2B ❚ WEDNESDAY, FEBRUARY 14, 2018 ❚ APPEAL TRIBUNE Gov. Kate Brown outlines education proposals Connor Radnovich Salem Statesman Journal USA TODAY NETWORK Oregon Gov. Kate Brown announced a series of education and business pro- posals and priority shifts during her State of the State address Feb. 5, outlin- ing the ways she believes the state can expand economic prosperity to all through education programs. At the heart of her address is “Future Ready Oregon,” her new five-step agen- da to refocus education on graduating students from high school by preparing them for open jobs in technical careers and putting $300 million toward those classes in the next budget. These efforts will be especially di- rected toward rural areas and communi- ties of color, including Oregon’s Native American tribes. “For too many in Oregon, the Amer- ican Dream has become the Impossible Dream,” Brown said. “It seems no matter how much you work, it’s very hard to get ahead.” Brown laid out for the joint legislative session and assembled guests the situa- tion she has seen in the state: Families are struggling to make ends meet with low-paying jobs, while technical job cre- ators want to hire more people into well- paying careers but are forced to look out of state for employees. This skills gap in the state is the “op- portunity” Brown wants to take advan- tage of. She noted that 86 percent of high schoolers in Oregon who had hands-on education, including career technical courses, graduated high school 10 points above the state’s overall rate. Oregon has one of the lowest gradua- tion rates in the country, though it has Gov. Kate Brown delivers the State of the State address on Monday, Feb. 5, 2018, at the Oregon State Capitol in Salem. MOLLY J. SMITH / STATESMAN JOURNAL seen growth in recent years: 5 percent- age points higher overall since Brown became governor and 7 points higher among Hispanic or Latino students. As a particular success story, Brown pointed to Salem’s Career and Technical Education Center, which boasts a 98 percent graduation rate. Its programs include construction, auto-body, video and game design, and robotics. A high school degree or equivalent is the focus because the occupations driv- ing economic growth are jobs that don’t require a college degree: advanced man- ufacturing, renewable energy, health- care, bioscience and IT services. Brown laid out a five-pronged plan to achieve her goal: Create high-tech ap- prenticeships, incentivize rural con- struction, build more homes in rural communities so people can live near those new jobs, focus growth on often overlooked communities and align edu- cation with entry-level job qualifica- tions. The only bill that addresses any of these goals during this 35-day session is House Bill 4144. The bill, one of five from the governor this year, would lower bar- riers for mid-career construction pro- fessionals to start their own businesses and create grants for training new work- ings and construction of rural housing projects. “By working together, we can ensure that economic prosperity reaches every single corner of the state,” Brown said, one of her speech’s handful of applause lines. In a statement, House Republicans seemed more concerned about the problems Brown didn’t bring up. They criticized her for not mentioning the millions of misspent dollars by the Ore- gon Health Authority, for not providing a plan on how to fix the state’s foster care system and for only giving passing reference to the massive PERS unfund- ed liability. “It’s hard to appreciate Gov. Brown’s future aspirations for our state when she has failed to address so many prob- lems here in the present,” House Repub- lican Leader Mike McLane, R-Powell Butte, said in a statement. House Democrats, meanwhile, were complimentary of the speech, saying Brown’s intent to expand economic op- portunity in the state matched their var- ious legislative goals for this session. “I stand with Gov. Kate Brown and her vision for an Oregon where every- one, regardless of where they live, has the ability to succeed and thrive,” House Democratic Leader Jennifer William- son, D-Portland, said in a statement. “We must continue to capitalize on our success and make progress for Oregon’s future.” Toward the end of her address, Brown offered a strong rebuke of some policies coming out of Washington, D.C. She promised to protect Oregon’s immi- grants and Dreamers, maintain health care coverage in the state and preserve public lands, all of which were targeted during the first year of the Trump Ad- ministration. “As we come together this session, let us commit to keeping our promise to Or- egonians, to take responsibility for mov- ing Oregon forward,” Brown said. Reporter Natalie Pate contributed to this report. Contact the reporter at cradnov- ich@statesmanjournal.com or 503- 399-6864, or follow him on Twitter at @CDRadnovich Public pension system exceeds return expectation for 2017 Ted Sickinger The Oregonian/OregonLive PORTLAND, Ore. – Thanks to a red- hot stock market, Oregon’s public pen- sion system investment portfolio gener- ated a 15.3 percent return last year, more than double what was expected and sufficient to lop $3 billion or so off the system’s $25 billion unfunded liability. But it wasn’t enough to head off an- other painful round of pension cost in- creases slated to hit government bud- gets in 2019. The Legislature will probably delay any serious conversation about changes to benefits, as it has for the past three years. Gov. Kate Brown, for one, says she’s not ready to talk about the main benefit reform idea in circulation – rein- stituting some level of employee contri- butions to the pension fund – until 2019. 12 MONTH SPECIAL OFFER Subscribe for about 99 ¢ PER WEEK! * BILLED MONTHLY LOCK IN THIS SPECIAL RATE! VISIT StatesmanJournal.com/PPC CALL 1-800-452-2511 *Offer expires 3/31/2018. Certain restrictions apply. For complete details, Call or visit website. Price per week is based on a full access subscription including Sunday and Wednesday print delivery at $4.30 per month for the first 12 months. ENT5211 P-PC In the meantime, she has another plan, or two plans actually. The first would redirect a slice of state revenues to offset the pension costs of K-12 schools, community colleges and uni- versities. The second involves enticing the 900 or so public employers who par- ticipate in the system to shake their sofa cushions, identify reserve resources and deposit them in accounts at PERS. In the process, they would be gambling that the pension fund’s investments will generate higher returns than the low and largely risk-free returns those dollars earn today in the short- and me- dium-term funds managed by the Ore- gon Treasury. Historically, that’s been a good bet. But it’s no sure thing. The Public Employees Retirement System paved the way this fall, relaxing minimums and reducing fees on gov- ernment employers, to make extra de- posits. Those funds would go into “side accounts” that are invested alongside pension assets. Those account balances are then drawn down gradually to re- duce an employer’s annual pension costs. As the system’s actuary likes to say, side accounts leverage, or amplify the effects of the system’s investment re- turns on employers’ pension costs. If re- turns are good, the side account bal- ances and the pension savings they generate grow. But there is also the risk of a stock market downturn depleting the funds after they’re deposited, which can turn the strategy into a loser. To sweeten the pot and tilt the risk- reward balance in employers’ favor, the governor is looking to set up an incen- tive fund that would match employer deposits by 25 cents on the dollar. The idea was hatched by the task force that Brown appointed last year to look for ways to reduce the pension deficit by $5 billion. Its success hinges on the state’s ability to come up with the seed funds, and employers’ finding the money to take advantage of them. Neither is assured. While the goal is for the state to come up with $400 mil- lion, which could match an additional $1.6 billion in employer contributions, no revenue source has been identified yet. If the state comes up with the dollars, the plan is to prioritize employers with the largest proportional liabilities. Em- ployers would have to apply reserve matching dollars from the funds by the end of 2019, then they’d have another 3½ years to come up with the extra pen- sion contributions. “We expect to see some rate relief in ‘21-’23 and potentially even further rate relief the following two biennia,” said Elana Pirtle-Guiney, the governor’s workforce and labor policy. Scott Winkels, a lobbyist for the League of Oregon Cities, said he wasn’t sure how many cities have revenue sources they could tap to put in side ac- counts. Lawmakers, he said, should be looking at benefit reforms, including employee contributions, on top of this effort. “This isn’t the end all be all,” he said. “It’s not going to solve the problem, but it’s something we need to do. It’s the right thing to do.” The school funding, meanwhile, would be a bulk side account funded with a straight redirection of existing state revenues and no contributions re- quired from the schools, community colleges or universities, said Pirtle-Gui- ney. The governor’s office is hoping law- makers agree to capitalize that fund with a “few hundred million” dollars, she said. The legislative concept in- cludes a number of potential revenue sources, including a proposed tax am- nesty program that would give delin- quent taxpayers a break on their ac- crued interest and penalties if they paid all or a portion of their back taxes. The state last offered such a program in 2009 and raised about $40 million, about half of it unexpected revenue. The other source of funds would be one-time revenue streams and windfall dollars. Those could include lawsuit set- tlements and debt collections, as well as tapping a set of standard revenues if they come in above average, such as capital gains taxes, estate taxes, beer and wine taxes and lottery commis- sions. The pension cost offsets generated by a bulk side account with several hun- dred million dollars would likely be very small at an individual school district level. Still, it’s a no-risk plan for schools. Participating in the incentive program would be another matter, tapping the reserves they’ve been husbanding to cover budget shortfalls. “Would it be more valuable to take part of our rainy day fund and pay this down versus saving it for a downturn when we might need it?” asked Claire Hertz, chief financial officer of Beaver- ton School District. “Each district will have to evaluate that. You look at the trends and the history and make your call.” The consulting firm ECONorthwest recently offered its take on the risks and opportunities of side accounts at a meeting organized by the Oregon School Boards Association. “If you had cash sitting around, there’s a 99 percent chance you’d come out on top,” said Ralph Mastromonaco, a senior economist at ECONorthwest. “The opportunity cost of holding cash is pretty high. Over a 20-year period you can expect (Oregon pension system) re- turns to be substantially higher.” Mastromonaco said a number of dis- tricts have also expressed in interest in borrowing more money to seed their own side accounts by issuing pension obligation bonds. The incentive pro- gram won’t offer matching funds on bor- rowed money, but districts have had some success with the strategy in the past, which is essentially gambling that PERS returns will be higher than the in- terest rate paid on the borrowed money. ECONorthwest also analyzed the probability of a positive outcome with pension borrowing, given current mar- ket conditions, and told schools it was fairly high: 70 to 80 percent. But Mas- tromonaco offered some caution: “The timing of these returns matter,” he said. “A lot of people are expecting a correction in the stock market in the short term. In 30 percent of the cases it’s still a negative outcome. No one is suggesting it’s a risk-free decision.”