LOS ANGELES — Nossaman LLP lauded an Oregon task force’s efforts to come up with "creative" methods of reducing the state's pension liability.

Oregon Gov. Kate Brown charged a task force in May with finding unconventional sources of funding to pay down $5 billion in pension liability in five years.

“The ideas described in the final report will likely be considered by Oregon, and, to the extent feasible, by other states in their quest to increase funding levels,” wrote Peter Mixon, a member of Nossaman’s public pensions and investments group, in a Tuesday client alert.

Kate Brown, governor of Oregon, in Portland, Oregon, U.S. on Wednesday, Jan. 20, 2016.
Oregon Gov. Kate Brown's staff is fine-tuning unusual pension solutions ahead of the 2018 legislative session. Bloomberg

Brown appointed seven people, a mix of private industry and government leaders, to the task force in May. The task force held public meetings in July and delivered the report to the governor Nov. 1.

The legislature has discussed new employee cost sharing and reductions in benefits, but Brown told her task force those options were off the table, because she wanted to hear new and different ideas. The governor also placed privatizing prisons and state parks or selling state forests off-limits.

The governor’s stated aim was to give the Oregon legislature different options to make a significant dent in the state’s $20 billion pension liability by selling assets or using one-time and unexpected funds to carve $5 billion out of the total. The plan was approximately 75% funded as of Dec. 31, 2016.

“The current funding policy of Oregon Public Employee Retirement System is to fully amortize the unfunded actuarial liability over the next 20 years by, among other things increasing employer contributions,” Mixon wrote. “The task force noted that these increases are expected to put pressure on public agency budgets, and, at least potentially, impact the quality of public services provided to Oregonians.”

Among the solutions offered by the task force is tapping state agency funds that maintain substantial amounts of cash and short-term liquid assets to cushion against financial downsides and maintain high credit ratings, Mixon wrote.

The so-called “risk-capital” is rarely needed and often is never drawn down, Mixon wrote.

Pooling the funds at the state level would reduce the amount needed to free up excess funds to pay down OPERS' unfunded actuarial liability, he wrote.

The task force recommended issuing very long-term or perpetual notes to state-controlled entities that need risk capital. Like pension obligation bonds, the state would substitute UAL with a liability on a note, but presumably the interest rates would be lower than pension obligation bonds.

Other potential solutions from the group were privatizing the state’s three public universities, reviewing contracts with the federal government and private contractors that pay for timber harvesting, fire suppression costs and water rights; and dedicating a portion of the proposed state lottery expansion to paying down pension costs.

Brown directed her staff to further research the idea of pooling excess capital across state controlled entities and to examine creating an incentive fund to partially match employers who further contribute to their UALs. The governor’s staff is reaching out to key stakeholders and researching these and other methods to capitalize the incentive fund and develop legislation for the 2018 session that convenes Feb. 1.

Brown was less enthusiastic, according to the governor's office, about the idea of privatizing public universities and selling SAIF, Oregon's not-for-profit, state-chartered workers' compensation insurance company.

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