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Bankruptcy won't solve PERS problems

All we hear about as the Legislature continues to dither is the growing doom and gloom of our PERS system. If we are in such debt, can’t Oregon simply cut its losses eventually and declare bankruptcy?

— Jeanne

People often ask this question, usually thinking of the 2013 example when Detroit filed for Chapter 9 bankruptcy.

But we can’t do that, Jeanne.

Municipalities are able to declare bankruptcy only in states where the law specifically allows them to do so. Oregon isn’t among those.

Declaring bankruptcy as a city or other municipality has its pros and cons, however.

Municipalities that have declared bankruptcy have gone on to renegotiate their debt with their creditors. That includes public employee pensions.

Detroit, for example, cut back on both pensions and health care coverage and eliminated cost-of-living raises for public employees.

Public employees in those places likely wouldn’t consider that a plus.

Also, when states and municipalities begin to move toward bankruptcy, their borrowing costs can rise, as they become less appealing credit risks.

We’re far from the only state in this crisis; according to a 2015 Wall Street Journal analysis based on state data from the two years prior, Oregon was fifth-best in the nation in its unfunded pension liability. We’ve gotten a bit worse over the years, but the states scraping the bottom in percentages of their pension obligations that are funded — Illinois, Connecticut and Alaska, to name a few — have a much steeper climb.

How we’ll get out of our own hole remains to be seen, but bankruptcy isn’t going to be the way.

Send questions to “Since You Asked,” Mail Tribune Newsroom, P.O. Box 1108, Medford, OR 97501; by fax to 541-776-4376; or by email to youasked@rosebudmedia.com. We’re sorry, but the volume of questions received prevents us from answering all of them.