By Sal Peralta
For several years, I have been trying to encourage a better conversation about the cost of Oregon’s Public Employee Retirement System and its impact on public services in the state.
It’s a difficult conversation to have, because when we talk about PERS, we are discussing the retirement benefits of public employees — including police officers, firefighters, teachers, librarians and road workers — who contribute mightily to the health and vitality of our community.
The conversation becomes even more difficult in our divided and polarized political climate. But it’s one that we need to have, because doing nothing is no longer an option.
Here are the facts:
PERS rates will soon amount to 25 percent of government payrolls in Oregon, up from a historic average of 12 percent. PERS costs have more than doubled in the last 10 years, and are expected to rise to 33.3 percent of payroll by 2023.
Over the next eight years, these higher rates will cost units of Oregon government an additional $10.2 billion in taxpayer money, over and above current obligations. That doesn’t count the system’s worrisome shortfall burden, which has to be made up with general fund dollars.
Already, we are seeing a significant impact on public services.
Last month, Chemeketa Community College announced elimination of 31 staff positions, along with a 5 percent tuition increase. Several other Oregon community colleges have made similar reductions, and about half the costs associated with those layoffs are attributable to PERS.
The city of Portland recently announced 56 layoffs in its parks department. Again, PERS accounted for about half the costs. And the list goes on.
For the city of McMinnville, PERS obligations will cost approximately $9.2 million in the 2019-21 biennium, accounting for roughly 25 percent of its total payroll, and are projected to rise an additional $2.4 million the following biennium. Yet during the last two annual budget cycles, property tax assessments for the city, its main source of general fund revenue, increased only $1.1 million and $1.2 million, respectively.
On top of those PERS costs, the city must account for employee health care, step increases and other rising costs of doing business.
In practical terms, the city is facing the possibility of laying off personnel and reducing services, and/or imposing new cost-recovery fees for services previously offered for little or no charge. What I have described for McMinnville is true for nearly every city, county, special district, four-year college and community college in the state.
It’s maddening, because none of this is subject to local control. Only the Legislature, or the electorate through the initiative process, can do something about it.
All of this has been playing out at a time when we have had a strong economy generating solid investment returns. The situation will get worse if there is any kind of downturn.
By itself, the slight market downturn late last year added more than $3.5 billion to the system’s total unfunded liability, leaving it at $26.6 billion. That’s more than $15,900 for each man, woman and child in Oregon.
Unfortunately, to this point, the measures Gov. Kate Brown has unveiled in response focus exclusively on the K-12 school system.
She is proposing redirection of $1.6 billion in state revenue to the PERS fund over the next 14 years, plus an additional $683 million from temporary fee and license increases, corporate tax repatriation and fund transfers from the State Accident Insurance Fund and Oregon State Lottery. She is also suggesting a measure of employee cost-sharing, based on proposals developed by PERS Solutions, which would save about 15 percent of the unfunded liability going forward — provided it is applied to all public workers.
Protecting education is a worthy goal, but only a partial solution. The governor’s package would leave most of Oregon’s 800 government entities liable for most of the ballooning costs associated with PERS.
At PERS Solutions, where I am currently serving as acting director, we were encouraged by public comments suggesting legislative leaders were committed to doing more. I’d like to conclude by sharing two other reforms we are hoping legislators will endorse:
The first, which we are currently pursuing at the Legislature, is a so-called “workback/payback plan.” It would allow public employers to solve critical staffing shortages over the next five years by allowing them to tap retirees, but require both the employer and employee to contribute to paying down the jurisdiction’s unfunded PERS liability in exchange.
This would reduce PERS costs by more than $500 million over the next eight years. It has garnered bipartisan support, so we are optimistic it will be passed into law during the current session.
We have also filed two ballot measures to address the issue.
One of them, IP 20, would reduce employer costs going forward by a third or more. It would protect retirement benefits, but require employees to contribute 2.8 to 6 percent toward reduction of system liability in order to make that possible.
This measure would partially re-balance the 2004 decision to prevent Oregon public employees from contributing 6 percent to their own pensions — money now being used to purchase additional retirement benefits. Oregon is currently one of only two states in which employees make no contribution to their own defined-benefits pension plan.
None of these proposals promise a complete solution. But they represent actions we can take that will suit the courts, reduce costs going forward and help protect both the services we rely on and the retirement benefits of public employees.
McMinnville City Councilor Sal Peralta boasts a long record of public sector activism and serving, most recently agreeing to serve as interim director of PERS Solutions for Public Services. The organization is working to advance cost-sharing reforms to the state’s pension system. Its goals are reducing the impact of PERS on taxpayers, ensuring competitive retirement benefits and working conditions for public workers, and preserving and enhancing vital public services in Oregon. See www.perssolutions.org for additional details.