Report says Oregon finance outperforms market

State Treasurer Randall Edwards  sent a letter to state legislators and to the Governor last week informing them of the Oregon’s financial status following the recent downturn on Wall Street. The text of the letter to legislators follows:

"It has been an extraordinary last few weeks and months in the
financial markets, and most recently, in Washington, D.C., as the
federal government addresses the markets’ mounting problems. The
magnitude of the financial crisis is touching everyone – Wall Street,
Main Street, government, and ordinary citizens. I’d like to take this
opportunity to give you an update on how this crisis is affecting
Oregon’s finances and the operations that I oversee
primary cause of this financial crisis is excess leverage and a failing
banking system, which started with problems in the housing and mortgage
markets. Last week’s Congressional action was of critical importance to
begin putting money back in the market to free up capital.
week’s fall of more than 800 points in the U.S. stock market put
pressure on falling international markets.  Their slide continues to
affect our markets, which we are feeling this week in our markets.  To
give you some perspective, the broad U.S. stock market is down 28
percent so far this year. International stock markets are down 38
percent year to date.  The financial world is flat! 
institutional investors everywhere, the huge drops in the markets have
reduced the value of the Oregon funds that I manage.  However, you
should be comforted to know that we have been outperforming the market
and our benchmarks in this down market because we have very diversified
portfolios and investment strategies.  For example, for the first eight
months of this year, the PERS fund was down 6.5 percent versus the
stock market at about 20 percent. Over the last ten years, the PERS
fund has returned 8.4 percent (versus a portfolio benchmark of 7.4
percent), a period that includes the big dot-com bust of 2000 and the
market crashes following  9/11.  Another positive note is that PERS
entered into these current troubled markets as the best-funded pension
plan in the country at 113% and therefore is better positioned to
absorb the downturn.
The spill-over of the banking system’s
troubles is a general reluctance in the market to lend money.  This
credit crunch is affecting businesses large and small who need to
borrow operating cash to meet their needs.  This situation has also hit
some governments.  California and Massachusetts have indicated that
they cannot borrow money right now to meet cash needs. I want you to
know that Oregon does not have a cash problem.  At the end of June, we
sold $741 million in Tax Anticipation Notes (TANs) for our cash needs
to cover our budgeted expenditures at the end of June.  We therefore
have reserves on hand to meet agencies’ cash needs.
municipal bond market is also troubled right now.  I held back an
Oregon Department of Energy bond sale for $21 million a couple of weeks
ago because of the lack of a market.  We have other bond sales coming
up in December for the OWIN project and for Housing. Issuances for the
Department of Veterans’ Affairs and ODOT are coming up in early spring.
However, the municipal bond markets have changed, bringing limited and
more skeptical buyers, and therefore we will likely be paying higher
interest rates than we did in the past. This condition is likely to
continue for some time, and consequently the next legislature should
budget for higher debt service payments on future bond sales. Oregon’s
solid bond rating is helping to keep those costs lower than they might
otherwise be.
Last, the plummeting stock market has had a
negative impact on investments in the college savings plans we offer. 
As a personal investor in the Oregon College Savings Plan, I too am
experiencing the hit this quarter along with other investors.  I am
proud to say that our call center and my office have not been flooded
with calls of concern, nor have investors pulled their money from their
accounts. In fact, we are seeing both continued investments and new
investors in the plans.
I understand the implication the
financial crisis is having on the national, state, and local
economies.  We are into a recession, and any lengthening or deepening
of it will create significant budget pressures. I do want to note,
however, that we are in a much better situation than we were coming
into the last recession.  You prudently left a cushion in this
biennium’s budget that softens this downturn.  Further, the reserves
provided by the two rainy day funds not only moved our credit rating to
a more favorable level, but they also will provide you more tools to
tackle the difficult job you face in balancing the budget next

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