October 11, 2017
October 11, 2017
The Cost of PERS Inaction Continues to Grow
The Public Employees Retirement System (PERS) funding crises will continue to drain state resources and prevent Oregon from improving our schools and providing needed services unless leaders step forward with a solution. The past few months have brought news on multiple fronts that re-enforce the severity of the problem and the need for immediate action.
Most recently, the actuarial firm hired by the state, Milliman Inc., estimated that Oregon’s public pension debt has grown to $25.3 billion. That means that in 2019-21, school districts will have to spend $530 million more than they do now to meet pension obligations, an even bigger increase than previously expected. Other public employers will see increases totaling about $885 million.
The increase in public employers’ costs is larger than expected in part because the PERS Board in July voted to decrease the expected return on its investments from 7.5% to 7.2%. The more realistic assumed return increases the cost for schools, state agencies and local governments but is an important step toward accurately showing the size of the problem Oregon faces. It also should be noted that some investment analysts consider even 7.2% to be an ambitious projection, given the length of the current bull market and the likelihood that the stock market will go through a correction at some point.
In recognition of PERS’ growing unfunded liability, Governor Kate Brown appointed a PERS Unfunded Actuarial Liability (UAL) Task Force to explore steps the state might take to reduce the UAL. In theory, reducing the unfunded liability is a good idea. But the task force, following the Governor’s direction, has focused on short-term actions such as privatizing some functions at public universities, changing the way the Oregon Liquor Control Commission (OLCC) operates, tapping into the reserves of the not-for-profit State Accident Insurance Fund (SAIF) workers’ compensation insurance company, selling assets or shifting money from the state’s two rainy day funds to PERS. All these options carry significant risks and costs. And none of them would do much to address the long-term PERS problem.
In September, Legislators returned to Salem for the first time since the end of the 2017 Session for quarterly Legislative Days. They held hearings on a number of consequential issues, including potential cap-and-trade legislation and paid family leave. But PERS was nowhere on the agenda.
So, while the PERS problem continues to grow, little appears to be changing in Salem. Inaction carries a price tag, as the Milliman projections show. The difficult work of preserving Oregon’s financial future and quality of life should start now.
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