No PERS fix in sight. Politicians are trapped.

Public Employee pensions are vastly underfunded.  A disaster is underway, and growing in most states, including Oregon.   

Nothing much can happen.

The Legislature is meeting to discuss the crisis

I hosted an event for a Democratic candidate for Oregon state senate, Tonia Moro.  She was asked a question about the PERS problem in Oregon.  She noted Oregon had made promises of pensions that it needed to keep.  (The US Constitution requires it.  The Fifth Amendment prohibits government from taking property without just compensation.  A pension guarantee is property.)   She said she was studying the issue and did not have a solution yet.  I do not fault her for the answer.  Of course she is studying the issue and of course she does not have a solution.   There is no solution the political system will accept.  She is a Democrat.  I don't expect her to suggest a wholesale reorganization of the pension system.

State and local governments nearly everywhere agreed to pay public employees pensions that have worked out to be very, very expensive.  There was a solution considered plausible 30 years ago: invest the money deposited into the account to pay the pension and have the money invested at spectacular returns.  Then it pencils.

In Oregon the public employee Investment policy people project they can earn 7.5% per year net from the pool of investments.  For reference, the current rate of return on a benchmark safe investment, a 10 year treasury, is 1.5%. There is no safe reliable investment paying 7.5%.   The solution to the investment shortfall is for local governments to increase their deposits to the fund.  That means taxes pay for past benefits not current services.

The Oregon governor, Democrat Kate Brown, looked at this problem along with the Oregon legislature and said that her solution was "to increase investment returns."   That solution is the great moral hazard and temptation of the gambler in hock to his bookie or the operator of a Ponzi scheme at the point of its unraveling.  Make a lucky bet.  Get whole.   

Democratic legislators have a key constituency, without which they have a hard time surviving a primary election: public employee unions.  The unions have a job to to: making sure that public employees are well paid.   Their related interest is making sure that the payments they previously secured--their PERS pension guarantees--are not eroded.  School boards and city councils presumably push back, representing taxpayers, but it has always been easier to look tough on salaries while being generous in deferred pay.  Let the next school board deal with the problem.   The problem has caught up with them.

Picketing Planned Parenthood in Medford

Republicans.  Meanwhile, Republican legislators have two key policy requirements to avoid losing a primary election and be credible running as a Republican  They must be generally opposed to nearly all new or higher taxes and they must not offend "values voters" on reproduction, which means opposition to abortion and, a recent addition, opposition to Planned Parenthood.   Pro-abortion-rights Republicans are very rare now.  

Both Democrats and Republicans carry a burden.  Democrats have to defend public employees.  Republicans are required to say they oppose abortion on principle.  They also must assert they are fiscally responsible while simultaneously opposing taxes to pay for obligations already incurred.   Those issues make them politically unacceptable to each other

Tonia Moro

Tonia Moro, the Democrat, presents as a consensus Democrat.  She supports the ban on GMOs, she opposes placement of a natural gas pipeline through the county, she supports libraries and transit districts--all positions which won election at the polls.  She supports Measure 97, a gross receipts tax on corporations, which has mixed support generally but is popular with most Democrats.  She is in a safe zone for a Democrat, with stated opinions that conform with consensus Democratic opinion.   Moro has the endorsements of the League of Conservation Voters and Planned Parenthood's political action committee.

Alan DeBoer, the Republican, presents as a "moderate" rather than "Tea Party/talk radio" Republican.  There may be growing Oregon cover for a Republican to take that position; the Republican governor candidate just announced that he did not support Trump.  DeBoer told a newspaper reporter he was personally opposed to abortion but hoped to avoid the issue as a matter of public concern--probably the least offensive position to Democrats that would still allow DeBoer to be a Republican.  Moro supports reproductive rights and has the endorsement of the Planned Parenthood Advocates of Oregon, and endorsement that is good and necessary for Moro but would be troublesome to DeBoer if he were to get it.  

DeBoer is now attempting to thread the needle that confounds Republican candidates.  It is natural for Republican voters to want contradictory things.  Republicans want government services but the ideology of fiscal conservatism is more popular than the sacrifices of it.    DeBoer was on the Ashland School Board for 8 years and Mayor for 4 more.   Somehow he needs to be proud of the services under his leadership but simultaneously against the spending they caused.  Can a person champion government services and criticize spending for it.   Not only can one, one must.  Here is how his website negotiates this:  

As Mayor of Ashland, Alan helped build a new library and fire station, funded critical public works projects and improved the highway through town. When Alan learned that Rogue Community College (RCC) needed new building space in Medford, he helped RCC purchase vacant property previously owned by his car dealership. He even donated a renovated historic building to RCC in downtown Medford, transforming the downtown core and increasing access to higher education in the community.

Alan DeBoer

Alan is committed to reining in out-of-control spending to make sure your tax dollars are spent efficiently and effectively. As State Senator, he will work to expand vocational training programs in our high schools, community colleges and universities. Alan believes we need a workforce trained for the good-paying jobs of the future so we can attract the employers and create the jobs we need right here in Southern Oregon.

In some campaigns the contradiction between wonderful new programs and "out of control spending" would be a matter of notice and controversy, but it is unlikely in this campaign.   I know of no Democrat who would protest spending on "critical public works", community colleges or vocational training programs.  

The PERS controversy has a political equilibrium that will satisfy both parties.  Delay and pretend.   Democrats can defend their financial and voter base by continuing the fiction that PERS is solvent, using the excuse that investments could solve the problem.   Republicans will criticize the Democrats for their fiscal folly and cowardice but oppose taxes that would address the problem, by finding problems with any tax that could actually pass, and saying the solution is cutting "out-of-control spending."   

The cuts or taxes necessary to solve the problem are politically impossible for either party.  Any legislature that passed a law that solved the problem would have the matter promptly brought to the people for a vote.  The solutions are impossible for the simple reason that they are unpopular.

The only thing that is popular is a bull market in bonds, which is hard to do from a base of 1.5%

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