The fiscal nightmare of Oregon's Public Employee Retirement System once again has reared its ugly head, as usual at the worst possible time.

Economic downturns cause investment losses that affect everyone's private pension plan. In Oregon, however, public pension payments are guaranteed, so investment losses must be made up by taxpayers. It's frustrating, mind-numbing dŽjˆ vu - a political hot potato that lands in the laps of taxpayers time and time again. And in a year of competing financial disasters, PERS barely made a ripple in the last Legislature.

That's pathetic. The price tag for that continued negligence could eat into as much as one-quarter of public payrolls.

At a time when private retirement accounts plunged by as much as 50 percent, taxpayers are facing fewer public services at a higher cost because they have to prop up a Cadillac retirement plan. How did this happen?

Created in 1946 with equal employer and employee contributions, PERS averaged a 3 percent return from 1950 to 1969. Over the years, formula changes guaranteed lifetime payments of 50 percent of salary after 30 years, or 60 percent for public safety personnel. Unfortunately, a provision intended to serve just a few public employees became the fuse that lit up a decade of scandalous PERS retirement requirements, paying many public employees 105-115 percent of their highest salaries.

There were annual pension plan growth guarantees of 8 percent, even in years of investment losses. And instead of limiting those increases to 8 percent when the market grew by 25 percent, short-sighted state government put all those earnings into individual accounts. Since they still had the 8 percent guarantee, problems were inevitable.

In 1995, the Legislature created a second tier for public employees hired in 1996 or later who did not receive the 8 percent guarantee. That will make little difference for many more years, since anyone hired prior to 1996 still gets their promised packages for life, with cost-of-living increases.

In the last sizable downturn in 2001-02, the Tier 1 accounts suffered losses that resulted in the need for employer contributions of $4.8 billion, a bill that was forwarded to John and Jane Q. Taxpayer.

Things were even worse for taxpayers because the state system used outdated actuarial tables that grossly underestimated the lifespan of retirees. Legislative changes that were set to go into effect in 2004 required that those tables be updated, but new numbers weren't applied until they finally were approved by the 9th U.S. Circuit Court of Appeals in 2008.

Last year, the value of PERS investments plunged 27 percent. A 14 percent improvement in 2009 helped somewhat, but that's still a huge gap to bridge. So what we're seeing now, and have been for years, is a financial perfect storm: a rich retirement package impossible to sustain, reforms that have been overruled by the courts and a recession of a kind we haven't seen since 1929.

Oh, yes, and session upon session of legislators who simply have passed the problem on to future generations.

It's disgraceful. And it's hurting Oregon.