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The
Oregon Public Employee Retirement System (PERS) announced more bad news last
month. Its unfunded liability has increased more than 20 percent, from $18
billion to $21.8 billion. The retirement system is now only 71 percent funded.
Even
worse, we know that about 70 percent of PERS income is derived from returns on
investment by the PERS Trust Fund. The PERS Board is assuming an annual 7.5
percent investment return. Returns for 2015 were barely 2 percent and 2016
returns are currently projected to be even less.
This
distressing information was provided to the PERS Board
during its July 29 meeting by its financial actuary firm. The actuaries told
the Board that school districts, cities, counties and state agencies will have
to pay an additional $885 million in PERS contributions during the upcoming
2017-19 biennium. That is a nearly 44 percent increase, on top of the $2
billion they are currently paying.
The
PERS contribution rates for public employers in the state are expected to
increase by an average of 4.51 percent of payroll for school districts in 2017.
The additional cost to Oregon public schools will be around $335 million. To
put that huge amount of money into perspective, it calculates to a 58 percent
increase, which is the equivalent of more than 2,000 new teachers. According to
the actuaries, Oregon schools now owe $13,879 per student in PERS unfunded debt.
PERS
contributions by state government agencies will increase by $260 million for
the next two years. The nearly 45 percent increase is equivalent to the total
compensation for more than 1,400 average state employees.
Local
governments and special districts are looking at a 33 percent increase in their
PERS contributions for the next biennium starting July 1, 2017. Many believe
that requirement to pay an additional $290 million is nothing less than an
unfunded mandate.
The
overall impacts are spelled out quite well in this
article by Oregonian
reporter Ted Sickinger. It states that public employer contributions are to
rise about four percent during each of the next three budget cycles. Statewide
pension costs are projected to increase by 125 percent, from $2 billion this
biennium to $4.5 billion in the 2021-23 biennium.
A
previous article
written by Sickinger quotes a member of the Bend-La Pine School Board stating
the last time their district saw those kinds of PERS rate hikes it was forced to
respond by eliminating 100 teaching positions. That is the expected effect in
just one of the nearly dozen school districts that I represent.
Legislative
solutions must be crafted for this enormous and rapidly growing problem. Two
sets of solutions are being presented to Oregonians. One aims to reduce and stabilize
the cost of PERS, while the other intends to raise enough new tax revenue to
pay for its near exponential cost increases. Oregon voters will ultimately
decide which trajectory will best serve the people of this state.
Senate
Republicans have offered several
proposals to address the coming PERS funding crisis that
threatens the viability of our public schools, as well as the quality and
availability of public services offered by the state and local governments.
Up
to $3.4 billion could be saved by redirecting Individual Account Program (IAP)
contributions into an account to pay for future member benefits. This single
amendment to the laws governing PERS could eliminate as much as half of the
deficit over time.
It
is estimated that up to another $1.2 billion in savings could be achieved
through means testing retirement benefits by capping the final average salary subject
to PERS benefits at $100,000 per year. Close to half of all the system’s
benefits are currently paid to the top 21 percent of PERS pensions.
Approximately
22,352 PERS pensions pay more than the member’s final salary. Just under 2,000
pensions are currently in the system that pay over $100,000 per year. For
example, a former OHSU professor receives $55,280 per month in PERS benefits
and a former football coach receives $42,921 per month. That is more than many
Oregon taxpayers make in an entire year. In other words, the highest earning
PERS recipients are paid more every month not to work than most of the people who
are taxed to pay for their benefits make working 40 hours per week for an
entire year.
Up
to $1.1 billion could be saved by using a market rate for money match
annuities. The current rate being used is nearly twice as generous as most annuities
available in the private sector.
An
additional $350 million in savings could be achieved by eliminating the spiking
of pensions by preventing future unused vacation and sick leave from
artificially increasing final average salary calculations. Over half of the
states in the nation have limited pension spiking by changing the final average
salary calculations from three to five consecutive years.
Several
other possible solution could save a great deal of taxpayer money, although the
amount of the potential savings for many of these proposals is still in the
process of being calculated.
The
state could also start using the Social Security phased-in retirement age for
all PERS general services starting in the year 2020.
PERS
liability could be frozen by ending pension credit for salary or years of
service earned on or after January 1, 2018. Instead, PERS members could receive
a matching six percent contribution from their employer into the IAP.
All
employees hired after July 1, 2017 could be moved to a new defined contribution
plan in which employers match six percent of an employee’s salary into the IAP.
The
state could also allow full bargaining regarding government payout of employee
PERS contributions and limit those agreements to five-year periods.
I’ve
written in the past about the abuse
of emergency clauses in legislation. However, an E-clause
could be attached to any PERS reform bills in order to allow the PERS Board to
recalculate its rates to reflect any savings from changes to the system as soon
as the bill passes.
In
order to better stand up to any court challenges, as part of the process,
legislation should specify that nothing in the bill creates contract rights, should
including a legal severability clause and should allow expedited review to the
Oregon Supreme Court.
In
late July, Senate Republican Leader Ted Ferrioli sent this
letter to the Democratic leaders in both the House and the
Senate asking them to consider these changes. To date, they have not agreed to
any bipartisan effort to reduce PERS costs.
The
Democrat alternative appears to rely on provisions for higher taxes.
Governor
Kate Brown had declined to express her support or opposition to Measure 97 for
several weeks, even though she apparently was making plans to spend the money. She
has now endorsed the Measure that was formerly known
as IP 28. That measure will raise an estimated $6 billion per biennium by
raising taxes on certain businesses organized as C-corporations.
Measure
97 was initiated and introduced by Our Oregon.
In
one of the aforementioned articles by Ted Sickinger, that organization’s
executive director is quoted as claiming that the multi-billion dollar measure
is in no way connected to the pending PERS funding crisis. This allegation by
the former State Representative appears at best out of touch with reality,
given the impending projected $2.5 billion biennial increase in PERS employer
contribution costs.
Proponent
of Ballot Measure 97 further claim that if the measure is approved by voters in
November’s general election, the $3 billion per year in new revenue will be
spent funding Oregon's schools,
health care and senior services. This statement is
essentially a false promise.
Legislative
Counsel (LC), the team of attorneys that advises the members of the Legislative
Assembly and performs the drafting of all legislative bills, has weighed
in on the matter. Despite the claims being put forth by the
Measure’s proponents, LC emphatically stated that the Legislature can spend its
general fund revenues “in any way it chooses,” and its members are “not bound
by the spending requirements” set forth in the Measure and can “simply ignore”
them.
Nevertheless,
state Democrat political leaders are ignoring the clear and concise opinion by
LC. They are refusing
to change the voter pamphlet statement in support of the measure,
even though that statement appears to be obviously misleading.
According
to this
recent article, Our Oregon has raised $1.5 million in
support of the Measure, consisting of two equal $750,000 donations from the
Oregon Education Association and Service Employee International Local 503.
Opponents of the measure have thus far raised over $5 million.
Oregonians
may expect to be bombarded with advertisements both in support and opposition
of Measure 97 over the next several months. Voters should keep in mind that
within the next four years, nearly 40 percent of the new tax revenue will be
required to pay the projected increases in PERS costs for schools and state
government agencies. Much of the remaining portion of the new tax revenue will
be required to fund already
negotiated increases in state public employee salaries.
I
believe the more favorable alternative is for legislators to solve the growing
PERS deficit by enacting common sense reforms. We are encouraged by well-respected
legal opinions suggesting that several of the Republican proposal may very well
withstand the scrutiny of our court system.
Please remember--if we do not stand up for rural Oregon, no one will.
Best Regards,
Doug
Senate District 28
Email: Sen.DougWhitsett@state.or.us I Phone: 503-986-1728
Address: 900 Court St NE, S-311, Salem, OR 97301
Website: http://www.oregonlegislature.gov/whitsett
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