Ted Sickinger has the report here on PCC’s plan to borrow $200M to use to pay its PERS tab. The bonds will go on sale soon.
While this is portrayed as a bet that stock-market returns will exceed the interest rates on the bonds (and it is) as Sickinger explains it also will give PCC access to some money up front and mitigate the effect of the PERS board’s obsessive desire to get PERS to 100% funding ASAP, regardless of what it costs current taxpayers, workers, and students.
A more economically rational approach would be for PERS to convert to a partly-funded partly pay-as-you go pension scheme, and make it explicit that we expect that a more populous and richer future Oregon will have the resources to pay the retirement benefits of its workers.
This is the decision that most other states have made, generally on a de facto basis. Of course such an approach is opposed by those who are impatient to shrink the size of government right now by increasing the cost of having state employees, and those who earn their living trading stocks and bonds on Wall Street.
Unfortunately, it seems that PCC’s sensible workaround is unavailable to UO, because while PCC has its own PERS account, we are part of a larger state agency account. So UO’s current employees will continue to see downward pressure on their wages, and students will see higher tuition, as the cost of getting PERS to that magic 100% increases.
The time to do this was in 2008-09 or so, when the stock market had tanked. I did it with my self-directed ORP funds, and other investments, but it took a certain amount of nerve, I must say.
When a government agency decides it is time to invest in the stock market, probably 10 years after the opportune moment, it makes me think that maybe it is time to get out of the stock market, ahead of the coming bear market or crash.
Perhaps the Trump boom will continue another 10 years. In that case, the PERS liability will take care of itself anyway. But do y’all really have that much confidence in our president and his successors? If reading that made you cringe, I think you’ve already answered the question
I get it about borrowing and paying off the PERS liability more slowly, but it has to be done right, and I very much doubt that government agencies are up to the task.
The easiest way to pay for pers…
Building more housing
Prices fall
People move here
Taxes go up
You forget something? They also come demanding expensive services, especially if they’re refugees from Cal., etc.
and jobs automatically fall from the sky …?
Interesting idea about paying off PERS as state grows in population and wealth. Are others advocating this? Is there an example of another state that has done this successfully?
I imagine some of the increase in state revenue would be undermined by increased service demand, but not all of it. Could this be calculated, maybe based on historical trends in Oregon?
Well, I’m an advocate of the state being wealthier. :-)
But seriously, the strategy of borrowing money and investing it in the stock market does not seem wise. It is indeed a bet, and bets are easily lost as well as won. It doesn’t change the expected result, it just increases the variance, which doesn’t seem like something you want in a pension fund. (If this was a sound way to profit, we’d all be doing it.)
The awful truth is that–unless we’re willing and able to claw back pension commitments–the money has already been spent. Finding ways to increase income or decrease outlays would seem to be the only options.
Or we can continue to kick the can down the road, and let our kids deal with it.
Any way to increase income is a bet. They all have uncertainty. The greater the reward to the better, usually the greater the risk. For instance, giving tax credits to attract employers is an uncertain bet. Investing in infrastructure or riverfront walkable parks and shopping. Those are uncertain bets. The stock market has uncertainty but at least you can diversify.
I misspoke on not changing the expected result. As you point out, it will be higher with greater risk (variance). Or rather, it should be, if properly planned.
That said, a huge bet on the stock market sounds unwise. As things are, cuts will be unpleasant. If we bet and lose, the cuts will be far worse.