James Neff,
Oregon Journalism Project
Earlier this year, Grant School District Superintendent Mark Witty faced a $900,000 hike in what his district needs to pay this coming year to the Oregon Public Employees Retirement Fund.
It was a crippling announcement. The cause of the increase? Lousy investment returns by the state agency empowered to invest public employees’ money. And when investment returns are poor, the state has to fund pension obligations by forcing local governments to make up the difference.
“We had to make significant cuts,” said Witty, whose small district educates 470 kids in grades K–12. “It’s been traumatic for people.”
He had to fire a secretary and an administrator. He couldn’t replace three teachers who were leaving, including one in special ed, as well as two teacher’s aides. He made cuts to high school vocational agriculture, sliced $20,000 from the athletics department, and cut the district’s only art teacher to half time.
That art teacher, JJ Collier, has worked at Grant Union, the combined junior and senior high school in John Day, for 19 years. At 68, she still needed more full-time years of credit for retirement. “It’s frustrating,” she says. “I was angry.”
Hard choices like those the Grant County district had to make have played out across the state’s 197 school districts as school boards and superintendents look for an estimated $670 million more over two years to pay for the increased pension fund assessments. Money that could pay for about 6,700 beginning teachers.
The pain, of course, goes far beyond school districts. Every public employer from the state of Oregon down to the smallest special district—904 government employers in all—is in materially worse shape this year because of the pension fund’s anemic investment returns.
That means fewer teachers, firefighters, nurses and other vital employees.
An OJP investigation of the Oregon Investment Council, interviews with people in and outside of the State Treasury, and an examination of thousands of pages of documents, meeting minutes and financial data show that those poor returns could have been averted if Oregon had simply invested the funds in accordance with the guidance for which it pays its outside experts handsomely.
For years, that advice has been for the state to put more money in the stock market and less in a form of investment called private equity—a risky kind of financial engineering in which investment managers buy private companies and seek to resell them in seven to 10 years. And while some major state pension funds and university endowments have been reducing their private equity holdings, Oregon has stayed the course.
Results have been dismal.
For the past 10 years, Oregon’s investments in private equity yielded returns below its yardstick—the Russell 3000 Index plus 3%. Last year, Oregon’s private equity portfolio yielded just 4.1%, far below the Russell 3000 benchmark, which yielded 38.4%.
Rex Kim, the treasury’s chief investment officer since 2020, oversees the $100 billion in the pension fund and how it is invested. (Kim’s salary—$810,030—makes him the highest-paid state employee.)
He brushes off criticism of the state’s private equity portfolio, saying it’s myopic. “I’m not a big fan of taking single-period snapshots of performance.” He says his team invests for the long term, over decades of market cycles that he says show private equity beats the stock market.
Rick Pope, a retired Portland lawyer who has spent years attending OIC meetings and publishing reports about the fund for Divest Oregon, is blunt. “They have a car crash on their hands, which [his] staff continues to deny as a problem,” Pope says.
Treasury staffers, he adds, have “allocated way beyond their policy to private equity, which has damaged [Public Employee Retirement System] returns. They missed the big stock market uptick because the treasury had to sell stock market investments to fund benefits.”
Veteran reporter Ted Sickinger recently dug into these topics at The Oregonian.
Rightly so. Think of Oregon’s pension fund as a savings account on which 415,000 people rely for PERS benefits. Though most Oregonians don’t have a public pension, the success of the fund impacts their quality of life and their families’ futures.
“We should all care about PERS because this system touches just about every public service in Oregon,” says John Tapogna, senior adviser with ECOnorthwest.