As PERS needs to earn 8% on its assets to keep up with its guarantee to Tier 1 participants, and gets into trouble through the Money Match program if it earns more than 8%, it occurred to me that PERS could fund a state and local purchase of PGE by lending the $2.35 billion in the form of a perpetual bond paying 8% interest. As the revenues of PGE would provide the funding to pay the bond, and the greater part of those revenues come from customers in the City of Portland, the City would achieve its goal of buying PGE, albeit through the farebox instead of the stock exchange.
PERS General Electric, III
As PERS needs to earn 8% on its assets to keep up with its guarantee to Tier 1 participants, and gets into trouble through the Money Match program if it…
Comments
6 responses
Isaac, I try and try to read your website cause I like you so much. But guess what? I can’t understand a fourth of what you say. Like this entry-I have no idea what it says. It’s like it’s written in code or something; PERS, farebox, stock exchange- sigh, it’s just too beyond me. You make me feel so stupid.
Ms. Darling, don’t feel any discomfort on anything PERS related for the fine brains at the Oregon Supreme Court are at wits end too. Isaac has a wonderful ability to keep the tone of debate amenable to open and creative analysis; which is something that is in very short supply.
As luck would have it the 8 percent return is about what the FERC would consider a “just and reasonable” return for private investors in public utilities. Is this the Goldilocks and the Three Bears solution? Not too hot and not too cold . . . just right.
Now we would need to find a few of more similar instances of monopolistic entities that cannot seem to stay within their box to fully invest the public-private partnership Tier-One accounts.
But when the last Tier-One beneficiary dies could the state sell PGE, for its own account? The legislature and the court cannot seem to figure out whether the we have a pay-as-you-go system or a private property rights kind of system. Is the state supposed to fully deliver PGE to the pensioners so as to have no interest itself in PGE when the last Tier-One beneficiary passes on or will the state still own PGE?
The court case did not clarify, for the benefit of the legislators in drafting future legislation, whether the right to prescribed benefits implies a right to the assets (like dollars in the bank) AND/OR a claim on future taxes.
If, when the last Tier-One beneficiary dies, and PGE is still owned by the state itself then there is no factual opportunity for the PERB to provide legal cover to the OIC to escape the legal obstacle to the state holding an interest in private property. The fund though, is supposed to be run and distributed so that there is no money left, as per statue, when the last Tier-One beneficiary dies.
Can you imagine the great fun the folks at the legislative counsel’s office or the AG’s office must have with the purely academic logic game elements to the debate?
I have said pay the folks once, consistent with finality, and be done. Kind of like hand them PGE and say we are now square and can go our separate ways into the wild uncertain future with a replacement pension plan that does not have multiple tiers. If the state owns and operates PGE, but only for the benefit of the Tier-One folks but justified only as a method to reduce future compulsory dedicated tax obligations, we still have a legal purgatory. Within this purgatory lies the simultaneous opportunity to have state ownership and unsound pay-as-you-go plan design and then . . . finally . . . the advanced funding of actuarially calculated liability through borrowed dollars to cover future obligations that the court said are already secured by future taxing authority just like any old bond payment. What a fine mess.
I still think that the actuaries, bond peddlers and bond rating folks peddling UAL bonds to invest in stocks and such should be run out of town at the point of a gun, rather than wined and dined as our saviors. The PERB was/is still represented by the law firm that claims to have invented Pension Obligation Bonds for Orange County in the late 1980’s (quite proudly, of course, with a straight face). The last thing on their minds would be advocating a sound pay-as-you-go system, it would be bad for their bond business.
Mrs. Darling, you’ve embarrassed me: I don’t have any desire to make anyone feel stupid; it’s just that (as Mrs. Laquedem occasionally reminds me) I sometimes write so obscurely that even I myself don’t fully understand what I’m saying. Here’s a paraphrase of what I was getting at.
PERS is the Public Employee Retirement System, which is the state-run pension fund for state and local public employees in Oregon. The trustees made some poor decisions a few years ago that put the fund into deep trouble. The legislature tried to bail out the fund two years ago by (very loosely) cutting or stretching out benefits to some present and most future retirees.
One of the specific problems is that the PERS board had guaranteed public employees an 8% annual return on their pension contributions, whether or not the investments of PERS earned that much each year. If the PERS fund earns less than 8%, then it isn’t earning enough to cover the cost of future benefits, and it has to ask local governments to pay higher retirement premiums to the fund. But if it earns more than 8% then it has to credit some of the excess to the accounts of the individual workers, and on retirement their employers have to match the amount in the account (this is the “Money Match” program). So if PERS had a gangbusters year and made 20% or more, the local governments that offered Money Match had to write large checks to the fund as their eligible employees retired.
So PERS was in trouble if it earned less than 8%, and it was in trouble if it earned more than 8%. That’s why I suggested that PERS buy PGE or finance the buyout of PGE by state or local government. If PERS bought PGE itself, then the customers in the City of Portland and elsewhere in PGE’s service district would in effect be buying PGE for the public through their electric bills — the “farebox” — rather than through tax dollars to buy the stock — the “stock exchange.”
I really didn’t mean to embarrass you! 🙂 Your second explaination is a lot easier to understand though. 🙂 🙂
Be yourself and the rest of us will just have to figure it out on our own! 🙂
A publicly owned utility could do much better than 8% on its bonds. At the published price of $2.35 billion, each 1% is worth $23.5 million a year in lower rates.