Gov. Kate Brown gave her inaugural address this week. Oregonians should be used to her approach by now. Another speech, another turn of her back to the $22 billion unfunded liability of the state’s pension fund.
Brown has a plate full of challenges. She’s trying to do something about the state’s woeful high school graduation rate. The state needs a transportation package. She has some ideas on gun control and improving health care coverage for children. And she has an immediate priority of finding a way out of the state’s projected $1.7 billion budget shortfall.
The $22 billion unfunded liability of the state’s Public Employees Retirement System doesn’t just go away.
Brown did mention PERS in her speech. “We must address the ongoing PERS liability in a way that keeps our promises to retirees and does not put us back on an endless hamster wheel of litigation,” she said.
The only solution she offered, though, was a hope the state could get better returns on state investments by doing more of the work by state employees. The plan might save the state $1 billion over 20 years, if all goes well. It’s a big if.
The state has an abysmal track record on PERS investment returns. The state’s assumed rate of return is 7.5 percent. It’s fiction. The state does not make 7.5 percent. Pension fund investments have made only about 6.2 percent in the last 10 years.
Setting the assumed rate of return artificially high makes the PERS liability problem seem less severe than it is. Lowering it, though, is also daunting. If the state lowered its assumed rate of return to something more realistic, contributions to PERS from state and local governments would have to go up even more than they already are to help cover the $22 billion future liability.
Pension payments cost governments across the state about $1 billion a year. Over the next two years, those payments will be going up by about $885 million because of poor investment returns.
PERS Director Steve Rodeman has said that trend of increasing PERS costs is not likely to stop. The translation: Schools will have less and less money for teachers. Cities will have less money for roads and public safety. PERS costs will devour more and more of their budgets.
Sens. Tim Knopp, R-Bend, and Jeff Kruse, R-Roseburg, have proposed a pair of bills to explore some solutions. One would require PERS recipients to make a contribution to their own retirement fund. Oregon is one of the few states with no such requirement. Another proposal changes the way the state calculates the benefits for PERS recipients — effectively lowering what many future retirees would receive.
Will another legislative session pass by with the Legislature following the governor’s lead and turning its back on PERS reforms? It’s a disgrace that the Legislature has been unwilling to do more.