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Tax-cutting Legislators and short-sighted fund managers fail to save for rainy days; PERS and Oregon State red ink drown schools, public services

According to news reports, private pension plans are underfunded by over $750 million nationwide. Oregon's Public Employees Retirement System (PERS) is not one of these as it is not a private fund, but its circumstances are similar, as are millions of individual 401(K) plans. It is agreed that the pension fund shortfalls are caused by the nationwide recession and downturn in the stock market, which has also put the budgets of 40 states in the red. For this reason, the current scapegoating of the PERS system appears to be just another coverup for the failure of many of Oregon's leaders to make prudent decisions during the economic "bubble" of the 1990s. In other words, the managers, not the systems, caused the deficits.

Sure, PERS' guarantee of an 8% return for retirees may have been a bit optimistic; but the average annual return from the US stock market is close to 8%. The PERS fund is not supposed to retain a profit, so the 8% is not far off over the long run. What went wrong?

During the prosperity of the 1990s Governor John Kitzhaber advised that the state government should put aside money, in a "Rainy Day fund", to cover anticipated costs when the prosperity bubble burst. The legislature refused and, supported by many businessmen, pundits, and politicians from both major parties (and Libertarians), clamored for return of the "Kicker", the state's budget surplus. Cynics might say that politicians demanding the kicker be rebated were just trying to buy votes.

In fairness, blame for the current state funding crisis, particularly the shortfall in school budgets, should be laid directly at the door of those who rejected Kitzhaber's call to save for a rainy day. PERS managers were no different when they scheduled to pay out the entire income of the fund in increased benefits. Lots of other managers in both private and public sectors misjudged and their agencies and businesses are in trouble or liquidated.

The state's conservative media (especially hate-government pundits on AM talk radio) vehemently supported returning the Kicker. The Oregonian, almost alone among the media, opposed returning the surplus (4/13/01). But the paper got in too late (12/30/01) and with too little enthusiasm to lend significant support to the Governor's call for a rainy day fund. Since then, the Oregonian has failed to pursue the issue with finger pointing to make those responsible for our unpreparedness step up and take the blame. This acceptance of responsibility is an important step to warn politicians that feet will be held to the fire when irresponsible decisions damage the state.

Those individuals who deserve blame are escaping identification in the current discussions and in media coverage. One in particular, Lynn Snodgrass, then Speaker of the House, was among the most strident demanding the Kicker be refunded. Recently she got White House and Senator Gordon Smith's support to lead the Republican Party in Oregon. Numerous legislators who rejected the calls for rainy day funds were reelected this past November. They owe their reelections to the failure of The Oregonian and other media to put the kind of pressure on them which is now directed at PERS. This is not to say the board of directors and management of PERS who also did not set aside reserve funds in preparation for a future downturn should escape blame.

However, the mistakes were human error. The PERS system did not cause the current deficit. Caught up in what was called "irrational exuberance", the managers failed to act prudently. Now, those who need a scapegoat - and a target for further budget cutting - are ready to dismantle what has been an example of the kind of retirement system that all working people deserve. Not surprisingly, The Oregonian has fueled resentment among taxpayers and privates sector workers by exaggerating the rates of returns for PERS retirees and has promoted a race to the bottom for workers' benefits. The media crusade has fueled a determined attempt by the anti-government "community" to blame much of the school system's economic woes on teachers' benefits and salaries and on the PERS system. Much more of that and Oregon will find teachers as scarce as school district superintendents are already.

Were those who supported returning the kicker short-sighted - like a family that fails to save, to put aside reserves for hard times? Caught unprepared, and faced with essential expenses, medical care, education, transportation, most families would try to find additional resources, a second job perhaps, to tide them over. Only the truly short-sighted would persist in looting the future - their children's future.