool to attract teachers.
“We have vacancies across the state that we just can’t fill,” Young said. “PERA is part of that compensation system.”
Young has been endorsed by the politically powerful Colorado Education Association. The union’s Public Education Committee, a small donor committee, has contributed more than $12,000 to Young’s campaign and is his largest funder after the Colorado Democratic Party.
So far this election cycle, Young has raised $342,000, compared to Watson’s $388,000.
Young dismissed a question about whether his ties to the education community could make him biased when managing a pension fund that affects public school teachers.
“I’ve got a track record and I point to it,” Young said.
He cited his work on the Joint Budget Committee as an example of his ability to work across the aisle. The six-member panel is split evenly among Democrats and Republicans.
A defining moment for many lawmakers came just before midnight on May 9, the day before the 2018 Colorado General Assembly adjourned, when the House narrowly passed Senate Bill 200 by a 34-29 vote to cut state pension retirement benefits and increase employee contributions. The teachers’ unions opposed the measure and had rallied for two days at the state Capitol the month prior. Many Democrats voted against the measure, including Young. He said he would now support the law.
One reason for his “no” vote, Young said, was because the $225-million annual state contribution to the fund was not set up to grow with inflation. He wants to see this provision adjusted for inflation. If it is, employee contributions — which were increased by two percent under Senate Bill 200 — could be dialed back down, Young said.
He does not support raising the retirement age.
He also believes freezing retirees’ cost of living adjustment for two years — another provision in the law — is “unacceptable.” Long term, he said it could impoverish retirees, forcing them onto food stamps and other government programs.
“Who’s paying for all those safety net services?” he said. “People are looking very narrowly at the PERA problems. They may be creating bigger problems.”
The Taxpayer Bill of Rights
The two candidates are both hesitant to propose changes to TABOR, the Taxpayer Bill of Rights, but agree there is an issue with how TABOR and the Gallagher Amendment work together to drive down residential property tax assessment rates. This so-call “ratcheting effect” has created a funding challenge for schools across the state, especially for rural schools that rely on property tax revenue.
Watson said he doesn’t have a policy agenda for how to address the issue. He said it’s the role of the state legislature, and he wants to protect TABOR.
“I don’t want to be an activist treasurer. I just want to be a good steward,” Watson said.
Young, likewise, is not proposing an overhaul, though he said there is a “funding crisis” for public schools. First, he said, there should be a conversation about what needs to change and how to best measure outcomes.
Young, however, is one of the few candidates backing Amendment 73, a progressive income tax that would generate $1.6 billion for preschool through 12th grade. The ballot measure would also freeze the state’s residential property tax assessment rate at 7 percent, effectively altering one of the key provisions in the 1982 Gallagher Amendment.
“We can’t wait,” Young said. “We’re gonna lose another generation of students if we don’t get busy.”
Correction: A previous version of this story misidentified the company involved in the Firestone explosion. It was Anadarko Petroleum, not Extraction Oil & Gas.