It was the kind of thing that is easily overlooked but can impact the pocketbooks of all Washington residents.
At the end of July, the Office of the State Treasurer sent out a press release highlighting Washington’s financial stability. Three national credit services maintained the state’s ratings of Aaa, AA+ and AA+, and Treasurer Mike Pellicciotti boasted that “Washington’s demonstrated excellence in Treasury management, paired with sound budgeting practices from the Governor and the Legislature, remain key factors in keeping Washington financially well-positioned.”
The release went on to say, “Washington features a well-funded pension system, a manageable debt load, significant liquidity, and projections for long-term fiscal stability.”
That might not directly impact the price of eggs, but lessons from Oregon demonstrate that it ripples throughout a state’s economy. They also show the cost of poor money management.
According to reports from OregonLive.com and the Oregon Journalism Project, managers of Oregon’s pension funds heavily invested in private equity, ignoring the advice of high-priced advisers. “The stock market has increased in value significantly more than private equity over the past few years,” James Neff wrote for the Oregon Journalism Project. “In other words, (the investment board) has loaded up on losers and underinvested in winners.”
That has yielded payoffs below expectations, requiring cities, counties, school districts and other jurisdictions to increase payments toward state pension funds. It also is leading to staff reductions throughout government. Reports say that Oregon’s 197 school districts must come up with $670 million over two years for increased pension funding — money that could have hired approximately 6,700 new teachers.
Oregon is not the only state facing unfunded public pensions. In California, the state’s unfunded liability amounts to nearly $300 billion; in Illinois, it was $143.7 billion at the end of 2024.
According to an analysis by the Reason Foundation at the end of fiscal year 2023, Washington was one of two states (along with New York) that had fully funded pension systems. Much of the credit for that goes to the Washington State Investment Board, an independent group that decides how to direct the state’s money. (David Nierenberg, a Camas investor and contributor to The Columbian’s Community Funded Journalism program, is a nonvoting member.)
Despite that success, the Legislature took a risk this year by passing Senate Bill 5357, which tweaks public pension plans. The bill, which had overwhelming bipartisan support, changes the assumed return on investment from 7 percent to 7.25 percent, altering the calculations and reducing how much the state must invest to meet future payouts.
As Ryan Frost wrote for Reason, “The funds are not actually expected to earn more money — the Legislature is simply hoping they will and passing the risk of any shortfalls to future taxpayers. … Washington’s pension obligations are not going away, and underfunding them does nothing to reduce the inevitable bill. It simply passes the bill to future legislators (and taxpayers) when it will be larger and there are fewer options.”
That, indeed, poses a risk, and it should be viewed as a short-term solution. Lawmakers should repeal the legislation once the state budget has stabilized. But given years of strong fiscal management from the executive branch, the Legislature and the investment board, we trust that Washington will remain on solid financial footing.
