An Oregon Public Employee Retirement System’s (PERS) task force has released a report outlining several ways the state can reduce the system’s unfunded actuarial liability (UAL) by between $4.2 billion and $6.4 billion.
As of December 31, 2016, the retirement system’s UAL was $19.9 billion, which is equal to approximately $5,000 per Oregon resident.
Reduce Excess Risk Capital Across State-controlled Entities
Several state-controlled entities have substantial amounts of cash and short-term investments on their balance sheets to protect against financial downsides, as well as to maintain their credit ratings.
“This ‘risk capital’ is rarely needed and may, in fact, never be drawn down,” said the report. “If this risk capital was pooled at the state level, less would be required, since the possibility that all entities would need risk capital at the same time is remote. The released funds could be transferred to PERS to reduce the UAL.”
It said that to provide a pool of collective risk capital, the state could issue “very long-term” or perpetual interest-bearing notes to state-controlled entities, and public universities. The notes would be callable by the holding entities only. All or a portion of the proceeds from the notes would be used to reduce the PERS UAL. The task force estimates the funding opportunity from this option is between $750 million and $1.5 billion.
Privatize Public Universities
Oregon has eight public universities, including regional universities, research universities, and a health sciences university. The state provides an average of approximately 12% of revenues for the state’s three research universities, and has made significant additional investments over time. The universities follow state policies on procurement, financial management and various operating processes, and the state oversees setting of tuition rates.
“Converting one or more of these universities to a private, not-for profit entity could lead to greater operating flexibility and philanthropy over time,” said the report.
The task force estimates the funding opportunity from this option is between $250 million and $1.5 billion.
Create a New PERS Investment Fund for Non-State Employers
Oregon PERS employers not controlled by the state, such as cities, counties, and school districts, also maintain excess cash on their balance sheets.
The report said the state treasurer could create a pooled investment fund separate from current investment funds that would have a longer maturity, but higher return, than the short-term investments often used for investing the excess cash. Investment returns on the funds invested by these employers would be credited against their own PERS liability.
Earnings from unclaimed property go into the Common School Fund, but the principal remains in trust. The task force said the legislature could change the statute to allow the state to take ownership of unclaimed property after 10 years, and dedicate the funds to reduce the unfunded actuarial liability for Oregon schools. Approximately $200 million of property is currently unclaimed for 10 years or more.
Increase State Alcohol Revenues
The Oregon Liquor Control Commission (OLCC) regulates alcohol industries in Oregon and directly operates the wholesale and retail distribution of spirits in the state. The report said that by implementing commercial best practices, OLCC could increase the state’s spirits revenues and dedicate the incremental funds to PERS.
“The state could also consider increasing the excise beer and wine taxes and dedicating the incremental revenue to PERS,” said the report.
The task force estimates the funding this option could add more than $453 million in funds.
Increased Lottery Revenue
The report said The Oregon Lottery is currently considering options to expand the types of games offered.
“A lottery expansion will likely lead to increased revenue,” said the report. “A portion of revenues above a baseline could be dedicated to the PERS UAL.”
The task force estimates the funding opportunity from this option is more than $175 million.