Taxpayer-funded pension systems are combustible by nature, but Oregon’s ticking time bomb known as PERS is on the brink of exploding. Among the impending disaster’s collateral damage, Republicans say, will be public workers and kids if so-called “progressive” Democrats are allowed to dodge the hard work of diffusing the PERS bomb. Under Oregon’s one-party-rule, taxpayers are now on the hook for an estimated $52,100,000,000 in taxpayer-held pension debt. Simply put, to avoid getting smacked with an Illinois-like credit rating of near “junk” status, late last Friday the PERS Board adjusted the taxpayer funded-pension system’s (PERS) assumed investment earnings rate, lowering it by three-tenths of one percent, down to 7.2 percent from 7.5.
“Tinkering with the PERS rate won’t solve the long-term problem of solvency. It’s another failed ‘progressive’ strategy like selling off public lands and temporary accounting gimmicks aimed at diverting attention from the need to increase PERS savings directly by capping the final average salary included for PERS benefit calculations and by eliminating ‘pension spiking’ by extending the final average salary calculation to the last five years of public employment,” said Senate Republican Leader Ted Ferrioli, of John Day.
“Currently, public employees, with the collusion of agency directors and managers, are allowed to forego the use of sick days and vacation and are assisted by management in amassing the most overtime possible to ‘puff’ annual gross income, the basis on which PERS benefits are calculated. Unused sick time, overtime and unused vacation time are rolled into the gross, producing an increase in final average salary that gets baked into the retirement formula. It’s another way to cheat the system and ultimately, to cheat taxpayers,” added Ferrioli. “Oregon Democrats need to get their act together, drop the politics, and start governing.”
The newly set assumed earnings rate is not as low as Oregon Investment Council’s moderate recommendation of 7.1 percent, but it is still much higher than Oregon actuary Milliman’s realistically estimated 6.7 percent earnings rate over the next two decades. The (Kate) Brown administration’s action, in the span of just seconds, flooded the PERS debt another $2.1 billion dollars. Now according to modest estimates, the total taxpayer funded-pension system’s liability has risen to $24.1 billion dollars under Brown’s direction.
Per The Oregonian though, “Many contend public funds ought to be using what’s known as a risk-free interest rate to value pension liabilities, one that might be in neighborhood of 5 percent today.” Using more appropriate calculations then, PERS’s unfunded actuarial liability would be closer to $50 billion instead of the $22 billion based on current assumptions, meaning with the new rate assumption the unfunded PERS debt could now be $52.1 billion.
Sinking the assumed earnings rate means while Brown likely will stave off getting smacked with a credit downgrade for a little longer, that school districts will again be forced to make up the difference and siphon more taxpayer dollars into the PERS system, diverting much-needed public dollars away from the classroom and toward former union members, rich OHSU doctors and former university football coaches, who can receive over half-a-million dollars a year in payouts on the backs of taxpayers and workers.
One PERS recipient, an OHSU professor, even received $55,280 a month in taxpayer-backed payouts, meaning the OHSU professor earned over $1,000 more in one month than the average Oregonian household earns in an entire year, which is also nearly $2,000 lower than the national average.
The Pew Center on the States reports that states faced a pension gap of $757 billion in fiscal year 2010. However, some say the pension crisis raging across the country is worse than that. Harvard University researchers Thomas J. Healey, Carl Hess, and Kevin Nicholson note that over the last decade, estimates have ranged from $730 billion to $4.4 trillion. The Harvard researchers add that “many financial economists believe that the true size of the total unfunded liability lies closer to the larger estimates than it does to the smaller.”
Republicans say that contrary to claims made by Democrats, not addressing PERS hurts public employee retirees the most. And they have the evidence to prove it. In Aug. 2011, Central Falls, Rhode Island, filed for bankruptcy protection and went into receivership. Following, some retirees witnessed their monthly payments getting chopped in half.
In October 2000, a United States bankruptcy court directed the pension board of Prichard, Ala., to hack pension benefits by 8.5 percent. Then, 35 percent of Prichard residents lived below the poverty level, and 85 percent were African-Americans. In September 2009, the Prichard pension board stopped all payouts entirely and the city reentered bankruptcy court the next month. Prichard workers did not receive any payouts for nearly two years and only under a final agreement did some retirees start to receive payouts one-third of the size they were promised. At least 11 retirees, including a fire marshal, died waiting without receiving any more of the checks they were promised and owed.
“Oregonians will drown financially because unions and their Democrat allies are more concerned with short-term interests and re-election than in governing sustainably. It’s high time our citizens should ask why Oregon Democrats refuse to do anything meaningful when it comes to fixing our state’s broken pension system,” said Ferrioli.
Senate Republicans pointed out that Oregon Democrats are not only out of touch with most Oregonians, but that they are out of touch of their own political party by refusing to address the serious issue of fixing PERS.
The Rhode Island Legislature experienced similar problems with their taxpayer-funded retirement system and Democrat Gina Raimondo, the state’s treasurer, led pension reform in the state, defending it as a “moral imperative,” saying fixing the state’s pension system was “about doing the right thing.”
Another Democrat, Rahm Emmanuel, the mayor of Chicago, said that rejecting pension system fixes forces taxpayers to “choose between pensions and police officers, pensions or paved streets or pensions and public health.” Emmanuel warned that “without pension reform, we’ll be forced to mortgage our children’s future to pay for our past,” predicting the size of classes in Chicago public schools could surge to 55 students. When Emmanuel introduced his slate of pension reforms he said, “The moment of truth has arrived.”
“Oregon’s moment of truth arrived a long time ago, but you wouldn’t know that from the way Democrats have mishandled their duty to govern,” added Ferrioli.
Another, Rep. George Miller, D-Calif., a staunch liberal and union ally, said if nothing was done to fix pension systems across the country, “retirees have a very high likelihood of losing all of their benefits.” Miller and a bipartisan group of congressional members supported a provision in the 2014 federal omnibus spending bill allowed reforming retirement benefits if the fixes were necessary to prevent the entire retirement program from going bankrupt.
“Fixing a broken pension system to protect retirees, workers and taxpayers, isn’t a partisan issue unless Democrats continue to make it one,” concluded Ferrioli.
Johnathan Lockwood is Senate Republican Communications Director.