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Oregon PERS Far More Costly Than Washington Pension System

Oregon PERS Far More Costly Than Washington Pension System

Analysis by PERS Shows that SB 822 Leaves Oregon Schools Struggling with High PERS Costs Through 2029

Nothing is more important to the outcome of the current legislative session – and to the future of education and other public services – than how the Legislature and Governor resolve Oregon’s PERS crisis. PERS costs for school districts, cities, counties and other public employers is on a trajectory to skyrocket next year and remain high for the next two decades. School districts rates next year will average 26.7% of payroll. The increase for the upcoming school year equals $200 million, the equivalent of about 2224 teaching positions. 

The source of Oregon’s PERS crisis is a costly and poorly designed pension provision called “Money Match” that delivers windfall retirement benefits to Tier 1 pensioners. About half of public employees retiring today retire under “Money Match.” The other half retire under a standard defined benefit formula that is similar to pension programs in other states, is fair to employees and taxpayers and is not the primary source of Oregon’s problem.

Under “Money Match” the PERS Board credited employee retirement accounts with 20% investment returns in market booms in the 1980s and 1990s and guaranteed at least an 8% rate of return even during market crashes in 2001 and 2008. As a result Oregon’s pension liability is unusually large compared to the size of its economy. In fact, Oregon owes the same amount to current and future retirees as Washington, but Washington’s economy is twice the size of Oregon’s. Not surprisingly, Oregon school districts and other public agencies will pay twice as much for pensions next year as their peers in Washington State. For schools, that difference equals $750 per student.

The good news is that there is a consensus among key policymakers that PERS needs reform, and a number of proposals are being considered.  Monday’s issue of The Oregonian compared reform proposals offered by the Governor, the legislative Ways and Means Co-Chairs, and the Oregon School Boards Association plan, supported by legislative Republicans (SB 754). Check it out here.

We applaud the Governor and legislative leaders for addressing PERS this session. It’s a difficult issue that requires a balancing of values: fairness to employees, retirees, and taxpayers; immediate relief for schools and other public services; long-term sustainability of the system; and legality. With the proposals on the table, we’re off to a good start.

But to make the PERS system secure for retirees in the long-run and to put schools, human services and other public investments on stable footing the solutions must match the problem. In that respect, reforms must address Oregon’s unusually large pension liability and be fair to employees by going after the source of the problem: “Money Match” benefits, pension “spiking” and other anomalies that have made the system unsustainable. On that front, SB 754 is the proposal best designed to actually solve the problems Oregon has with its system.

Implementing the provisions of SB 754, or variations on them, will make the system secure for retirees in the long run, ensure that our limited school dollars are going to support students and allow Oregon to invest in critical human services and public safety programs.

Check out the Oregonian article to review the various proposals, see how they impact the PERS liability, and see what they mean for schools and other public employers.

Culminating more than a decade of planning, Governor Kitzhaber and the Oregon Legislature made their commitment to finance Oregon's share of replacing the I-5 bridge across the Columbia River. Last week’s signing of HB 2800 represents a major victory for Oregon workers, Oregon businesses, and all Oregonians who depend on a safe and efficient transportation system to move themselves, their families, and the goods and services they rely on.

The new bridge will create thousands of construction jobs in the near-term, thousands of permanent jobs in the long-term, and will replace one of the oldest and most unsafe structures in our region with a modern, earthquake-proof bridge carrying freight, cars, light rail, bicycles, and pedestrians.

House Bill 2800 was shaped by a joint committee in early February. The legislation includes several “triggers” or safeguards that place conditions on the release of Oregon state funding for the project. These triggers include: 1) that Washington commit its state funding contribution, 2) that the Oregon State Treasurer reviews traffic and revenue projections produced through the Investment Grade Analysis and the project’s finance plan, 3) that the project receive a general bridge permit from the U.S. Coast Guard, and 4) that the Federal Transit Administration submits a New Starts grant for $850 million for congressional review.

The work is not done. Now it’s up to Washington to share in our commitment. Please contact your peers in Washington State and ask that they do their part to finance this critical regional transportation priority.

The Ways and Means Co-Chair’s budget includes a significant increase in funding for education, as does the Republican budget. There is also significant movement on the policy front.

The Legislature’s education committees have been hearing a number of education proposals endorsed by the Oregon Business Plan to help students achieve greater education attainment. A bill to coordinate postsecondary funding, HB 3120, is under development in the House Higher Education Committee. Another, SB 270, to authorize independent boards for our largest universities, is going through hearings. HB 2013, to restructure early learning programs, has had its first hearing. The early learning budget, which calls for substantial funding increases, will be taken up in hearings on the Governor’s overall transformation budget for education.

Two weeks ago the Joint Chairs Subcommittee on Education heard and praised presentations from Rudy Crew, Oregon Chief Education Officer, and Ben Cannon in the Governor’s Office, on the need for outcome based budgeting and on proposals to make strategic investments in four specific program initiatives: 1) improve literacy outcomes for children in the early grades, 2) better recruit, prepare, and develop teachers, 3) increase the output of students proficient in science, technology, engineering, and math (the STEM disciplines), and 4) help more students aspire to and access postsecondary education. The literacy, postsecondary access, and STEM proposals are contained in HB 3232. The teacher development proposal is in HB 3233.

A separate STEM bill, HB 2636, proposed by the Oregon STEM Employer Coalition and advocated in the Business Plan, has passed out of committee and is now in Ways and Means for alignment with the strategic initiatives in HB 3232. The coalition STEM bill calls for creating a STEM Investment Council to drive strategic investment in pursuit of two goals to be accomplished over the next decade: 1) doubling the percentage of 4th and 8th graders proficient and advanced in math and science, and 2) doubling the number of Oregon STEM postsecondary graduates.

Next school year, PERS will cost school districts an additional $200 million. That's the equivalent of employing 2,224 teachers.  Experts predict that PERS costs will continue to rise for years.  

The problem arises from Oregon's unique "money match" PERS program that enables many employees to earn more in retirement than they did while working. The result is a very expensive system that, as a share of our economy, is the third most costly in the U.S.       

As the Governor and legislators wrestle with solutions, it's important to understand the nature of the problem.

Watch this short video, prepared for the Oregon School Boards Association and narrated by economist John Tapogna, to learn about how we got here, and what will happen if we don't fix the system now.  

Replacing the I-5 bridge across the Columbia River is our biggest opportunity to create thousands of Oregon jobs in the near term and to enhance our export-based economy as a job engine well into the future.  Underscoring that point, the Oregon House passed HB 2800 last week on a 46-10 vote to authorize Oregon’s share of the funding and to build in investment safeguards.

As HB 2800 moves to the Senate, policymakers have the opportunity to create 4,000 jobs annually by 2030 as a result of the increased flow of people and goods in our region, and thousands of construction jobs in the near term, where workers have seen unemployment rates of 25-35% for the past four years. 

Beyond jobs, replacing the bridge addresses a range of other vital issues, from traffic safety to the seismic vulnerability of the present bridge to the importance of improving local and interstate commerce flow at what is now the greatest bottleneck on all of Interstate 5.

HB 2800 is also a great investment.  It leverages only 1/10th of 1% of Oregon’s annual transportation dollars ($28 million per year out of Oregon’s annual transportation budget of $2.5 billion) to receive a new $3.5 billion bridge with billions in outside funding that will relieve congestion, improve safety, ease freight movement, and withstand earthquakes. 

Without a new bridge, the cost of truck delay on I-5 will increase by 140 percent to nearly $34 million by 2030, and the bridge will be rendered completely inoperable in the event of a major earthquake.  

We've been talking about building this bridge for nearly two decades.  The time for talk is over. 

From Tim McCabe, Director, Business Oregon:

As we enter 2013 and the upcoming annual Legislative session, I look forward to building on our agency's 2012 successes. We are strongly supportive of the Governor's proposed budget and the 10-year framework approach to funding the state's most important needs.

The Governor's proposed budget includes increased investment in innovation, workforce training and infrastructure development. Our innovation efforts, through such vehicles as Oregon InC and its key strategic research centers, have already helped establish dozens of young Oregon companies and helped hundreds of existing Oregon companies innovate their products to grow.

The budget also allocates additional funding for the Business Expansion Program (BEP) and the Governor's Strategic Reserve Fund (SRF), which will help keep globally-competitive companies growing here in Oregon.

Finally, the Governor has proposed a significant recapitalization of the Special Public Works Fund administered by the Infrastructure Finance Authority (IFA), which will help many rural Oregon communities meet their critical infrastructure needs.

This budget is very supportive of our programs to help businesses grow and help communities develop critical infrastructure. Now we look forward to working together with the Legislature as we begin the 2013 Legislative session.

In 2011 the Oregon Business Plan and its partners supported SB 766 to designate regionally significant industrial areas that would be protected from conversion to other uses, receive expedited permitting and be targeted for infrastructure investments. The first two areas were designated in the fourth quarter of 2012.

An update from Cover Oregon, the Oregon Health Insurance Exchange. The Oregon Business Plan and its partners called for a health insurance exchange in 2007, and worked with the Governor and legislature to establish Cover Oregon in 2011 and 2012. Oregonians will be able to shop for insurance on the exchange beginning fall of 2013.

In his State of the State speech today, Governor John Kitzhaber invoked theOregon Business Plan and its goals for Oregon: raise per capita income above the U.S. average by 2020 (currently 8-9% below), help the economy create 25, 000 new jobs per year, and reduce the poverty rate to 10% by 2020 (currently at 14%).

• Fix PERS. 
• Invest Wisely in Education. 
• Build the Bridge.

• Savannah Loberger, a Hillsboro High School Student, telling us what really matters to kids and asking for greater support for STEM education. 
• Senator Peter Courtney focusing us on the importance working across the aisle and replacing the I-5 bridge between Oregon and Washington.  
• Dr. Rudy Crew outlining his vision for improving public education in Oregon.
• The Governor outlining his 2013-2015 budget and its investments in education and economic development.
• An animated video from Epipheo describing the connection between a strong economy and stong schools. 

The exemplary work the Oregon Legislature has just completed in its one day special session could well result in 12,500 new high-paying jobs by the end of the decade (read our earlier message about this opportunity here).

Oregonians owe a great debt of gratitude to our Governor and bipartisan Legislature for stepping up and taking advantage of an extraordinary opportunity for our state.

By committing to retain the corporate income tax policy currently in place, Oregon is enabling Nike, our state’s largest headquarters company, to commit to a substantial expansion of its operations here over the next decade.

This is incredibly good news for schools, community organizations and the many other businesses that will benefit from this expansion (Learn more about how high wage jobs benefit our communities here).

The fact that the Governor and Legislature were willing to act so quickly on this opportunity speaks volumes about the state’s long-term commitment to growing good jobs.

Kudos to our elected leaders.

Governor Kitzhaber and the legislative leadership gave a ringing endorsement to the core vision of the Oregon Business Plan with the announcement Monday of a special one-day session this Friday to adopt tax legislation that will encourage traded-sector companies to stay, locate, and grow here.

The concurrent announcement that Nike, Inc. could add thousands of Oregon jobs in the next few years is a ringing endorsement that the policy works.

The Governor will ask the special session for a law assuring companies committing to significant long-term investments in Oregon that current corporate tax policy will stay in place over the same term. That will apply specifically to companies that plan to create at least 500 jobs and can commit to at least a $150 million expansion plan that takes place within five years.

This is a win-win step. Companies know they can make major job-producing capital investments here assured of stability in the single sales factor corporate tax policy. Oregon secures jobs that buoy local economies and generate additional revenues for schools and other public services.

This assurance is important to Nike, Oregon’s largest headquarters company, as it prepares to execute plans that could make a significant addition to well paying jobs in the state.

An analysis provided by ECONorthwest for the Oregon Business Plan suggests that an additional 1,000 traded-sector jobs generates 1,700 local jobs among suppliers and service businesses, as well as $23 million in state and local revenue.

These economic ripples illustrate the central vision of the Oregon Business Plan: encourage the growth of innovative, sustainable and globally competitive traded-sector industries. The sales dollars that they bring in sustain payrolls, local suppliers, and local merchants and service providers. This growth, in turn, generates additional public revenues to pay for education, public safety, and other vital services.

The single sales factor tax policy is complex, but its impacts on job growth are important. For companies that operate in many states, a key tax issue is how to apportion profits among those states for tax purposes. Oregon’s policy, adopted in 2001 and accelerated in 2005, rewards companies that employ and invest in our state and that sell their products outside our borders. In contrast, those that sell into the state, but have little impact on the local economy pay more.  It is smart policy, which is why it has had such strong legislative support.

For more information about this proposal go to:  Governor Kitzhaber's Page