They just couldn’t do it. The men and women who sit on the state’s Public Employees Retirement System board couldn’t bring themselves to face reality and make a deep cut to the assumed rate of return on investments that finance public employees’ retirement benefits.
Oh, they trimmed it a bit. From a 7.5 percent expected return, they lowered expectations to 7.2 percent. Even that was done, in part, because of pressure from the system’s actuary, Milliman Inc. Milliman had told PERS officials it would flag the outlandishly high rate of return in its next report on the system’s health, a move that could hurt the state’s credit rating.
The lowered rate wasn’t as low as what the Oregon Investment Council suggested, and it did not get close to the 6.7 percent return Milliman projects. Other economists, meanwhile, paint a bleaker picture than does Milliman.
It is, according to John Tapogna of EcoNorthwest economics, a way for Oregon and the government agencies within it to engage in large-scale deficit spending, despite the state constitution’s prohibition against it.
As such, it gives Oregonians a terribly unrealistic view of what their governments cost, because pie-in-the-sky assumptions about PERS hide how much is owed the system.
Had the PERS board set its expected return rate to match what it’s been through the last 10 years, for example, the unfunded liability would have jumped to closer to $50 billion from the current $22 billion.
Gov. Kate Brown has been downright ostrich-like about the problem, and her refusal to consider pension reform as part of the solution has only encouraged the Legislature’s Democratic leadership to copy her approach.
While the state Supreme Court has limited some approaches to structural reform, it has never said nothing can be done. Others, including Sen. Tim Knopp, R-Bend, believe they have ideas that will pass judicial muster, and they should be given a try.
We cannot keep being unrealistic about Oregon’s PERS problem.