by Tim Nesbitt | OregonLive
With Senate Bill 1049, the Oregon Legislature delivered more relief than reform for the Public Employees Retirement System. Debt payments will be deferred more than costs will be reduced. But public services will be helped and jobs will be saved. So, on balance, this was a breakthrough that deserves some acclaim.
Surprisingly, passage of this bill came at a time of rising revenue and the promise of “game changing” new funding for schools. Contrary to the hopes of some that we could grow or invest our way out of the PERS deficit, the dividends of an expanding economy only served to highlight the ever-increasing claims of PERS on public employers’ budgets. Calls for action shifted from “we should be doing better than this” to “we have to do better for our kids with all that new money for K-12.” By such sequences of thought, reality worked its way into the minds of the PERS deniers.
That reality took the form of a doubling of employers’ PERS rates this decade and another cycle of increases that would have claimed the lion’s share of new revenue over the next eight years at all levels of government in Oregon – a total of $10 billion in new payments, consuming funding for 5,500 teachers in K-12 alone.
Something had to be done. In 2015, the Oregon Supreme Court narrowed the path to reform by exempting retirees from any benefit adjustments. But the court also ruled that changes to the system could be made on a going forward basis.
That left today’s public employees in the spotlight. Less than a third of the system’s $26.6 billion unfunded liability is due to benefits being earned by current workers. But that is still a substantial amount. So, a critical re-examination followed, which called into question the termination of employee contributions to the pension plan in 2004. And, top of mind for most Oregonians: Those eye-popping pensions as high as $900,000 a year, which gave Oregon a reputation for retirement extravagance in the national media.
SB 1049 addresses both of these problems. It reinstates a modest amount of employee contributions to support their pension benefits, ranging from 0.75% of pay for most of the workforce to 2.5% for those in the richer plans. And it places a cap on pensionable salaries at $195,000 a year.
These are modest, going-forward changes that will not affect benefits already earned and will still leave in place a generous retirement income for current workers. But they sparked furious opposition from Oregon’s public employee unions.
To understand this opposition, we should keep in mind that PERS is legislated, not bargained. So public employees have tended to view PERS benefits as a separate deal when, in fact, every dollar spent on PERS is a dollar that can’t be spent on wages and staffing. In private sector settings where unions have dealt with pension funding challenges, they have managed to do so by balancing the trade-offs involved for the jobs and pay of their members. But, for Oregon’s public unions, PERS had become an island unto itself, to be defended at all costs no matter the consequences.
Those consequences could no longer be ignored, however, when schools and local governments were laying off teachers and police officers in times of record revenues. In the end, legislative leaders embraced PERS reform for all the right reasons – to save services for Oregonians and jobs for a new generation of public employees.
SB 1049 is far from ideal. Although modest in its reforms, it is aggressive in its deferral of costs. This was always going to be the easiest part of any PERS “solution.” The tougher part will be coming up with the funding needed to retire the can before kicking it farther down the road.
In the end, though, SB 1049 is worth at least two cheers. First, for charting a path forward to reasonable and viable PERS reforms. Second, for relieving students in today’s classrooms from having to bear the brunt of paying for the bills rung up by their elders.
More will be needed before we can cheer the completion of the PERS reform project. That will require fixing a system that is outdated, rife with inequities and has become a barrier to progress and opportunity for future generations of Oregonians. For that, undoubtedly, we’ll need more and better SB 1049s in the years ahead.