Joseph Robertson gives new meaning to the idea of a pensioner.
An eye surgeon who retired as president of the Oregon Health & Science University in fall, Robertson receives the state’s largest government pension.
It is $76,111.
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That is considerably more than the average Oregon family earns in a year.
Oregon — like many other states and cities, including New Jersey, Kentucky and Connecticut — is caught in a fiscal squeeze of its own making. Its economy is growing, but the cost of its state-run pension system is growing faster. More government workers are retiring, including more than 2,000 who, like Robertson, get pensions exceeding $100,000 a year.
The state is not the most profligate pension payer in America, but its spiraling costs are notable in part because Oregon enjoys a reputation for fiscal discipline. Its experience shows how faulty financial decisions by states can eventually swamp local communities.
Oregon’s costs are inflated by the way in which it calculates pension benefits for public employees. Some of the pensions include income that employees earned on the side. Other retirees benefit from long-ago stock market rallies that inflated the value of their payouts.
For example, the pension for Mike Bellotti, the University of Oregon’s head football coach from 1995-2008, includes not just his salary but also money from licensing deals and endorsements that the Ducks’ athletic program generated. Bellotti’s pension is more than $46,000 a month.
The bill is borne by taxpayers. Oregon’s Public Employees Retirement System has told cities, counties, school districts and other local entities to contribute more to keep the system afloat. They can neither negotiate nor raise local taxes fast enough to keep up. As a result, pensions are crowding out other spending. Essential services are slashed.
“You get to the point where you can no longer do more with less — you just have to do less with less,” said Nathan Cherpeski, the manager of Klamath Falls, a city of about 21,000 in south-central Oregon.
Klamath Falls’s most recent biennial bill from the pension system, known as the PERS, was $600,000 more than the one before. PERS has warned that the bills will keep rising. Cherpeski has had to cut back on repairing streets and bridges.
Even as the U.S. economy is humming, many states and cities are still hurting from the 2008 financial meltdown. The crash hammered their pension funds and tax revenues, but didn’t reduce the amounts they owe retirees.
It wasn’t until 2016 that average state tax collections returned to pre-2008 levels. In the meantime, states and cities have had to rebuild pension funds to cover the rising numbers of retirees drawing benefits. That has left less money for police, school sports programs and everything else. Local residents might not know why, but they are paying more taxes and getting scantier services in return.
Oregon is a blue state, but in its restive red hinterlands, tax increases are politically off limits and financial distress has been severe since 1994, when logging was curtailed to save an endangered owl. Lately, things have been getting even worse.
When a man was reported yelling and firing his gun on the property of a school in rural Josephine County, it took two hours for a sheriff’s deputy to arrive, said Kate Dwyer, chairwoman of the board for the Three Rivers School District.
The county has cut sheriff patrols, closed its mental health department and kept its jail at less than half capacity because of a lack of guards.
PERS sets the pension bill for each entity — local government, university system and the like — based on the pay and demographics of its workers. Just about everyone’s bills are getting bigger.
That includes the state, by far the system’s biggest contributor.
Oregon now has fewer police officers than in 1970, is losing foster-care workers at an alarming rate and has allowed earthquake and tsunami preparations to lapse. A 2016 survey turned up “a large number of bridges with critical and near-critical conditions” due to “long-standing inadequate funding.”
Even prosperous communities are being pinched. The Beaverton School District, outside Portland, had to get rid of 75 teachers this past year when its mandatory pension contribution rose by $14 million. That was after shedding 340 teachers in 2012.
“I have town hall meetings, and the parents are just confounded by this,” said state Sen. Mark Hass, D-Beaverton.
A Golden Touch
Oregon’s unusual method for calculating pensions tends to generate lavish payouts.
For decades, PERS calculated pensions two ways, and retirees could choose whichever produced the bigger numbers.
The first way was similar to what most states do, basing pensions on each worker’s final salary and years of service. But Oregon’s lawmakers included a golden touch, redefining “salary” to include remuneration from any source.
That was how Bellotti, the former football coach, came to be the state’s third-highest-paid pensioner, at roughly $559,000 a year.
When he retired in 2010 as the university’s athletic director, the standard pension formula was applied to his salary, plus a share of the outside licensing fees and product endorsements the football program brings in. (His pension details, along with those of other retirees in the system, were first obtained in 2011 from PERS by two newspapers, The Oregonian and The Statesman Journal.)
Bellotti said he never asked for a supersize pension. In 1995, he said, the university started to include a percentage of all endorsement and licensing fees in coaches’ salaries.
Oregon’s second way of calculating pensions dates to 1946: For decades, every public worker got a simulated tracking account. It was credited with 6 percent of each paycheck, then left to compound at a predetermined rate.
In the early years, a low rate was used because the pension system invested in bonds that didn’t yield much.
But in the 1970s, lawmakers started nudging the rate up, eventually to 8 percent. Then, the system’s trustees decided 8 percent should be a guaranteed minimum. In years when markets produced higher returns, the accounts compounded at those rates, after money-management fees. During the 1990s bull market, accounts compounded by up to 21 percent a year.
When workers retired, their employers were required to “match” the account balances, doubling them. Then PERS would base the pensions on the total.
Starting in 2003, the tracking accounts were phased out. But workers who already had the accounts were allowed to keep them. New hires got a more modest retirement plan.
“The cost of this pension system is not caused by the people we are hiring today,” said Steven Rodeman, executive director of the Public Employees Retirement System. “This is a legacy problem from the 1980s and 1990s.”
For workers with the tracking accounts, PERS dialed back the annual returns to 8 percent, then to 7.5 percent in 2016. That is still more than what PERS’s investments have generated over the past decade. And so the pension fund’s financial hole continues to deepen.
Across Oregon, local officials have been told to brace for 15 to 20 more years of rising pension bills. That’s when the current generation of retirees will start dying out.
“All we can do is wait,” said Jay Meredith, finance director of Grants Pass, the seat of Josephine County.
In the meantime, mounting pension costs mean that a generation of schoolchildren is growing up in the area with no theater program, no orchestra, no wood shop and minimal sports, chorus and art.
That’s if they can get to school.
A county road recently washed out, stranding 300 people. Dwyer, of the Three Rivers School District, reported the problem to a public-works official.
She recalled his response: “I have trucks, but I can’t put gas in them to come to you and dig it out.”