Updated at 5:19 p.m.

The board that oversees Oregon's public pension system voted unanimously Friday to lower the key economic assumption used to value the retirement fund, a step toward controlling the system's spiraling costs.

Before a capacity crowd at its Tigard headquarters, the Public Employees Retirement System Board dropped the assumed earnings rate, or what it expects to earn on its investments, from 7.5 percent to 7.2 percent.

The move will add $2.1 billion to the system's unfunded liability, to $24.1 billion, and force public employers to step up their contributions into the system. But advocates have long called for lowering the rate to tackle an issue that has dogged the budget of every city, school district and county in the state.

The board was clearly motivated to lower the rate after its actuary Milliman Inc., urged it to go to at least 7.25 percent. Had the board not acted, Milliman said it would have flagged the state's refusal to adopt a more realistic earnings assumption in its next report card on PERS. That's the kind of feedback that credit ratings agencies take into consideration, a situation that is currently playing out in Illinois, where the state's credit rating is close to "junk" status.

"This was a prudent action," said Steve Rodeman, executive director of the Public Employee Retirement System.

Many market experts have called the current 7.5 percent rate a gross overestimate that hides the true size of today's pension deficit, minimizes required contributions from government employers and allows the problem to fester.

Some, however, believed the board didn't go far enough. City of Portland Treasurer Jennifer Cooperman left Friday's meeting shaking her head, saying the board blew a golden opportunity to take more aggressive action.

"The city of Portland strongly supports recognizing the full PERS liability," she said, "The city has no interest in pretending that the PERS liability is any less than it truly is. The city has always paid our full actuarially required contribution and intends to keep doing so, in compliance with ORS and internal city policy."

The new assumed earnings rate, which takes effect in 2019, also falls short of the Oregon Investment Council's recommendation of 7.1 percent. The citizens panel that oversees PERS investments had adopted an internal estimate of 7.1 percent, based on projections by a consultant that does the most detailed analysis of Oregon's investment portfolio, as well as those of four other consultants. But its recommendation is not binding on the PERS Board.

Some economists contend that public funds ought to be using what's known as a risk-free interest rate to value pension liabilities, one that might be in the neighborhood of 5 percent today. Using that math, PERS's unfunded actuarial liability would be closer to $50 billion instead of the $22 billion based on current assumptions.

In a world in which private-sector employees routinely see their pensions eliminated or frozen, public employees are understandably zealous about safeguarding their benefits. But given low interest rates and a lackluster outlook for equities experts are almost universally lowering their projected returns for pension funds and other institutional investors. Those actions are occurring despite Wall Street's current Trump bump, which has seen record stock market performances.

House Republican leader Mike McLane called today's vote a "sobering reminder" for lawmakers.

"As our pension debt continues to explode, so does the burden placed on our schools and local governments," he said. "We cannot ignore this problem any longer. It is well past time for us to act. If our current cast of politicians in Salem are unwilling to confront this problem head on, then perhaps it is time for new leaders to take their places."

Ted Sickinger of The Oregonian/OregonLive contributed to this report.

-- Jeff Manning

503-294-7606; @JeffmanningOr