How Oregon's Public Pension Crisis Developed

See A $76,000 Monthly Pension: Why States and Cities Are Short on CashGovernments are struggling as mounting pension obligations crowdout the rest of their budgets. Oregon faces a severe, self-inflicted crisis by MARY WILLIAMS WALSH of The NY Times. Excerpts:

"A public university president in Oregon gives new meaning to the idea of a pensioner.

Joseph Robertson, an eye surgeon who retired as head of the Oregon Health & Science University last fall, receives the state’s largest government pension.

It is $76,111.

Per month.

That is considerably more than the average Oregon family earns in a year.

Oregon — like many other states and cities, including New Jersey, Kentucky and Connecticut — is caught in a fiscal squeeze of its own making. Its economy is growing, but the cost of its state-run pension system is growing faster. More government workers are retiring, including more than 2,000, like Dr. Robertson, who get pensions exceeding $100,000 a year.

The state is not the most profligate pension payer in America, but its spiraling costs are notable in part because Oregon enjoys a reputation for fiscal discipline. Its experience shows how faulty financial decisions by states can eventually swamp local communities.

Oregon’s costs are inflated by the way in which it calculates pension benefits for public employees. Some of the pensions include income that employees earned on the side. Other retirees benefit from long-ago stock market rallies that inflated the current value of their payouts.

For example, the pension for Mike Bellotti, the University of Oregon’s head football coach from 1995 to 2008, includes not just his salary but also money from licensing deals and endorsements that the Ducks’ athletic program generated. Mr. Bellotti’s pension is more than $46,000 a month.

The bill is borne by taxpayers. Oregon’s Public Employees Retirement System has told cities, counties, school districts and other local entities to contribute more to keep the system afloat. They can neither negotiate nor raise local taxes fast enough to keep up. As a result, pensions are crowding out other spending. Essential services are slashed."

"Oregon is a blue state, but in its restive red hinterlands, tax increases are politically off limits and financial distress has been severe since 1994, when logging was curtailed to save an endangered owl. Lately, things have been getting even worse.

When a man was reported yelling and firing his gun on the property of a school in rural Josephine County, it took two hours for a sheriff’s deputy to arrive, said Kate Dwyer, chairwoman of the board for the Three Rivers School District.

The county has cut sheriff patrols, closed its mental health department and kept its jail at less than half capacity because of a lack of guards."

"Oregon now has fewer police officers than in 1970, is losing foster-care workers at an alarming rate and has allowed earthquake and tsunami preparations to lapse. A 2016 survey turned up “a large number of bridges with critical and near-critical conditions” because of “longstanding inadequate funding.”"

"Oregon’s unusual method for calculating pensions tends to generate lavish payouts.

For decades, PERS calculated pensions two different ways, and retirees could choose whichever produced the bigger numbers.

The first way was similar to what most states do, basing pensions on each worker’s final salary and years of service. But Oregon’s lawmakers included a golden touch, redefining “salary” to include remuneration from any source.

That was how Mr. Bellotti, the former football coach, came to be the state’s third-highest-paid pensioner, at roughly $559,000 a year."

"Oregon’s second way of calculating pensions dates back to 1946: For decades, every public worker got a simulated tracking account. It was credited with 6 percent of each paycheck, then left to compound at a predetermined rate.

In the early years, a low rate was used because the pension system invested in bonds that didn’t yield much.

But in the 1970s, lawmakers started nudging the rate up, eventually to 8 percent. Then, the system’s trustees decided 8 percent should be a guaranteed minimum. In years when markets produced higher returns, the accounts compounded at those rates, after money-management fees. During the 1990s bull market, accounts compounded by up to 21 percent a year.

When workers retired, their employers were required to “match” the account balances, doubling them. Then PERS would base the pensions on the total."

"Randall Pozdena, an economist who supervised the pension system’s investments in the 1990s, gave speeches warning that the situation was unsustainable."

"But efforts to change the system, including a 1994 ballot initiative, were blocked by the State Supreme Court, which ruled that accruals could not be reduced during any public worker’s career.

So, when lawmakers required government retirees to pay Oregon’s 9 percent income tax, as everybody else did, they also increased pensions by 9.89 percent, giving retirees extra money to pay the tax with."