The official estimate of the deficit for Oregon’s public pension system climbed by $2.4 billion Friday.
As a result, state and local agencies and school districts face even higher pension costs over the next two decades than they had earlier expected.
And the new deficit figure continues to fuel controversy over what the governor and state Legislature should do to ease those rate increases.
The new debt figure is the result of a unanimous vote by the board that oversees the Oregon Public Employees Retirement System. They chose Friday to reduce an estimate of how much PERS expects to earn on its investments from 7.5 percent a year to 7.2 percent.
That has the impact of raising the official estimate of the system’s debt from $21.8 billion to just over $24 billion.
Some PERS observers had argued that the board should even more aggressively cut its assumed rate of return, saying that it remains overly rosy.
John Thomas, a retirement financial planner from Eugene who chairs the PERS board, said he understands the arguments for dropping the rate much further.
“You have an element of pragmatism here,” he said after the vote. “If we went down to a rate of 6 percent, the contribution by the [public] employer would pretty much preclude them being able to do anything … . It would just totally blow up the system.”
Thomas warned, however, that the board could revisit its decision in future years if it appears lower rates are warranted.
Public employers are already facing big rate shocks. In the 2017-19 budget cycle, rates on average have already crested 20 percent of payroll. That will force public agencies to pay nearly $900 million more than they did in the last two years.
Before Friday’s decision, PERS actuaries had estimated employer rates would rise to a high of 31 percent by 2023 and then roughly stay there for the rest of the decade.
Now, Thomas said, those rates could peak at 33 to 34 percent.
The state’s political leaders “need to deal with it sooner rather than later,” said Thomas. “It is a problem that can’t be avoided and it can’t be kicked down the road.”
Oregon Gov. Kate Brown has formed a task force charged with finding $5 billion in asset and property sales and other financial maneuvers to help pay down the PERS debt.
Chris Pair, the governor’s communications director, said she had no comment for now on Friday’s decision.
A statewide business group, Brighter Oregon, said in a statement from spokesman Pat McCormick that the action was an “important first step toward unmasking the severity of the problem.”