For a taxpayer, the obligation to fund Oregon’s public employee pension shortfall — the gap between what governments are paying into the pension system and the system’s projected needs — can seem abstract. The Public Employee Retirement System’s so-called unfunded liability is $22 billion, a staggering figure that is hard to grasp on a personal level.
But what if you calculated that liability as a mortgage that each property owner owes on her or his house, and cannot escape paying off? And what if you compared Oregon’s so-called “public pension stealth mortgage” to those of other states?
That’s what a New York City researcher and a Claremont McKenna College finance professor have done, for all 50 states, providing a unique and frightening set of data that, not surprisingly, highlights the severity of Oregon’s problem.
The PERS unfunded liability amounts to a mortgage of $106,952 on every Oregon home, found researcher Rob Arnott and professor Lisa Meulbroek. That’s the 9th highest per-home amount among all the states. The highest is Alaska, with a $182,756 pension stealth mortgage, the study found. The lowest was Tennessee, with $30,404. The average was $74,639.
Arnott and Meulbroek contend that these debts amount to a government mortgage on your home. Their presence ultimately is reflected in real estate prices, they argue, and in the case of Detroit, was a factor in pushing the city into bankruptcy, which was devastating for home prices. “On average nationwide, unfunded state and local pension burdens represent 20 percent of real-estate values. This ratio can rival or exceed an owner’s home equity,” they wrote in a recent Wall Street Journal opinion piece. “Future pension obligations simply must be paid, either through higher taxes or cuts to public service.”
State and local elected officials in Oregon have professed much anxiety over the PERS unfunded liability. But at the end of each discussion they throw up their hands and declare there’s little they can do to curb escalating pension costs, or for that matter to reduce pay increases and health care costs. And then they ask taxpayers to cough up more, in higher property taxes, fees and the like, under the warning that absent the increases, services will suffer.
In the drawn-out train wreck that is Oregon’s public pension system, the work by Arnott and Meulbroek is a snapshot.
After taking into account relevant financial calculations such as interest rates and rates of return, each of Oregon’s 4.1 million residents is burdened with a pension stealth debt of $26,738, they said. For a household of four, that’s $106,592. In neighboring Washington, the debt is a lot less: $16,547 per person. It’s less even in California: $25,166.
Taking $416,718 as an average home price in Oregon, the pension mortgage amounts to 25.7 percent of the home value, the study found. In Lane County, with its average home sale price of about $300,000, the pension mortgage would be 35 percent of the home’s value.
The Arnott/Meulbroek study helps cement Oregon’s place in the league of government-debt-heavy states such as Illinois, New Jersey, Connecticut and Ohio. That’s not a good place to be.
The spreadsheet containing the pension data is at: rgne.ws/2ORXvhW