The Ghost of Tom Joad

It's looking a bit bleak these days. With the stock market gyrating pretty much out of control, with the Bush administration and Congress passing handouts to nearly any business who asks, and the US deficit climbing to record levels, there is little doubt that things will take awhile for us to recover. It should, therefore, come as little surprise that PERS has taken a pretty substantial hit. Recent estimates show that through the end of September, the PERS Fund lost about $13 billion. While it did better than my personal portfolio, that is still a substantial hit that will pretty much wipe out any surplus it has and leave the fund with an unfunded actuarial liability again. Ron Schmitz of the Oregon Treasury estimates that the fund may only have between 90 and 95% of funds required to meet all demands of all members. While this is a paper number that has no real meaning with two thirds of the membership still working, it also means that there won't be any treats available when PERS trick or treaters come around tonight or during next year's legislative session.

The good news is that PERS is better prepared to weather the crisis than most public employee retirement funds across the country. The OIC has done a remarkable job in keeping the fund in the black and I have confidence that once the current crisis settles down, they will be able to place funds where they can once again return in excess of the assumed rate.

In keeping with the Tom Joad theme, I do think that there will be pressure on PERS to *reduce* the actuarially assumed interest rate (currently at 8%). Right now, this is tough to do because the rate is linked to the construction of the mortality tables, linked to the payouts at retirement, and intimately bound to the rates charged to employers. Any reduction in the assumed rate would not only negatively impact members, it would also raise the employer contribution levels. At a time of shrinking budgets, the employers would protest vigorously any proposal to change the "guarantee". Nevertheless, I think a change is inevitable in the current climate and it would not surprise me to see either next year's legislature or the current actuary (Mercer) propose that PERS do just that.

The second Tom Joad theme is that I rather doubt any proposal constructed by OPRI to give current PERS retirees an ad hoc rate increase will get through the Legislature. While the purchasing power of all PERS retirees has declined, especially that of long-time retirees, the fund simply doesn't have the resources to pay such increases. Moreover, since COLA increases and ad hoc increases come directly from employer contributions or from earnings on the Benefits-in-Force reserve (currently negative), the enthusiasm for digging deeper into budgets isn't there.

Finally, the $13 billion loss in the PERS Fund does *not* include the month of October, which has been the worst in recorded history. If there were any residual belief that any of the above would or wouldn't happen, October should just about erase that.

Trick, no Treat, Mr. Joad.

Gotta Be Somebody

For PERS members and retirees, one of the toughest decisions in the upcoming election will be that for Oregon Treasurer. The two principal candidates are Ben Westlund (D) and Allen Alley (R). For different reasons, each would make a good Treasurer. On the PERS Oregon Discussion Group, I explained why I couldn't make a choice between these two and suggested that my wife and I would be splitting our votes. In the interim, several more informed members of POD persuaded me to look closely at Allen Alley's performance as CEO of PixelWorks, the high tech graphics company that Alley founded. I confess that I hadn't done so before Frank (in particular) made the suggestion. It was eye-opening to look at PixelWorks from the perspective of judging the CEO as a possible Oregon State Treasurer. In effect, the Oregon State Treasurer's job is to insure that all of the various funds under his/her management remain solvent, vibrant, and able to pay out promised benefits to all the various beneficiaries. From that perspective, Alley's tenure at Pixelworks has been dismal. Several years ago, the stock traded at about $10 per share. Since then, the stock has dropped to an eye-popping $0.94 per share (you read that right). It might be up or down depending on today's stock market crisis, but I think you get my drift here. While no one expected stellar performance in the volatile market of today (though look at Apple for a stark contrast), I think that a healthy company would have done better than to drop to one tenth its value in the span of only a few years, if that long.

Alley has been running on his business acumen and experience; Westlund has been running on his own business experience as well as his experience in the Legislature. He has reached across the aisle (when he was a Republican to Democrats, and as a Democrat to Republicans). All things considered now, I am convinced that Ben Westlund would be the best choice for State Treasurer. I endorse him wholeheartedly. I think he will be the best person to safeguard the PERS Fund. While Alley *might* do a good job, his experience at Pixelworks and their stock performance in the recent past do not give me a warm fuzzy feeling about how well he would do with a fund valued at $60 billion. To be sure, the fund is actually managed by the Oregon Investment Council, but the OIC is nominally headed by the Treasurer. I think I'd prefer someone who hasn't had the kind of experience Alley has. And, as for Alley's advisory role with Governor Kulongoski, I believe that was in Ted's first term - a term in which the PERS contract was broken repeatedly by Ted and his henchmen in the Legislature.

So, to reiterate, if you are still undecided in the Treasurer's race, I wholeheartedly endorse Ben Westlund.

White Chalk

Things just keep getting stranger by the day with the White case. According to a post on the OPRI web site, the White trial has been cancelled. The White case is still on, but Judge Kantor has decided to use the submissions to make a ruling on the defendants' (PERS, State, etc) petition to for summary judgement and dismiss the case. Judge Kantor has reportedly told the PERS Coalition that they can wait until he issues his ruling in the summary judgement petition. At that point, if Judge Kantor rules against summary judgement, then the PERS Coalition can files its own petition for summary judgement (something I already thought they did). On the other hand, if the Judge rules in favor of the defendants, then the PERS Coalition can simply appeal the ruling to the Oregon Court of Appeals.

This is about the strangest turn of events I've seen yet. I'm trying to get confirmation from Greg Hartman and the PERS Coalition that this preposterous (to me anyway) sequence of events has been accurately reported. Stay tuned for more information. In the meantime, you might want to hang tough a bit longer before jettisoning those plans to attend the hearings.

P.S. 1:40 pm. Greg Hartman just got back to me. He explains that Judge Kantor did cancel the hearing. He (Judge Kantor) noted that he believes that he has a sufficient record upon which to base a decision. This means that Judge Kantor doesn't believe that there are factual issues requiring resolution. According to Greg Hartman, Judge Kantor also stated that he had not determined how he would rule and therefore might invite the PERS Coalition to file a cross motion for summary judgment. Hartman noted "while this is unusual I think it reflects the fact that most of the dispute in this case is how to apply the legal principles to facts which are largely not in dispute."

Thanks to Greg Hartman for his quick reply to my query. Let's all hope that Judge Kantor shows some wisdom this time, unlike his ruling in Arken.

I guess those of you who had plans to come to the hearings can safely cancel them now. We'll wait for the chalk outline to appear on the court docket. Hopefully the outline will be of PERS, the State, and the employers, and NOT the Coalition.

White Rabbit

The case known as the "White" case goes before Judge Kantor on October 23. The hearings are scheduled for three days - October 23, 24, and October 27. It is hard to gauge exactly how much time a complex case like this will take. At issue is the "legality" of the settlement agreement the PERS Board entered into to settle the City of Eugene case. For those unaware of the exactly how that agreement affected us, consider that it was finalized in early 2004, before the Supreme Court had heard and ruled on the Strunk case. While the Strunk case concluded that the Legislature could not withhold COLA increases for retirees, and concluded that the Legislature had, in effect, created a new benefit for retirees - the fixed benefit - which could not be said to contain errors, the settlement agreement effectively undermined the principal Strunk ruling. It enshrined what I've called the "nuclear option". It basically said that if the Supreme Court ruled that the COLA freeze option was unconstitutional, PERS would use an alternative and more costly mechanism (to retirees) method for getting back the alleged "overpayments". The settlement agreement also asked PERS to switch sides in the City of Eugene case. It required them to admit to wrongdoing -- something they argued vociferously against in the City of Eugene case - so that the 1999 earnings crediting decision could be classed as an "error" and be subject to ORS 238.715 (the collections statute). There are many other unsubtle elements to the settlement agreement, but any rational analysis leads to the conclusion that the PERS Board, which is charged with primary fiduciary responsibility to its members, retirees, and their money, violated that responsibility and took action directly in conflict with its responsibilities. The White case charges the PERB with exactly that, and more, and seeks to undo the settlement agreement. This is a very important case that will ultimately go all the way to the Oregon Supreme Court.

So that people can plan in advance, I urge every member and retiree to try to find time and means to attend all or part of the hearings. I firmly believe that attaching human faces to the dry proceedings playing out in a courtroom gives all sides a look at who is affected by the litigation before them. The hearings are held in the Multnomah County Courthouse in downtown Portland. I will be posting directions and other information as time goes on. For those who live in the Eugene or Salem areas, carpools typically get formed and this makes it easier and less costly for people from the valley to attend. I will help facilitate organizing these carpools through the PERS_OREGON_DISCUSSION group (POD). You can access the newsgroup by clicking on the link to the left of this post. I hope to see many people there.

Sad Cafe

The plaintiffs in the Arken and Robinson cases have been informed by the PERS Coalition that Judge Kantor has signed the final judgement and it has been entered into the Multnomah County Circuit Court. On Monday, the Coalition prepared for filing the Notice of Appeal to the Oregon Court of Appeals asking that Court to direct and certify the appeals directly to the Oregon Supreme Court. In the Robinson case, Judge Kantor has asked the attorney, Jim Coon, whether it is necessary to certify a class. Coon is reviewing that option. We should know relatively soon whether the Court of Appeals will direct the Arken case to the Supreme Court without the intervening stop. In the meantime, we can hurry up and wait a bit longer. The White case should be coming up for hearing soon.