Oregon’s Risk Fund: A Troubling Trend Towards Insolvency
Governor Tina Kotek’s warning might as well be a wake-up call for the state of Oregon. In a rare moment, she used the term “bankrupt” to describe the precarious financial state of Oregon’s legal liability fund, highlighting a crisis that has been brewing for years.
The Financial Dilemma: Understanding the Fund’s Struggles
The legal liability fund is crucial—it covers claims from various liabilities, including workers’ compensation payouts for state employees and substantial legal settlements. Sadly, this fund is now facing the brink of insolvency, which Kotek detailed in her budget recommendations for the 2025–27 fiscal years. She emphasized, “A major increase in risk charges from the 2023–25 level is needed to prevent the assets declining to zero, bankrupting the fund.”
To put it bluntly, the cost of maintaining this fund has outstripped its income. In 2023 alone, the fund dispensed nearly $99.8 million, while absorbing only about $66 million in revenue, showcasing a troubling trend of overspending.
A Flawed Framework: The State’s Self-Insurance Model
Through the Department of Administrative Services, Oregon manages a self-insurance model that collects payments from state agencies to cover various risks. This model relies on projections about future claims and settlements. Unfortunately, with rising legal expenses over the years, the fund’s sustainability is called into question.
For instance, a landmark $40 million settlement in 2023 with four foster children who claimed neglect by the Oregon Department of Human Services marked the largest settlement in the state’s history. The repercussions of COVID-19 also compounded issues by increasing workers’ compensation claims, creating an escalating cycle of financial strain. Meanwhile, even with many state office buildings remaining mostly vacant, insurance costs for these properties have seen a staggering rise.
Legal Obligations Ignored: The Actuarial Soundness Requirement
What makes this situation even more concerning is the state’s consistent failure to meet legal obligations regarding the fund’s financial health, particularly the requirement for it to be actuarially sound. This obligation mandates that the fund should maintain a cash reserve equivalent to 70% of its future liabilities. Disturbingly, the fund finished the fiscal year 2023 at only 16%, signaling a severe underfunding crisis.
“Our funded ratio is heading toward zero,” said Shelly Hoffman, DAS risk manager, adding urgency to the matter.
Political Implications: A Call for Immediate Action
Despite the alarm bells ringing, Governor Kotek and key Democratic leaders have yet to take corrective measures. While Kotek holds the reins to direct state agency budgets, previous House Speaker Christine Drazan (R-Canby) chastised the administration for its inaction, stating, “When it came time to balance the budget and follow the law, [Kotek] chose her agenda over responsible governance."
Kotek’s spokesperson, Roxy Mayer, defended the governor, asserting that Kotek has actively sought ways to responsibly manage the fund since taking office, including proposing a $120 million increase to bolster its financial posture.
However, critics argue that despite these proposals, negligence has persisted throughout Kotek’s entire political tenure, especially during her time as House Speaker. Notably, funding deficiencies in the risk management fund coincided with her three complete legislative sessions from 2017 to 2023.
A Murky Future: Lack of Transparency and Accountability
The absence of a 2024 annual report from DAS, attributed to "low readership," raises significant questions about transparency and accountability in handling public funds. Drazan, who ran against Kotek in the 2022 gubernatorial race, insists that “transparency should be mandatory, not optional.”
The current predicament of Oregon’s risk fund is more than a budgeting issue; it encapsulates a larger governance problem within the state. Escalating government growth paired with inadequate measures means that the state’s exposure to litigation is only set to rise, further complicating an already challenging fiscal landscape.
Conclusion: Time for a Change in Strategy
As Oregon confronts this financial crisis head-on, it becomes increasingly clear that immediate, decisive action is crucial to avert a looming disaster. By focusing on increased funding and transparency, state leaders can reshape the financial future of Oregon, steering away from the brink of bankruptcy and towards governance that reflects responsibility and credibility.
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