A lot of hand-wringing, but not much action has followed the Oregon Supreme Court's decision invalidating many of the Public Employee Retirement System changes aimed at reducing the state's unfunded liability.
Public employee union officials are clucking, "We told you so." Legislators are conceding there is little more that could be done to trim retiree benefits. And state and local public agencies are bracing for a round of stiff PERS contribution rate hikes in 2017.
If you can't touch retiree benefits, all that's left is reducing costs associated with PERS. And lo and behold, the legislature is sitting on a bill that backers say could save $2.7 billion over the next 20 years in expenses to manage public retirement investments.Under Senate Bill 134, an Oregon Investment Department would be formed as an independent agency, much like SAIF Corporation. The department would be overseen by the Oregon Investment Council and responsibility to administer public retirement funds would fall to a professional investment manager, not the state treasurer. The treasurer would be the vice chair of the Council.
Even though this set-up would require hiring more staff members to manage a portfolio and assess risk, it would enable Oregon to free itself from the higher-priced consultants it pays for now. One benchmarking analyst said Oregon is a “high-cost fund compared to its peers, in large part because of Treasury's heavy reliance on outsourcing.” This is where the projected savings comes into play.
Cost-cutting has the drawback of not appearing to reduce the unfunded liability, but the advantage of reducing the outflow of cash to manage public retirement funds, while "in-sourcing" investment management duties.
Republican lawmakers may fret about hiring more state workers, but they may see increased local employment as a better alternative than sending big sums to Wall Street investment management firms.
The legislation, introduced by Treasurer Ted Wheeler, nearly passed in the short 2014 legislative session. The Oregon Investment Council expected it to fly through the 2015 session. But it hasn't.
Senate President Peter Courtney has sat on the legislation this session out of fear of creating another "Cover Oregon" calamity. But that was before the Oregon Supreme Court ruling on so-called PERS reforms. Now the legislature is staring at a financial tsunami far worse than Cover Oregon.
Wheeler's uncertain political status may be another contributing factor. Deemed constitutionally unable to run for another term as state treasurer, Wheeler appears to be considering his options. Many of those options could involve other elected officials – in the governor's office and in key legislative leadership positions. These potential opponents may not feel a need to give Wheeler a perceived "political victory."
While Courtney's reluctance and other elected officials' wariness are part of the normal political process, the PERS problem may force everyone to rise above "normal."
At a minimum, giving the Oregon Investment Department and the savings it might generate a second look could form the basis of a broad coalition business-labor coalition willing to find ways to nibble away at the problem without threatening retiree benefits. It seems like a much better use of time than hand-wringing.