By Jeff Mapes | OPB
May 10, 2019
Oregon legislative leaders on Friday released their own plan for grappling with the financially troubled pension system for the state’s public employees — and it has some key differences from the proposal offered last month by Gov. Kate Brown.
The two top Democrats, House Speaker Tina Kotek and Senate President Peter Courtney, say their plan would dramatically reduce some of the punishing rates that public employers will have to pay in coming decades.
The pension system, commonly known as PERS, now faces a $27 billion debt that must be paid off. The Democratic leaders say they have come up with a plan aimed at reducing costs for all levels of state and local government, including public schools.
The new proposal comes as Courtney, D-Salem, is struggling to get Republican senators to return from a walkout that has prevented Democrats from passing a $1 billion-a-year tax hike on business to help fund schools. GOP lawmakers say they are blocking a quorum in the Senate in part to force big changes to the PERS system.
Brown quickly put out a statement saying that legislative leaders took a reasonable approach given the political hurdles her own plan faced.
Legislators were briefed on the new plan at a budget subcommittee meeting studying the PERS problem. It shows that the plan would keep PERS employer rates from climbing to more than 30% of payroll by the early 2020s and staying there through the end of the decade. That’s what current projections warn will happen if nothing else is done.
Kotek and Courtney say their plan would cap rates at around 27% of payroll costs in the early part of the decade. They would slowly decline to under 25% by the end of the decade.
In contrast, the governor presented a plan that focused solely on protecting school districts from higher PERS costs. Kotek quickly made it clear that she wanted to provide relief to all parts of state and local government, not just schools.
Like Brown, Courtney and Kotek call for public employees to share some of the costs of shoring up the system. However, about two-thirds of the reduction in employer rates would be financed by stretching out the period for paying back much of the debt from 2o years to 22 years.
Tim Nesbitt, a former Oregon labor leader now working with business groups on the PERS issue, said he’s pleased the legislative leaders are asking for some cost sharing by employees.
But he said he’d like to see “a little more in the category of legitimate savings and a little less in the category of deferred payments.”
Public employee unions — who are key financial backers of Democratic lawmakers — make it clear they’re opposed to any benefit cuts.
A coalition of Oregon unions released a statement charging that several of the plans amounted to illegal benefit cuts that the unions would seek to overturn in court.
“We will join any and all efforts to protect the secure retirements they have earned,” said Bruce Humphreys, president of the Oregon Nurses Association.
Under the Kotek-Courtney plan, Tier 1 and Tier 2 members, who are public employees who entered the PERS system before 2004, would have 2.5% of their salaries diverted from their individual retirement accounts into paying off the system’s debt. Workers hired in 2004 and after, who receive less-generous retirement benefits, would face a much lower diversion — just .75% of their salaries.
Workers earning less than $30,000 a year would not face these diversions.
Republicans and business leaders have long sought a bigger contribution from workers. Proposed initiatives filed by former Gov. Ted Kulongoski, a Democrat, and former GOP Sen. Chris Telfer of Bend, would divert up to 6% of worker salaries toward paying off the debt. And they’re also looking at requiring 401(k)-type retirement plans for new public workers.
Nesbitt, who is also working on the Kulongoski-Telfer measures, said he and his allies will wait to see what the Legislature does next before deciding whether to seek the signatures needed to place an initiative on next year’s ballot.
He said he hopes lawmakers more toward finding bigger cost reductions in the system. Republican legislators are making similar calculations.
Sen. Tim Knopp, R-Bend, who has long worked on PERS issues, called it “a step in the right direction.” But he said Republicans would have to weigh whether to back a plan that is far less than a “complete fix.”
Courtney and Kotek make several other proposals aimed at tweaking the complex PERS system to reduce the rates faced by school districts and state and local government.
One of the most significant is reducing the interest rates for retirees who use the so-called “money match” method of calculating their pension benefits. The money match — which allowed workers to lock in gains from the big stock market run-up in the 1990s — played a big role in sparking PERS’ financial problems.
Legislative leaders also abandoned two of the most controversial elements of Brown’s plan. They didn’t pick up her proposal to grab up to $500 million of next year’s “kicker” rebates on income taxes.
Oregon’s unique kicker law essentially gives taxpayers back some of their money when actual tax collections exceed forecasts. That change would require a two-thirds vote in the Legislature, which is politically difficult to do.
In addition, the new plan doesn’t seek to take money out of the large reserve fund held by SAIF, the state-controlled worker’s compensation insurer. That move was heavily opposed by the business community.