PERS task force explores options to reduce liability that would affect school districts
Friday, September 8, 2017
A governor’s task force reported Friday on the most promising options for reducing the Public Employees Retirement System’s shortfall.
Ideas such as tapping the Common School Fund and the Education Stability Fund could affect schools. But education advocates had worked this week to head off more drastic suggestions, such as selling unused school lands and sweeping up end-of-year balances.
In May, Gov. Kate Brown appointed a seven-member task force to explore ways to reduce the PERS unfunded accrued liability by $5 billion over the next five years. The UAL is the difference between what PERS will owe its members and the money it has available.
The UAL was $22 billion as of the most recent valuation on Dec. 31, 2015, but recent changes to the management of PERS investments is expected to increase the liability by about $2.4 billion. Nearly three-quarters of money paid out in benefits comes from investments. When market returns are lower, employers have to make up the difference or the UAL grows.
Paying down the unfunded liability by $5 billion would reduce employer payroll rates by 4 percent, according to a letter by Steven Patrick Rodeman, PERS executive director.
The task force is looking at state assets and one-time sources of money. Task force members will analyze options identified Friday for a meeting Oct. 13. The task force is expected to deliver its report to the governor by Nov. 1.
One asset under discussion is the Common School Fund. The Oregon Constitution requires Common School Fund income be “applied to the support of primary and secondary education.” The task force is looking at redirecting some of the fund’s assets and income into PERS “side accounts” for school districts. Side accounts allow public entities to pay down their individual portions of the UAL and lower their employer rates. It is not clear whether that would pass a legal test of support for schools.
A similar idea would redirect interest from the Education Stability Fund, a state rainy day fund.
Each of the task force members examined different areas of Oregon assets. Charles Wilhoite, managing director of Willamette Management Associates, examined issues related to K-12 public education.
On Aug. 30, Wilhoite sent an email to Oregon’s 15 biggest school districts to ask about unused land or property. The email led to a meeting Friday morning with representatives from OSBA, the Confederation of Oregon School Administrators, the Oregon Association of School Business Officials and a half-dozen of the largest districts.
Participants told Wilhoite about some of the difficulties with ideas to tap into district budget ending balances, payments for unfilled staff positions or other school assets, according to Michelle Morrison, director of business services for the Hillsboro School District.
“It was enlightening,” Wilhoite told the task force meeting. He explained to the task force that selling assets or reducing reserves would interfere with schools’ ability to educate kids.
“We don’t want to do anything irrational to limit their ability to deliver on that mission,” he said.
Education participants in the morning meeting with Wilhoite offered some ideas, such as incentives for districts to address their UAL. The group discussed the vast differences in the circumstances of Oregon’s 197 school districts that make any one approach problematic.
“One size doesn’t fit for everybody,” said Lori Sattenspiel, OSBA interim director of legislative services. “The participants said we need options. We are not one big system.”
Wilhoite took that message to the task force in the afternoon.
“There’s a clear and shared objective to reduce the liability on the part of K-12 participants,” he said. “There is a pretty high level of concern about what is coming.”