PORTLAND — The task force charged with reducing Oregon’s unfunded pension liability met for the last time Friday, but it’s still not certain any of its ideas will survive the political process, or meet the goal set by Gov. Kate Brown to reduce the debt by $5 billion.
The unfunded actuarial liability is the amount by which the state’s obligations to retirees exceed its current ability to pay.
In the time that the task force started meeting in July, the estimated unfunded liability has increased by about $3 billion, to about $25.3 billion. The problem is poised to grow.
Local entities — such as school districts, counties and cities — are already feeling the squeeze, as they must pay a greater share of their budgets into paying down their obligations.
Most of the unfunded liability is money retirees have already earned. The Oregon Supreme Court has said that policymakers cannot alter benefits already earned, and so the state basically must pay the unfunded liability down.
The task force is to submit its recommendations to Brown by Nov. 1. It’s ideas can be divided into two general categories: “top-down” policy changes such as reducing how much money government entities must hold in reserve; and “bottom-up” programs that would have the state’s hundreds of public employers chip in more to meet the state’s financial obligations to retirees.
One potential plan that commanded a substantial portion of the discussion at the group’s final meeting Friday was to somehow incentivize employers to pay down their share of the deficit more aggressively.
Currently, the Public Employee Retirement System board expects the unfunded liability to be paid off in 20 years, but the state could find a way to encourage local employers to pay more money sooner.
“The concept is you contribute to your own unfunded liability … so this is not about someone taking your resources for something else,” said task force chair Donald Blair, a former Nike executive. “It’s about taking your resources to help solve your PERS problem.”
Local entities could do this by making spending cuts elsewhere, increasing taxes or reducing the amount of cash they keep in reserve.
Some task force members have suggested the state could match a certain percentage of entities’ contributions or create disincentives for entities that don’t participate and for those that don’t have a solid plan to pay down their unfunded liability.
But this may be difficult to design, so as not to impact vital services such as health care and education in organizations that don’t have the means to aggressively pay down their liabilities, said task force member Rick Miller, founder and chairman of the Avamere Group and a co-founder of private equity firm Rogue Venture Partners.
“There are just some institutions that are so vital and don’t have the ability to really have a meaningful impact on paying down this liability without help,” Miller said. “And I would hate to see those kinds of organizations, necessary services that impact on a future generation through a disincentive plan.”
But members pointed out such a program would need teeth to encourage agencies to make a good-faith effort.
“I think the problem is that today’s needs will always, always overwhelm tomorrow’s needs,” said Cory Streisinger, a task force member and the former director of the Department of Consumer and Business Services. “And all it does is increase political pressure to, quote, ‘do something’ about the problem. It does not affect current behavior unless there is a financial lever to affect that behavior.”
While devoting a greater share of agency budgets to PERS costs could mean even tighter budgets for public employers, paying it down more quickly could mitigate the “global” impact to the state’s financial health, Furnstahl said.
The group could also recommend changes to the rate collar, a practice that spreads out increases in annual PERS costs so as to avoid dramatic rate spikes from year to year.
The advisory group’s final report is due to the governor Nov. 1, about three months before the Legislature convenes for a short 35-day session.
Because they have to do with how the state deals with its money, many of the group’s ideas would require approval by the legislature.