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The
compounding financial debacle within the Public Employee Retirement System
(PERS) is one of the most persistent and vexing problems facing Oregon
lawmakers. Oregon taxpayers now owe about $22 billion more money to Oregon
public employees than PERS has saved to pay for their promised retirement
benefits. That taxpayer debt computes to about $5,400 for each person currently
residing in Oregon.
The
PERS Board recently released information
on the rate increases for the 2017-19 biennium. Most public
employers are faced with paying between four and five percent higher payroll
costs just to help fund the PERS shortfall. The additional annual contribution
to PERS will increase by about $885 million. That is above and beyond what the
public employers are already paying and will amount to about $2,500 for a
public employee earning a salary of $4,000 per month.
The
PERS board is expecting similar increases for the 2019-21 and 2021-23 budget
periods. By 2021, the cumulative increase in annual PERS contribution for a
public employee earning $4,000 per month will likely exceed $7,000.
These
untenable PERS rate increases are not limited to public employees who work for
the state. They will impact nearly every city, county, school district and
special district in Oregon.
Those
local government impacts were spelled out in this
article that appeared in the East Oregonian newspaper. Public employers in the Senate district
that I represent will feel a similar crunch from these higher rates.
The
Bend-LaPine School District will see PERS contributions grow as a percentage of
payroll from 12.37 to 17.99 for its Tier 1 employees, a 45 percent increase.
The contribution rate for employees hired after 2003 will climb from 7.86 to
12.66 percent.
Community
colleges will see hikes similar to school districts. Central Oregon Community
College’s contribution rate will go from 15.08 percent of payroll to 19.09
percent for Tier 1 employees. Klamath Community College’s will go from 19.49 to
23.4 percent.
The
City of Butte Falls faces an increase from 9.55 to 13.18 percent for Tier 1
employees and a mind-numbing increase from 0.45 to 6.09 percent for its
employees hired after 2003. The City of Malin’s Tier 1 PERS contribution will
rise from 13.61 to 17.37 percent of payroll.
All
five counties located in Senate District 28 will be required to pay PERS
contribution increases ranging from 4.7 percent to 6.25 percent. Crook County
will see contributions for Tier 1 employees go from 11.8 to 16.83 percent of
payroll, Deschutes County will rise from 13.26 to 17.96 percent, Lake County
will go from 14.92 to 19.9 percent, and Jackson County from 16.1 to 21.1
percent. Most adversely impacted is Klamath County, increasing from 5.99 to
12.24, more than doubling its required PERS contribution.
Most
of the local government entities in Oregon are special districts. Not
surprisingly, they will also be hard-hit by the PERS rate increases.
Deschutes
Valley Water District’s contribution for Tier 1 employees will rise from 19.37
to 24.38 percent of payroll. Jackson County Fire District #5 will see increases
of 19.9 to 25.41 percent, and the Klamath County Fire District’s will go from 22.44
to 28.18.
Each
of these examples of Oregon public employers are expected to experience near
equal increases again in 2019 and again in 2021. Their financial situation will
be even more dire when an overdue, and near certain, economic recession results
in lower PERS investment earnings and sharply lower equity values.
Two
distinctly different methods are being advanced for solving the PERS funding
shortfall. One supports reducing the PERS funding shortfall by lowering the
costs for PERS retirement benefits. The other advocates dealing with the
shortfall by borrowing $20 billion.
This
Statesman Journal article discusses how borrowing money could
help pay off the unfunded liability in Oregon’s PERS program. Pension managers propose PERS refinance its debts by
offering $20 billion in Pension Obligation Bonds. Incredibly, Governor Kate
Brown later released a statement saying she applauds members of the PERS
Board and the Oregon Investment Council for thinking creatively about the
system's financial problems.
The
proposal to borrow $20 billion to address the PERS
unfunded liability simply shifts the burden of paying the enormous debt from
current taxpayers to future taxpayers. Worse, it adds long-term interest costs
to the future taxpayers’ burden. Even at a low fixed interest rate of 3.5
percent, the principle and interest payments over the life of the proposed
25-year bonds would exceed $30 billion.
Moreover,
borrowing money does absolutely nothing to solve the causes of the unfunded
liability problem. It would allow even more future unfunded liability to accrue
because the underlying problems that caused the PERS shortfall continue to be
ignored.
The
proposal will also serve to mask the ever-increasing costs of public employee
compensation. It will encourage granting even greater unsustainable future wage
and benefit increases.
Finally,
refinancing $20 billion in uncollateralized debt with general obligation bonds
will likely challenge the state’s credit ratings. Bonding the PERS debt may
also raise havoc with the state’s bonding capacity for other capital
construction projects.
During
my three terms serving in the Oregon Senate, I’ve written at least a
dozen
newsletters detailing the financial problems with PERS and predicting the
fiscal debacle that now faces the state, school districts and local
governments. The most
recent newsletter included
several potential solutions to the enormous PERS shortfall that were developed
by Senate Republicans. Rest assured, they do not involve paying off current debt
with future debt.
Our
Legislative Counsel attorneys have confirmed they believe at least seven of these
cost-reducing solutions are likely to survive state Supreme Court scrutiny.
During
the 2013 legislative session, I introduced 14 bills designed to reduce future PERS costs: Senate
Bill 652, SB
653,
SB
654,
SB
655,
SB
656,
SB
657,
SB
658,
SB
659,
SB
660,
SB
661,
SB
662,
SB
663,
SB
664
and SB
674.
Although some of the bills actually included concepts currently being advanced,
Democrat leadership refused to allow a single public hearing on any of them.
Instead,
they enacted a couple of “feel good” concepts that did little to reduce the
PERS unfunded liability. Subsequently, bills were enacted in the 2013 special
session “grand bargain” that would have lowered PERS unfunded liabilities
significantly. However, the features of those bills that reduced retirement benefits
retroactively were later overturned by the Oregon Supreme Court.
Senator
Betsy Johnson (D-Scappoose) and Sen. Tim Knopp (R-Bend) have now formed a bipartisan
work group that is actively seeking to apply some of the
Legislative Counsel approved cost-cutting solutions to the PERS problem. Although
they have thus far been largely ignored by the Democratic leadership in the
House and the Senate, as well as by Governor Kate Brown, I believe my
colleagues are making a good faith effort to address the causes of the PERS
cost overruns.
Failure
to deal with the rapidly compounding PERS fiscal instability will severely
jeopardize our ability to provide quality public services at the state and
local levels. It is my hope that the growing recognition of this critical
problem, and its enormous impacts, will prompt a sense of urgency to provide
sustainable, long-lasting answers. Those solutions must ensure the solvency of
the system without jeopardizing the promised benefits currently received by
retirees.
Whether
that happens in the highly partisan atmosphere of our Legislative Assembly
remains to be seen.
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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