//PERS Solution #7: Change the way the state and local governments pay off the system’s liabilities
PERS Solution #7: Change the way the state and local governments pay off the system’s liabilities2019-02-28T04:56:41-08:00

PERS Solution #7: Change the way the state and local governments pay off the system’s liabilities

Once reforms are enacted and measures are in place so that we’re not continuing to chase a rising target of unfunded liabilities, we can treat the PERS liability as a one-time debt obligation.

The Governor’s UAL Task Force examined ways to prepay and buy down the system’s “unfunded actuarial liability” in 2017. At the end of 2017, the system’s liabilities amounted to $22.3 billion. But, just one year later, those liabilities had ballooned to $26.6 billion. This illustrates the problem with attempting to prepay liabilities when those liabilities are growing faster than any conceivable prepayment scheme. Until the growth of liabilities is brought under control, these schemes will forever chase and fall short of a rising target.

Further, the Governor’s Task Force dealt almost exclusively with how to manage the pay-off of the system’s liabilities (Click here for the UAL Task Force report), not how to reduce the cost of the system going forward. (The few exceptions have to do with reducing investment management costs and maximizing the returns from pooled borrowing to pay down the system’s liabilities.) The most significant recommendations, e.g. the use of reserves from the SAIF fund, are exercises in trade-offs. If such funds are available, which is questionable, would they be better used for projects such as the completion of the seismic retrofitting of all school buildings, for example? Almost every recommendation that the Task Force came up with amounted to a demonstration of such trade-offs or what economists call “opportunity costs.”

Once reforms are enacted to reduce the ongoing costs of the system (Solutions 1-4) and limit the system’s exposure to rising liabilities (Solutions 4 and 6), it will open up new possibilities to extend its repayment period, make use of the state’s bonding capacity to ease the burden on schools and local governments and/or identify new funding sources to pay off the obligation.

Taking this burden off public payrolls will relieve cohorts of students in our schools and the next generation of Oregonians from bearing the full weight of budget cuts and curtailed services that will otherwise result from an unbalanced, uncontrolled and unaffordable retirement system.

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