In mid-January, I wrote an article headlined “PERA faces $30 billion funding shortfall,” in which I noted the steep drop in the state pension plan’s investments in 2008 likely meant a sharp increase in its funding gap.

The article was not universally loved. Reader Bob Birnberg, noting PERA won’t complete its financial review until the summer, criticized “the tap dance of phrasing” in which I said it “may face a $30 billion shortfall.”

And Sandy Green pointed to Editor John Temple’s column in that same issue, where he said coverage of the Rocky’s potential demise “sensitizes us to the potential impact of our work.” Green asked, “Without an audit to back up the statement, isn’t Milstead misleading his readers? The Rocky estimates the loss to be $30 billion. How accurate is that? ... This article has the potential to exacerbate the problem and frighten retirees even more. Obviously, the Rocky still doesn’t get it!”

These readers have a point. Writing on deadline, and missing an exact figure I needed, I left out a detailed explanation of the math, one that would let readers get from Point A to Point B.

Now, blessed with extra time to do some number-crunching, I’m happy to provide it.

First, let me explain what number I was estimating. A public pension fund like PERA can come up with two estimates of its underfunding — an actuarial number, and a number based on the market value of its assets.

The actuarial number uses a technique called smoothing, in which gains or losses in the portfolio are chopped up into pieces and recorded over several years. PERA still has gains from 2007 and earlier years that have yet to be counted in its actuarial number.

Similarly, the disastrous past year, in which more than $11 billion was lost, won’t all be reflected in the actuarial underfunding number for 2008. That formal number will understate the problem, because it will overstate PERA’s assets.

PERA will also calculate a funding number based on the actual market value of its portfolio. That’s the number I was estimating.

Now, on to the math. At year-end 2007, PERA had $52.46 billion in liabilities. That’s an estimate of what it will owe in benefits over the next few decades to all its members, both active and retired.

In each of the past two years, PERA’s liabilities grew by about 6 percent. If they grew at the same rate in 2008, that would put the year-end figure at about $55.6 billion.

Now, on to the assets.

PERA came into 2008 with more than $41 billion in its portfolio. About 80 percent of PERA’s money is in stocks, bonds and other assets that are easy to price on a daily basis. PERA knows it lost about $11 billion on that part of the portfolio. It placed a $30.5 billion value on its total assets as of Dec. 31.

That number, however, didn’t include updated prices for the roughly 20 percent of the portfolio that’s in harder-to-value assets such as real estate and private equity.

Those investment categories were not spared in last year’s market carnage; in fact, it’s quite possible their losses were as bad or worse than domestic stocks. Applying a 30 percent loss to that piece of PERA’s portfolio would clip another $2 billion from the pension fund’s assets. That, in turn, would put the market value of the entire portfolio somewhere around $28.5 billion.

Now, compare those two figures, and you get a difference — a funding gap — of $27 billion. That indeed approaches, but is short of $30 billion.

PERA’s official number, due in July, could be smaller, or larger. Anyone who wants to wait until that audited figure comes in before facing the enormity of the problem may do so.

On the other hand, anyone who is frightened now by my estimate is also welcome to their fears.

David Milstead and James Paton take turns writing Up and Down 17th Street. Contact Milstead at 303-954-2648 or milstead@RockyMountainNews.com.