By The Register Guard Editorial Board
Gov. Kate Brown says she is not willing to kick the PERS can down the road any longer.
But her plan for rescuing PERS would do just that. A generation of students would pass through our public schools by the time Oregon’s public pension crisis was fully resolved.
That drawn-out solution depends on future legislatures and governors remaining committed to Brown’s strategy. And while Brown focuses on schools, the state and local governments will continue struggling with their ever-growing obligations to the Oregon Public Employees Retirement System.
As pension costs climb, schools and agencies too often are forced to cut jobs and reduce services so that savings can pay for PERS. Fully funding PERS will require meaningful reforms, including the option for public employees to make a complete switch to a 401(k)-style plan.
Brown refuses to go there. She talks big but mostly settles for the status quo, while raiding SAIF and individual taxpayers for nearly $1 billion and asking only slight concessions from public employees.
Her choice of targeting the semi-public State Accident Insurance Fund is ironic. SAIF is so well-managed that it has built strong reserves against catastrophic events while keeping workers’ compensation costs relatively low for all employers, whether public or private.
SAIF’s stability is what PERS should be, yet Brown’s suggestion to grab up to $486 million in SAIF reserves would undercut that stability. The Legislature raided SAIF once before, in the early 1980s. Customers responding by fleeing — who trusts an insurer whose reserves live or die on the whims of lawmakers? — and SAIF endured years of turmoil.
The business community rightly expects long-term PERS reforms, not a short-term but expensive attack on businesses. Those hefty SAIF reserves derive from premiums paid by employers and the investment earnings on those premiums, enabling SAIF to help Oregon lead the nation in returning excess premiums to employers through dividends.
In her plan for funding PERS, Brown did offer nuggets worth examining:
- Take all but $100 of each family’s income tax “kicker” refund next year. Oregonians love their kicker, and it is one way of controlling state spending. Losing part of the kicker will mean $400 million to $500 million not spent in local economies. However, Brown makes a reasonable case for shared sacrifice by all Oregonians to fix PERS.
- Ask current public employees to accept slightly lower pensions by diverting some of their retirement savings into propping up PERS now. Public employee unions went ballistic about that aspect of Brown’s plan, but the impact on future retirees would be small. Meantime, every dollar contributed to stabilizing PERS is a dollar invested in keeping current jobs in existence.
- Direct revenue from the state’s capital gains and estate taxes to pay for PERS instead of government services. Brown’s rationale is that the revenue is a windfall for state government because the receipts are unpredictable. However, the competition for all state money is intense now. It will be fiercer when the next economic downturn arrives, even though the state has diligently built up its rainy day funds.
Even if all of Brown’s good and not-so-good ideas were implemented and future legislatures never wavered, which is unlikely, those steps would take at least 14 years to stabilize the pension system. And for the most part, only schools would benefit under her plan.
PERS covers more than 900 public employers, charging them a percentage of payroll based on their projected pension obligations. Starting July 1, the City of Eugene will pay up to 25 percent of its payroll for PERS. For the Eugene School District, that top rate will exceed 26 percent. For EWEB, 30 percent. For South Lane County Fire and Rescue, 35 percent.
The top rates are even steeper for Douglas County, 38 percent; Douglas County Fire District No. 2, 45 percent; and the tiny town of Huntington on Oregon’s eastern edge, 64 percent.
And in two years, the rates will go up again, and then again, until PERS is fully funded.
Some legislators have a solution worse than Brown’s: Give PERS more time to become fully funded, similar to lengthening a mortgage so as to lower the payments. That would slow the rate increases but drive up the costs.
Oregon needs real solutions before the pensions of retirees take away even more jobs from today’s workers.