Wednesday, May 24, 2006
By RAELYNN RICARTE
Hood River News
May 6, 2006
Hood River County has banked $860,000 to offset future cost increases in the state’s Public Employee Retirement System.
Sandi Borowy, finance director, began building up the reserve fund in 2003 after Legislative reforms were legally challenged.
“As best as you can foresee anything with PERS, we were prepared,” she said.
Three years ago, the program statewide was running a deficit that spiked at $17 billion. State officials decided to enact a series of bills to stop rising pension costs from undermining the financial security of public agencies.
Contributing to the deficit was the fact that some workers were receiving benefits that exceeded their highest salaries. A provision of state law guaranteed that employees who were hired prior to 1996 would receive a minimum of 8 percent return on their PERS investment, regardless of the actual return. The shortfall occurred when a downturn in the stock market lowered the actual return to below 8 percent mark.
A class action lawsuit was filed against the legislative reforms on behalf of more than 20,000 past and present public employees. These individuals claimed the legislative action violated their pension contract.
In 2004 Borowy, awaiting the outcome of the Oregon Supreme Court ruling, refinanced the county’s $5.35 million share of the statewide PERS debt. She was able to get an interest rate of 6.15 percent, about two points lower than the rate offered by PERS.
Then Borowy began to save the difference between the 21 percent rate for PERS benefits the county would have paid if the legislative move had not reduced it to 15 percent.
“We didn’t have faith that there was going to be any big monetary change,” she said.
So, the county was prepared when the state’s highest court ruled in 2005 that retroactive changes to PERS were illegal. The U.S. Constitution prohibits states from adopting laws impairing the obligations of contracts.
However, some reforms were allowed in the way that future rates would be calculated. So, Borowy still managed to retain some of the reserve funds.
She gained approval from the Hood River County Commission earlier this month to invest the earnings. She said there will now be money to cover PERS hikes in years to come. Instead of writing one check to PERS for a big credit, Borowy felt the county should invest the extra capital.