"While ORTA agees with the Blade editorial that Ohio's pensions need to move away from opaque, private equity investments, which ultimately lose to index investments, it is quite evident that STRS Ohio cannot thrive with an employer contribution rate that has been frozen for over 40 years, and not expect there to be a cash flow problem." - Dean Dennis
The Ohio House Pension Committee has voted in bipartisan fashion to increase municipal police pension costs by nearly $80 million a year. It’s just the start of Ohio taxpayer bailouts for the public pension funds caused by legislatively authorized malinvestment. (“Lawmakers eye public pension changes,” Wednesday)
The Blade Editorial Board warned of the coming crisis at the Ohio Police & Fire Fund in “Ohio’s out-of-the-box public pension,” Sep. 18, 2022. The OP&F pension fund is especially risky because of a high leverage investment strategy the system’s fiduciary auditor characterized as an “out-of-the-box portfolio.”
The inevitable occurred for OP&F when too much borrowed money was lost on speculation over the direction of interest rates. The safety forces pension plan lost $2.1 billion in 2022, a half-billion more than it pays in benefits.
Now, Toledo is asked to increase its annual contribution to the police pension by $4.5 million on top of the $24.3 million already devoted to OP&F. Mayor Wade Kapszukiewicz indicates future police and fire classes will have to be cut in response to that pension payment addition.
The Ohio Mayors Alliance says the statewide additional cost will add $80 million a year to the $300 million now paid. Local tax hikes are forecast.
The 26 percent increase sought by OP&F is just the first domino in the Ohio pension crisis. The State Teachers Retirement System is after a 22.2 percent hike from school systems and the Ohio Public Employees Retirement System wants 28.5 percent more from taxpayers.
If lawmakers go along with all the pension fund requests, taxpayers will be on the hook for an additional billion dollars every year. Just like OP&F, STRS, and OPERS have high-fee investment portfolios which lag behind the returns provided by low-cost index funds that would simply match the stock market.
Since state legislators changed pension investment law in 1996 to allow these high-risk bets, the S&P 500 has returned 9.4 percent, annualized, which is better than the performance of the state’s pension funds.
Ohio has chased big investment gains and failed to deliver the needed results. Because Ohio’s public employees do not pay into Social Security, the state pension system has full responsibility for their retirement security.
Allowing reckless speculation with such important money was a foolish mistake by the legislature signed into law after lawmakers were safely re-elected. Before the results of that mistake push huge tax hikes on Ohio citizens, lawmakers must revise pension investment policy.
The outlook is not promising. The House Pension Committee failed to ask even one question related to the OP&F investment strategy before voting to ask the entire House to bail out the police and fire pension.
The Ohio General Assembly is just as clueless as the pensions they control. They literally fixed what wasn’t broke and caused the pension crisis.
The Toledo Blade November 24, 2024