PERS Truth: The Destruction of our Schools and Families
Written by Fred M. Starkey
In early 2000, to cover their PERS debt, the Springfield School District, sold 62 million of Pension Obligation Bonds at 4.5% for 20 years. This was a new debt obligation of 62.00 Million of principal and 55.80 million of interest payments: a total debt obligation of 117.80 million for the citizens of Springfield.
[Interest Cost: 2.79 million per year for 20 years = 55.80 million]
The Springfield School District made “an independent evaluation”, according to Paul Cleary, and then placed the Pension Bond Money into the PERS Investment Account. It is important to note that some employers placed the money in the PERS Investment and others did not. It was an individual decision by each government employer.
The taxpaying citizens did not receive and never have seen that evaluation, which justified placing the money in the PERS account. If so, they could have stopped this catastrophe: as you will understand later.
By putting the Bond money in the PERS account they assumed a yearly return of 8%. This would throw off a return of 4.96 million per year: for 20 years: a return of 99.2 million. This would still leave a remaining balance after 20 years of 18.6 million: 117.80 – 99.2 = 18.60 MILLION: balance still owed.
This, in fact, was gambling because you cannot guarantee an 8% return. If 8% is the average, then it is a 50% probability of making above 8% or below 8%. They decided to risk 62 million of taxpayer money with a 50% probability? If this was such a grand idea, why didn’t each govt. employee take out a $300,000 loan against their house and place it in the stock market? The reason: because they would take the risk. Shifting risk is what government does, because they are never held accountable for anything.
Some time ago I had a face to face conversation with State Treasurer Ted Wheeler and asked a simple question: “Why didn’t they buy a zero coupon bond to cover their interest cost? “ He replied: “That’s a great idea?”
What did he really tell me? They didn’t buy them: Gross Incompetence.
See, 5 is greater than 4. And, 4 is less than 5. At the time of the bond sale zero’s were paying 5 – 8%: greater than the interest cost of 4.5%. Zero’s are discounted 90 – 95% from the face value; a 55 million zero for 20 or 30 years would cost 2.75 – 5.5 million, which would pay the interest cost on 62 million. This would leave 56.5 – 59.25 million to place in the PERS Investment account.
Investing 56.5 million at 8% would yield 4.52 million a year. In 14 years this would be worth: 63.28 million. The principal would be paid and the interest would be fully paid.
INSTEAD: We are paying both the interest and the principal over 20 + years. Their payment schedule for principal and interest will take 20 years and still owing 18.60 million. This an additional cost of 27.00 million added to the balance due of 18.60 million equals: 45.12 million plus for 24 years. Or, a loss of 45.12 million plus. THIS IS RANK INCOMPETENCE.
This is why they need more taxes. The District Attorney should sue and prosecute these people and put them jail. These people are destroying our city and the families and children that live here.
- Other Incompetence is the failure to forward gasoline costs.
- Failed to Cash Forward Gasoline Costs: Loss of 2.9 million per year.
- For 20 years: Report given to Bob Duey. This from a high school math book.
Fred M. Starkey is a former Lead Long-Term Analyst for Shearson Lehman and American Express out of NYC. After turning down a lead analyst position with Merrill Lynch and Pru Bache/NYC, he was recruited by Stoltler and Company and moved to Oregon. He is now a private consultant to many firms involved in commodities and those involved in trading and investing: Banks, S&L’s, Mortgage Companies, Grain Elevators, Cotton Mills, Growers, Merchants, Duck Farms, Soybean Crushers, Bullion Buyers, and much more. His financial acumen and 12 years of research into PERS have revealed the real truth behind what he calls Oregon State’s “PERS Ponzi.” A long-term resident of Springfield, Oregon, Fred has been married 43 years and is the father of six.
Fred Starkey may be contacted at: