Did Portland's unfunded pension liability just break $3 billion?
Over in the left sidebar of this blog, our meter of the City of Portland's unfunded pension and retiree health care liability just passed the $3 billion mark. That's quite a milestone -- scary, if you think about it -- and it's important to know where that number came from. If you asked the city, it would probably quote you a significantly lower figure. But the number that the city would likely offer isn't all that trustworthy.
The source for our data are the "official statements" that the city issues as sales documents before it sells bonds (i.e., borrows money). In those statements, the city makes representations to prospective investors about many things, among them the city's liabilities for retirement benefits and health care benefits for former city workers.
The city doesn't keep tabs on those liabilities on an ongoing basis. The calculations are complex, and they require the work of professional actuaries. The actuaries are called in once a year at most, and for the most serious examination of these matters, it's once every two years.
Take the city's police and firefighter pension and disability fund, for example. That's by far the largest single unfunded liability the city has. Nothing -- nothing! -- is ever put aside in advance to pay benefits to retired police and firefighters in the future. Everything is paid out of the current year's property taxes. And so the unfunded liability is huge. Anyway, the last time an actuarial consultant took a systematic look at that number was two years ago -- and they were taking a snapshot retroactively, as of June 30, 2008. That means that the last hard number the city produced on police and fire pension liability is as of more than 26 months ago. The figure at that time was $2,216,664,215.
A lot has happened since then, and on the economic side of life, it's all been bad. And so the figure today is probably higher -- much higher -- than what it was in June 2008. But what has the actual growth rate for the liability been? There isn't much of a reliable track record to go by, because the last time the actuaries did their thing, the city switched actuaries, and the new ones changed quite a few of the assumptions used in the calculations. The 2008 figure and the 2006 figure, therefore, were apples and oranges in a lot of ways.
Looking at the growth pattern before 2006, back in the day when the assumptions were not changing, we came up with an annual growth rate of 6.5%. If that's the right rate, then the $2.2 billion from June 2008 is $2.54 billion today. And that's just police and fire pension and disability.
Alas, there's more. The amounts the city has put aside for its other employees' pensions through the infamous PERS system are also falling short. As of the end of 2008, there was an unfunded liability of $259 million there. And now that the city has to report its unfunded retiree health care mandates, we see another $148 million or so as of late 2008. Those numbers, too, can be expected to grow.
And so is the City of Portland more than $3 billion in the hole on pensions and retiree health care? As far as we can tell, yes.