Oregon public pension officials on Friday squashed hopes that savvy investing and a booming economy could offer a way out of the state's crushing employee pension crisis.
"The most important thing I can do is disabuse you of the notion that we need to work harder on the (earnings part of the equation)," investment expert John Skjervem told City Club of Portland members during a forum Friday.
As the state treasury's chief investment officer, Skjervem manages $92 billion in state investments. The bulk of that is for Oregon's Public Employees Retirement System, with assets of $70 billion.
Oregon's public pension system has $22 billion worth of unfunded liability, and the resulting high payments public employers must make to bridge that gap are making it hard for the state to continue offering basic programs and services.
That's part of the reason the state has an estimated $1.8 million shortfall for its next two-year budget.
In the wake of the 2015 Oregon Supreme Court decision, lawmakers have limited options for trimming the pension system's high costs. And PERS costs are projected to further strain the next several state budgets.
That in part explains why many of the questions posed to officials at a City Club forum addressed the potential of rocketing investment returns to fill the hole.
Not possible, Skjervem said each time.
In her proposed budget, Gov. Kate Brown recommended adding 38 positions to the Treasury's service division. This larger staff, she said, would enable the state to reduce fees paid to third-party service providers managing the state's investments.
Republicans have proposed two measures to address the fund's $22 billion unfunded liability, and the Senate Workforce Committee has scheduled hearings on the bills for Monday. But in a Democrat-controlled Legislature, it's unclear if the bills will make it out of committee.
At Friday's City Club forum in Portland, Skjervem said Oregonians should be proud of the pension fund's performance. In 2016, PERS saw a return of 6.9 percent, up from 2.1 percent in 2015.
The Dow Jones Industrial Average gained 13.4 percent last year, and the S&P 500 rose 9.5 percent.
But only 38 percent of the pension fund is invested in the stock market. The rest is held in bonds, private equity, real estate, cash and alternative investments like timberland and mining companies. This wide diversification protects against the volatility of stocks, said Oregon State Treasury spokesman James Sinks.
It's not yet clear how Oregon's pension fund performance stacks up to its peers for last year, but at 2015's close, the fund had out-performed similar public pension funds in America for a decade, Skjervem said.
Therefore, those hoping to make up the $22 billion shortfall with increased returns are out of luck, he explained.
"There isn't another gear on the investment side," he said. "Where do you go from number one?"
With plans to reform corporate taxes and repatriate foreign earnings, President Donald Trump has promised to grow U.S. GDP as much as 4 percent a year.
But even if the economy grows that fast -- and most economists are doubtful, given that it's grown at an average rate of 2.5 percent over the past 25 years -- it's not likely to fix the pension fund.
That is because rising interest rates will cut into corporate profits, Skjervem explained.
"That's a good scenario," Skjervem said. "But to say that fiscal policy as currently proposed in the form of corporate tax reform and repatriation is going to bail us out? No, I don't think so."
-- Anna Marum
amarum@oregonian.com
503-294-5911
@annamarum
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