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 andremain 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 resultOregon’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.