In this fall’s gubernatorial campaign, the candidates, and Oregonians, have an ideal chance to debate in detail the hugely expensive Public Employees Retirement System that is one of the root causes of Oregon’s protracted crisis over taxes and public services.
PERS is difficult to talk about for many reasons:
It is complex and the sums of money are so large — and pose such a staggering burden to taxpayers — that they boggle the mind.
Many PERS beneficiaries are defensive. Many critics are vitriolic.
Plus, legal decisions shield current retirees in PERS from virtually all clawbacks or cuts, so any cost-paring must come at the expense of current and future government employees.
One thing is clear, however: without PERS reform, public services in the state will continue to spiral downwards, in the classrooms, on the streets, in the parks, as tax dollars continue to be channeled into PERS when they could be better spent hiring more teachers and police.
GOP gubernatorial candidate Knute Buehler has already issued an ambitious PERS reform plan. Incumbent Gov. Kate Brown has, predictably, pooh-poohed it. Her own PERS plans amount to minor tweaks.
Buehler’s plan, on examination, might prove unfair to current government employees, or might not even save much money. Brown’s campaign has said overall government-employee compensation — pay, retirement and health benefits — is reasonable and should not be cut. But at this point, that’s not the issue. The important element now is to have a full public airing.
Oregon’s Democratic leadership over the years has been maddeningly slippery about curbing the costs of the retirement system. That’s no surprise given how heavily funded Democrats are by campaign dollars from public employee unions.
Democrats have offered some modest reforms, some of which were overturned by the courts. And with a strong hold on the governor’s office and both chambers of the Legislature, they’ve declared there’s little else of substance to be done about PERS.
Buehler challenges that assertion. It may take an outsider — that is to say a Republican — to get the message across to Oregon’s Democratic establishment that public disillusion over PERS, taxes and public services is heading toward a tipping point.
Oregon state agencies, school districts and local governments — in other words, all taxpayers — are pumping an estimated $2.9 billion into PERS in the current biennium, which ends next June 30. In the subsequent biennium, PERS will demand much more: a total of $4 billion. That’s $707 per Oregon resident in the current biennium, and $976 per resident in the next.
These payments into PERS only chip away at the unfunded liability of the system, which stands at $22 billion. That’s the shortfall between the value of PERS investments, and the value of benefits PERS members have earned up until now.
The city of Eugene has a $260 million unfunded PERS liability. The Eugene School District, $228 million. The Eugene Water & Electric Board, $129 million; Lane County, $226 million. For a Eugene family of four, the burden from those four governments alone computes to more than $14,000.
In Springfield, the school district has an unfunded liability of $113 million, the city, $48 million. Those, plus Springfield residents’ share of the Lane County liability, come to more than $13,000 per household of four.
The crux of Buehler’s plan is to move all current state employees, and as many local government and school district employees as legally possible, into a new 401k-type system, as soon as feasible. Current government employees’ PERS pension accruals for time served would be honored. But for employment going forward, government workers would probably have only a 401k plan, with the state providing a perhaps 6 percent match, Buehler said in an interview with The Register-Guard’s editorial board. The exact scope and details of the transition from PERS pension to 401k remain fuzzy.
Buehler also would cap at $100,000 the salary amount used to calculate PERS retirement benefits. That would close the door on new retirees getting six-figure annual PERS pensions, as an elite does now. He would also eliminate the use of accumulated vacation and sick leave to push up final salaries, which PERS uses to calculate pensions.
Buehler said these steps could free $1.2 billion per biennium for state government. He’d use it to hire more teachers. How much it might save local governments and school districts is uncertain. It’s unclear whether all local government and school district labor contracts require employees to accept whatever PERS system the Legislature imposes, or whether local governments and school districts might have to compensate employees for loss of PERS benefits for work going forward.
Buehler said he would refuse to sign any new spending bills until the Legislature approved “fair and legally permissible pension reforms.”
Buehler’s plan amounts to “gutting state employee compensation,” Brown’s campaign said. Imposing the salary cap in calculating PERS pensions would hurt firefighters and police who retire, the campaign said. That step, plus the elimination of vacation and sick leave in PERS calculations, would produce less than $730 million in savings per biennium, not the $1.2 billion Buehler touts, Brown’s campaign said. However, Brown’s campaign doesn’t evaluate the cost savings from shifting all employees going forward into a 401k-style plan. Furthermore, $730 million isn’t peanuts.
The departing chairman of the PERS board, Eugene financial consultant John Thomas, pointed out in a recent interview that new government employees covered by PERS under the existing program will, after 30 years of service, get an annual pension payment from the system that is equal to about 60 percent of their final salary. On top of that they get Social Security, Thomas noted.
Is preserving of that level of PERS benefit more important than putting more teachers in classrooms and cops on the beat? This fall’s campaign should help voters answer that question.