The PERF is intended to be a private investment fund for the private interests of the trust's beneficiaries. It is as if the Oregon Education Association had their own retirement investment fund that was wholly detatched from the State of Oregon. Could you compel the OEA, via the exercion of state authority, to invest in PGE against their will?
How to buy PGE (second of a series) - Having established on Sunday that public ownership of Portland General Electric should be accomplished by a regional authority and not by the City of Portland acting alone, I'll continue by describing how the Willamette Regional Electric Corporation (WREC) should go... [Isaac Laquedem]
If, however, you would like to treat the PERF as if it were a state bank then it must be done in a manner that is compatible with the equal privileges and immunities clause. I am assuming, for the sake of argument, that the state can gauarantee direct government investments in private enterprise.
See this post from October 2003:
Imagine 30,000 Oregonian's Each Getting ONE MILLION Dollars To Start A Business
Note, if you will, the equal treatment for personal sole proprietary activity with that of incorporated entities.
Note, also, the clear prohibition on any special legal treatment for the entities, among their peers, by reason of the state investment or non-investment. It is designed to maintain a fair playing field, notwithstanding the invitation to public corruption. (See the link to the Initiative Petition 89.)
Your PGE plan seems to conflict with the notion of universal and non-discriminatory investment because it would be made available to only one entity. Could you instead pass a law that provided state investment, via state borrowed dollars if need be, that would be made available to ALL PUDs? Would it be made available also to Home Owner Associations that are inclined to have a mini-solar electricity generator to serve their needs, or any number of other alternative creative small organizations and power generating ideas?
UPDATE: Here is a link to a piece in OpinionJournal on electricity deregulation by Vernon L. Smith. The notion of "open access" that has driven deregulation has been to decouple the wires from the generating capacity. A regional entity that would own the wires would still not control the market for the generation of electricity. Is the government wanting to bootstrap its power over the wires to then gain control of the electricity generating facilities?
Back to ownership and PERF . . . could you draft a law that would apply equally to PERF and Wells Fargo and BoA where each sought to make a strategic investment in PGE through either revenue bonds or through a direct purchase? Think of BoA and Wells Fargo as each managing huge trust accounts on behalf of private folks. Is the difference between them and the PERF not in the function but rather in the class of depositor?
Yes, 8 percent min and max, but for whom?
There are different classes of depositors into the OPERF, the employees and the employers. Both of which are fully re-entrusted to the Oregon Investment Council for investment.
As to the private interests of the private depositors -- the employees -- the board and the council would each owe a fiduciary duty to obtain certain returns. And, the 8 percent has been treated not as an assumption of what might happen but what must happen, and thus effectively makes US treasuries, by definition, too low for any purpose (at least today). This raises the lure of regulated utilities as an investment option; here and across ALL pensions, both private and public, across the country.
There does not exist the same fiduciary dynamic for employer accounts to obtain a minimum, from those derived from pension bonds and delivered into employer lump-sum accounts, as compared to employee funds. The employer lump-sum accounts are commingled not only among other employers, for purposes of investment, but with employee funds as well.
Just because the state, via the court, has determined that an employee must get 8 percent return (going forward on prior deposits) does not mean that the City of Portland or the Portland Public Schools, can borrow money and place it into the hands of the Oregon Investment Council and then, on behalf of themselves as local government's, demand an 8 percent minimum.
I know of no federal law that would be targeted at assuring that a subdivision of a state that sponsors a retirement trust that would compel the state to deliver on a promise to offer a minimum return on deposits to one of the state's own subdivisions. Thus, as to contracts clause arguments, whether it be the state or federal contract clause, are wholly inapplicable. The OSPOA case in 1996 hinged on the Contract Clause arguments. I would argue that there is not even any rational nexus between any federal interest (in encouraging private savings and encouraging the maintenance of retirement trusts) and whether a local government, and most certainly not for a state, must fully fund a pension (or compel the issuance of bonds) rather than have a simple-sound-pay-as-you-go plan.
(My notes on the difference between local government and the state can get all clouded up though in the context where the feds could exert some power over local governments that they cannot over the state. This is usually revealed in bankruptcy cases, but not exclusively. But that is not necessary for further attack here.)
I would split the OPERF fund so as not to commingle the employer lump sum accounts and the employee accounts.
Suppose there were two distinct funds: where the beneficial interest in one is directed exclusively to the employer accounts in their own name, and the other is properly in the pension trust itself and solely for the benefit of the members. Could your plan to invest in a PGE replacement, with a min and max 8 percent, be available to both of the broken-up funds, or just one?
Consider this:
Could a federal bankruptcy judge, compatible with the 11th Amendment immunity, order that a state deliver money from the state to a local government to satisfy the creditors of a bankrupt local government? Compare and contrast that with whether a bankruptcy judge, compatible with the 11th Amendment immunity, can order that the "independent" OPERF deliver money from the state to a local government to satisfy the federal interest in protecting individual retiree benefits. Does the existence of state guarantee of future returns to PERS-beneficiaries amount to a waiver of 11th Amendment immunity by the state on behalf of retirees from local governments?
Consider also:
Does the existence of the state constitutional prohibition on government investment in private equities supersede any claims by the legislature to affirmatively bind a future legislative assembly to terms of a contract that portends to promise an 8 percent minimum return on deposits? The OPERF is "independent" in substance and not just in form, notwithstanding the present commingling of employer funds with funds held exclusively for the benefit of employees and notwithstanding the subsequent and largely arbitrary (after the fact) distribution of such earnings as may be had.
It should be self evident that the present scheme, inclusive of the Pension Obligation Bonds, are the very definition of arbitrary.
Would you NOT split the OPERF into employer and employee funds? Ask the outgoing PERS director (who resigned in October 2003) if, how and why, he wanted to split up the OPERF into separate funds for purposes of investment.
I palmed a card here? PGE WPPSS and the art of form.
How to buy PGE without breaking the law (third in a series) - Mr. DeFazio had argued that the cities had effectively become stockholders in WPPSS, had "raised money" for WPPSS within the meaning of the constitutional provision, and had lent their credit to WPPSS, also within the provision's meaning. The defense was that WPPSS had no stock and that the constitutional clause prohibited only investments in, and raising money for, private enterprises. [Isaac Laquedem]
DeFazio v. WPPSS, 296 Or. 550 (1984)(Click through the link presented.)
The possibility of dissolution before the bonds are paid off (more likely they will just be extended forever) would reveal the vacuum to which I speak.
You have a two by two matrix: Bondholder and Government on one axis and Gain and Loss on the other axis.
Assuming gain: Upon dissolution, will the bondholders claim the excess, as if they were owners? Will the excess go to the general fund of the governmental participants, as if they were the owners?
Assuming loss: WPPSS, and the constitutional provision in question, serve to assure that the general taxing power is not pledged to cover risk of loss in assets or revenue. But . . . what a about loss to the bondholder?
We already have our answer from WPPSS. We get higher electricity bills to cover the bonds even when the government participant leaves the scene, it is as if they were not there at all to begin with other than to setup the revenue stream for someone to be immunized from risk.
Could I demand then that the revenue bonds themselves be structured so as to end their link to the revenue stream at the very instant that the government chooses to simply sell the assets, or for no other reason than a new set of elected officials conclude that the scheme is no longer in the "public interest," no strings attached?
The pledge of revenue is not a pledge to assure that there shall be a revenue stream, until the bonds are paid off, but only to pledge to handover only such revenue as may be had by the government so long as they continue to own the assets. The instant the revenue may not be had by the local government, because they choose to sell the assets, is also the instant that they have no more revenue to turn over.
So . . . what security does a bondholder have other than to cross their fingers and hope that the local government sponsors don't change their mind soon after the deal with the huge transaction and lobbying cost has been consummated?
One strategy to object: If I were on the PUC I would fully disregard the revenue bonds and the payments on then in the determination of allowable rates. To illustrate, I could offer a commonly understood comparison in the valuation of investment property, which is based on deriving a capitalization rate between investment choices without regard to whether one owner owns it free and clear or whether they are leveraged to the hilt. The debt is irrelevant to the valuation, only the revenue stream is important.
Do you see the catch-22 or cart before the horse dilemma? The revenue stream is everything. Cute huh? But, the bondholder wants their bond payment tied to the allowable rates for electricity bills, which is for all intents and purposes the very essence of both ownership and valuation.
(Dare I draw a parallel to Affordable Housing? I'll save that for another day.)