Strange Days

One of the more surprising and unusual proposals to show up at yesterday's Board meeting emerged out of a meeting of Stakeholders with the Legislative Advisory Committee (LAC). Astonishingly, one idea is to end the IAP for Tier 1 and Tier 2 members and repatriate the money into the respective Tiers. This has no bearing whatsoever on ideas floating to eliminate the 6% pickup or end the 6% mandate. The issue created by the IAP - an unanticipated consequence one might say - is that employee money is no longer going into the PERS Fund and does not contribute to the financial health (or illness) of the system. Somehow the employers seem to feel (it was suggested by an employer) that if the IAP money from Tier 1 and Tier 2 members were to be drawn back in to the PERB fund, the system's health might improve. Of course, the actuaries haven't weighed in on this and the PERS Board isn't likely to request such a study from their operating budget. But to have this floated scarcely 5 years after the IAP began shows just how many bad ideas emerged out of the 2003 Legislature. We live in strange times.

Battle Studies

To my surprise, the PERB meeting today was pretty low key. That isn't to say that there weren't moments where it looked like howitzers would be drawn. But on the whole there were far fewer fireworks than expected.

Not surprisingly, the new actuarial equivalency factors were adopted without any discussion. The actual tables are not public to the best of my knowledge, but they will be shortly. All we have are the adjustment factors from the previous study and the impression that the factors will again be slightly less generous than before both because of better survival rates and because Mercer changed the calculation methodology. The expected impact is about 2% lower benefits at retirement, which can be offset by delaying retirement by a few months. Of course, your mileage may vary once the factors are public.

On the topic expected to cause the most fireworks, few actually occurred. The actuary went over various options and their impact. No matter how you slice it, employer rates will be going up for 2011-13, but the steepness of their increase remains an unanswered question, subject to a variety of factors. After the actuary finished his presentation, stakeholders were permitted to comment. The only stakeholder there who surprised me a bit was the public employee's best friend, Bob Tiernan, the chair of the Oregon Republican Party. Tiernan was not there to speak for or against the employer rate hike, but to remind everyone that PERS was back on his radar and said that his party would be looking at this as part of the next campaign (Legislative and Gubernatorial no doubt). For those of you unfamiliar with Bob Tiernan, recall that he was in the Legislature the early 1990's and was the sponsor of Ballot Measure 8 (1994) which would have removed both the rate guarantee and the mandatory employee contribution and the pick-up. When those were tossed by the Oregon Supreme Court, Tiernan was responsible for the Tier 2 program, which stripped the guarantee from new members.

For the employees, Pat West of OPRI and the Firefighters, and Greg Hartman spoke to the dual need of the Board's responsibility to members and to employers. Neither was willing to take any stand on what the PERB ought to do before any proposals were on the table - maybe at the January 2010 meeting.

Steve Manton from the City of Portland gave his employer's view of the potential rate increases, neither appealing for mercy, but asking that the Board take into consideration everything.

Finally, Phil Keisling gave an impassioned plea for the Board to engage in a longer-term discussion of the of the future of PERS in the current environment. He remonstrated the Board for looking at 2008 in isolation as though it were a "black swan" event, rather than considering the 5 year run of 15%+ returns as "golden geese". He surmised that the probability of the 5 year 15% run was about the same as the single year 2008 and that the Board (and the actuaries) ought to be considering both when they start all their modeling. Keisling was arguing that the Board should not make this decision in a compressed time frame in a reactionary sense, but should take as much time as is reasonable to plan. There is no direction for the employer rates to go except up and the Board, while certainly being the fiscal stewards they were, had the responsibility to deliver the bad news to the employers even if the employers did want to hear it.

The Board responded in turn to each of these comments and basically challenged that their job was to administer the system, not to make law. They had no authority to do some of the things being floated about, and felt that they should not be held hostage to the entire fiscal situation in Oregon. They had no authority to call on the Legislature for some sort of forum on the fiscal scenarios being played out. The general consensus among the Board was that they had not intended for the double-rate collar to be so black and white as to place once employer whose funding was at 79.8% with a 3% higher increase than an employer with an 80.3% funded rate. They seemed to be telegraphing that the rate collar would be maintained, but with some more graduated rates between the two cliffs.

At this point I had to leave the meeting and I didn't hear the final 15 minutes, although I doubt anything of significance was mentioned.

It is clear that the Board is suddenly growing troubled by the responsibility it faces and the consequences of their actions on public finance in Oregon. No final decision will be made until July 2010 when the 2009 returns become finalized. In the meantime, there will be 3 more meetings fraught with hand-wringing and despair as the Board and the employers wrestle with the problem of how they can push the problem on down the road while making it clear that they aren't. It will be an interesting 7 months and the knives and guns will be hoarded and the battle studies will take place in semi-slow motion.

For me, the answer is simple. The Board should hit the employers hard now. Make it clear that this is the system the Legislature baked and there are simply no other ways the employers can weasel their way out of future promised obligations.

Apologia

My primary source for Phil Kiesling's "meditation" on the PERS system failed to include Kiesling's cover letter. Since Kiesling explicitly asks that the cover letter be included, I am reprinting here since the source linked below does not include it. Kiesling tries to answer some of the questions about his motivations in the letter and set the record straight about errors and omissions and updates between the current version and previous versions. So here it is, extracted from the original source:

Begin letter:

"Friends and fellow Oregonians:

About 4 months ago, I started making a few inquiries about the status of Oregon’s Public Employee Retirement System (PERS), which was much in the news a half-decade ago. I thought I might do an 800 word op-ed piece about the effects of the 2008 market downturn on the system. But one question led to about 3 more, and as summer turned to fall and then early winter, the end result (after multiple drafts) is the attached White Paper, which is roughly 15 times the length.

My apologies for that. I know everyone is super busy, and this hardly the stuff of compelling literature for most people. But I thought this might be of potential interest to you, given how long and thoughtfully each of you has contributed to thinking and acting constructively about important public policy issues in this state. So in case this topic is of interest, I thought I’d send it along. (And my apologies to those who received this more than once; I’ve lost track of who got some earlier versions).

Indeed, if any of you have seen an earlier draft, please consider this one to supersede that. As I explain below, I have made more than a few changes, and old versions (and their flaws) of things do tend to linger longer than they should in cyber space.

I also fully recognize that while this November 9, 2009 draft reflects an extensive effort to respond to the myriad of comments and corrections I received, I’m sure that I failed to correct everything. But having started this inquiry in July – and much has indeed changed since then – it felt like it was time to call it “baked” at least for the time being, and send it out, remaining warts and all (and I fully confess some do indeed remain.).

For those who were able to read the previous piece, there’s nothing earth-shatteringly new in here. The main explanations – and conclusions – pretty much remain the same, though there are some important corrections in both tone and substance throughout. In addition to working diligently -- though I’m sure, not completely successfully -- to wring all factual errors from the large to relatively small from this piece, I want to highlight and emphasize several major points:

• An Executive Summary has been added, to try to encapsulate the more salient, big picture points

• Updated PERS numbers have been inserted where appropriate – especially multiple references to the fact that the PERS fund has rebounded significantly during CY 2009, and may finish the year with 15-18% investment gains. That said, I also repeatedly emphasize that even with a year that may restore most of 2008’s massive losses, the outlook for PERS’ funding situation, while certainly better than it was in earlier reports, is still very challenging. Readers should take various predictions and charts – especially those based on the May 2009 -- with that caveat, but also recognize that the general trajectory of rates remains in a relatively steep, upward direction for the next few biennia, under most foreseeable scenario save for a return to very high and multi-year (e.g, 12-15% annual) rates of return.

• This draft reflects a more sophisticated – and admittedly more favorable -- discussion of the role the PERS Governing board has played, post 2003 reforms, to further reduce PERS’ vulnerabilities. However, it’s also evident that much of the “non debate/non-awareness” of PERS’ situation during 2003-2007 was due to investment returns over 5 years of close to 15% -- almost double PERS’ Assumed Earnings Rate of 8% . The 2008 market downturn definitely did not “cause” PERS’ current predicament. Rather, it simply revealed -- sooner, and more uncomfortably than virtually anyone would have liked -- the longer term problems that PERS faces under more “normal” (not to mention, any “sub-normal”) investment environments.

• The “possible options” section has also been expanded somewhat. However, I want to once again re-iterate that the main purpose of this paper was to 1) Try to slash through the dense jungle of assumptions, actuarial terms, and acronyms so that readers could more easily grasp the basic and most important aspects of the system; and 2) Describe the broad outlines of the structural challenges PERS faces in coming years, given past decisions and existing policies (e.g. everything from benefit levels to rate-setting policies, assumptions, and processes).

This paper’s purpose was not to advocate a specific PERS reform agenda. Indeed, in both tone and substance I deliberately worked to steer clear, for now, of exactly that. (I do, however, strongly advocate for a robust, open debate that involves sufficient time and opportunities to involve not just public employers and their employees, but the general public. )

Indeed, it’s been my experience over the years that fierce partisans in this debate – and there are many, on both sides – often want to quickly steer PERS-related discussions into territory that’s almost “theological” in nature. Do you -- or do you not -- think that public employees do good, valuable work, and therefore are entitled to everything (and perhaps more) than what they’re currently scheduled (or believe they’re entitled) to receive?

For many, this is the general outline of the debate they want to have – and I have few illusions that even this white paper can avoid being sucked into exactly this kind of rhetorical vortex, too. So if you hold the more positive view, the discussion can quickly become a matter of, “We were promised this in exchange for lower wages, so what’s the problem? And since private employers don’t give (or sometimes cheat) their employees when it comes to decent pensions, maybe, private workers deserve a PERS system, too!” And if you hold the more negative view, it can quickly devolve to, “What a bunch of overpaid, overprotected complainers! Let’s just cut these excessively generous benefits!”

What a dreary – and ultimately off-point -- discussion, however much energy and heartfelt passion folks bring to the table.

While some – including current retirees, whose retirement benefits, ironically, are virtually untouchable when it comes to any proposed changes that are legally permissible – might want PERS discussions to focus on this (and related questions), the larger, important point is this: Oregon has and needs a public pension system. PERS is that system, and it’s one that Oregon taxpayers are ultimately responsible for, since it’s part of a compensation package that they (and their elected and appointed representatives) have decided on, through both laws and negotiated contracts.

But what are the prices of sustaining that system, as currently configured – including the potential costs on everyone, not just taxpayers, but on public employees themselves? And what possible changes might make such a system better, stronger, and more sustainable over time, under current and future scenarios that everyone needs to plan for as best we can?

Finally, I want to call people’s attention to the possibility of important decisions relating to PERS, perhaps happening very quickly. On November 19, 2009, the PERS Governing Board will discuss – and could even decide on -- some significant policy changes that bear directly on PERS future. (For example, whether rates should increase by 6% or 3% for 2011-13 under the current “double rate collar” policy).

Given the virtual absence of meaningful discussion of PERS during the last 6 years in journalistic, political, and other circles – I’m concerned that such a fast decision-making pace could prove unwise –not mention, quite unnecessary. (Existing net Employer Contribution rates will remain in effect through June 30, 2011). If any of you have concerns – either about the speed at which changes could be made, or the proposed changes themselves -- I encourage you to communicate them directly to members of the PERS Board and staff, and sooner rather than later.

I plan to attend the next PERS Governing Board meeting – Friday, November 20th, at 1 pm at PERS headquarters in Tigard – and have been warned by many to wear a flak jacket. Indeed, the PERS “blogosphere” is already filled with many dark speculations about my own personal motives, and the origins of the white paper – Am I running for Governor (No!); is this a product of the dark cabal known as the “Junto, (??!); and am I trying to take away the hard-earned benefits of existing PERS retirees? ( a) No; b) I’m a Tier I future beneficiary myself; and c) even if I wanted to, that would be a non starter given the court rulings!)

But I am trying to do something I think is very much needed in Oregon at this time: raising some important, legitimate questions as to whether such a large and basic pillar of current public policy rests on the kind of firm foundation most would -- or should --agree is needed (regardless of their political philosophies and views about government generally). This is ultimately a question of how well we collectively manage this function – not just to ensure we get it right for today’s workers and citizens, but also for those citizens of future years and decades who deserve something better than inheriting a mess that we could have/should have fixed on our watch -- but chose not to because we didn’t want to be inconvenienced by difficult discussions, much less actual decisions.

You may also feel free to forward this white paper to others. I only ask that if you do so, you also forward the above discussion that includes my various caveats (“Mistakes were made”) and the larger context I’m trying to put this into.

Thanks for any interest you might have in this – and for those brave enough to wade in, happy reading!

Phil Keisling

=========================

Let The Walls Come Down

In the past few days our favorite non-politician (Phil Kiesling) has released an updated version of his "meditations" on the PERS system. You can read Phil's latest draft here. I have to give Kiesling credit for picking up and correcting many of the mistakes that littered his previous versions of this document. Nevertheless, Phil's objective seems to be to provoke a serious discussion about PERS' future with legislators, the executive branch, the unions, all the various public employers. I strongly suggest that you read this updated version for it lays out some of the areas where PERS members might be facing some changes. Phil treats everything in the PERS contract that isn't legally nailed down by court decisions as subject to potential negotiation and/or legislation. Even if you don't want to wade through the lengthy text (this draft is nearly 20 pages longer than the first draft), please do not miss the APPENDIX. It is here where Phil lays out ideas for discussion. I do not want to discuss the document here, but I would suggest that readers who wish to discuss this come to our PERS Discussion Group (POD), which you can get to by clicking on the first link at the left. Please pose your questions there, although you are free to comment here, as always.

You Can't Beat The House

My head is spinning from the garbage being distributed lately. It seems that the announcement that PERS employer rates are going to rise has triggered a series of non-sequiturs from all directions. Everybody, it seems, has an idea to fix PERS. One thing unites all these ideas - they all involve taking things away from members. No matter what happens, PERS members are always the whipping boys and girls for advocates of smaller (or larger) government. Somehow it always seems as if we are greedy, ungrateful, spoiled brats who just want our PERS benefits and the public be damned. Everyone seems to forget that PERS benefits are not negotiable. They represent the ONLY retirement system available for most members (OUS members aside). The only element of the retirement system that was ever negotiated was the 6% pickup, but few today recall that it was presented to the unions in the form of an ultimatum - it is this or nothing. The unions wanted pay raises at a time when inflation was running at 12-14%. The state, predictibly, couldn't afford raises of that magnitude so Vic Atiyeh and Bob Straub came up with the idea that by paying for the employees' required PERS contribution, that would work out cheaper for the state and better for the employers. So, if you have a choice between the 6% pickup or nothing, you take the 6% pickup. I recall many, many PERS members griping to high heaven about not getting a pay raise. Now the 6% is historically part of the general PERS contract. It isn't going to be given up in negotiations.

So right now we have the Boregonian carping about high employer rates, The Statesman Journal writing about the ripoff of employer side accounts, and The Eugene Register-Guard complaining about the high cost of health care for public employees. Phil Kiesling wants to put everything in the union contracts up for renegotiation with tougher public employer negotiations. Steve Buckstein of the Cascade Policy Institute wants us to believe that if we raise taxes (via Measures 66 and 67) this will (a) all go to pay for the PERS "boondoggle" and (b) will cost the state much-needed jobs.

I can predict right now that politics will make very strange bedfellows during this coming January special election. We will have some peculiar groups of people supporting or opposing Measures 66 and 67. I'm not exited about Measure 66, but think Measure 67 is long overdue (or do I have them backwards?).

Regardless of what I think about these two tax measures, I can assure you that the lever that will be used to defeat them is going to be PERS costs. So, once again, we will be demonized no matter what happens. If the measures pass, people will bitch and moan that all the money is doing is to pay the costs for greedy PERS members. If the measures fail, it will be because of the greedy PERS members. In short, the house will win no matter what. Heads they win, tails they win. We lose no matter what. I don't like those odds.

Conjunto

Interesting musical form, emanating out of Mexico and on the border. Don't know its origin, but its suffix -junto is from the same root as junta. What does this have to do with anything? Nothing and everything. It is likely that the "position paper" on PERS may have originated in some discussion of PERS at a relatively new "club" called Junto that has 42 members, all prominent Portland/Oregon Democrats. Membership includes some of our favorite people including Greg Macpherson and, surprise, surprise, Phil Kiesling. The group was organized by someone I've known for a long time. If you are interested in this group, you might want to Google the word "junto" and find an October issue of Willamette Weekly with an article by Nigel Jacquiss on this not-so-public group. I suspect we'll be hearing more policy proposals emerging from this group. The membership includes an awful lot of familiar and not-so-familiar names. Beware.

Throw a Stone

For those of you who listened to OPB's "Think Out Loud", which aired this morning from 9-10, you would have found one of the guests to be a bit of surprise. Phil Keisling, former Oregon Secretary of State, was there to discuss his latest "PERS Position Paper". While I had heard rumors of such a document, I was neither certain of its authenticity or its authorship, much less its contents. Well, now we know the document exists and its author is Phil Keisling. The latest version is 36 pages long and is dated October 12, 2009. I have located a copy and have posted it here. Read it and understand that Kiesling has thrown the first stone into the pond called PERS in advance of the 2011 Legislature. Perhaps Kiesling is running for something, or just wants to stir up trouble. One thing is for sure is that active PERS members will certainly need to be on their guard before the next set of bad shoes drop.

Closer To The Bone

Tomorrow morning at 9 a.m., Oregon Public Broadcasting's radio program "Think Out Loud" will feature a discussion and call in about "PERS" in the current economy. The show airs on all public broadcasting stations that are part of the OPB network. It is 91.5 FM in Portland and at other frequencies around the state. It also streams live (and delayed) here. I don't know for certain who is on the show (I am not, that much is certain), but I know that invitations have been extended to Paul Cleary, Executive Director of PERS, Greg Hartman who represents the PERS Coalition, someone from OPRI (not sure who), possibly Ted Sickinger of the Oregonian (author of the latest hit piece on PERS), and probably one or two other luminaries - perhaps Bill Gary or someone who represents the employers. The show has a blog organized by topic (the show tomorrow already has about 10 posts), which is supervised in real time, as well as an opportunity to call in and make points and ask questions. I encourage all to listen to this show. Emily Harris, the show's host, is an exceptionally good interviewer and host, and this is an opportunity to learn what some of the public policy issues might be when the 2011 legislature convenes. Just remember that both the Oregonian and the Statesman Journal have published recent hit pieces on PERS and they've catapulted PERS into the public eye, yet again. Each time they strike, the outcome cuts closer to the bone. Be aware, be alert, listen, and call.

Wrecking Ball

On Wednesday November 4, 2009, the Oregon Public Broadcasting show "Think Out Loud", hosted by Emily Harris will focus on the PERS system in Oregon. The show will air at 9:00 a.m. Wednesday and again at 7:00 p.m. The show can also be streamed from the OPB website. At this point, I'm not sure who all the guests will be. I *may* be one, although I have not been extended an invitation yet (I've been contacted, but I haven't spoken to anyone about it yet). Greg Hartman, someone from OPRI, and Paul Cleary are known to be involved. This could be a seminal show as it may be possible to divine what PERS opponents have in store for actives and current retirees during the next election or Legislative cycle. With the Whoregonian and the Statesman Journal both publishing major articles on the PERS system in the past two weeks, and the Whoregonian editorializing on the sad state of affairs there, it seems quite likely that we have not yet eluded the snare of the fowler. There are many out there who would like to apply the wrecking ball to PERS and this next Legislative session (2011) may be the year of our discontent. In the meantime, plan to listen, plan to call in, plan to participate on the "Think Out Loud" blog. Register early so you don't waste any time while the show is airing.