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by Sen. Doug Whitsett (R-Klamath Falls)
Governor John Kitzhaber recently alerted the Oregon Legislative Assembly that he may “potentially” call a special legislative session on Sept. 30th His stated purpose is to further address the unsustainable costs of the Public Employee Retirement System. He said in his statement that by that date he hopes to have enough votes committed in both chambers to enact meaningful restructuring of PERS.
Senate Bill 822 was introduced by the majority party and was enacted into law during this year’s legislative session. It was allegedly aimed at addressing the unsustainable increases in the cost of public employee retirement. The bill provided only minimal PERS cost reductions.
In fact, the measure addressed less than 17 percent of the fiscal problem that was created during the past four years by increases in PERS employer contributions that were required to keep the System solvent. The remainder of the “saving” created by SB 822 simply delayed the payment of required contributions, to be repaid in later installment payments including interest.
SB 822 was not supported by any Republican members, of either chamber, because most of us considered the bill to be so inadequate as to be farcical. The PERS governing board had already signaled that they felt obliged to make changes in the earning assumptions related to the PERS trust fund that would result in significant and immediate increases in PERS taxpayer funded contributions. In August the PERS Board did take action that wiped out virtually all of the SB 822 savings.
The current average state employer is paying about 27 percent of payroll toward PERS retirement benefits. This includes the cost of pension obligation bonds, other side accounts, and the six percent of payroll that was designed by the system to be paid by the public employees. Add an additional six and one half percent of payroll, that most government employers are paying as their share of social security payroll withholding, and total taxpayer funded pension benefit contributions exceed a third of payroll.
Under the current PERS structure, many government employers will be contributing in excess of forty percent of payroll to fund the combined retirement benefits within the next two years. That taxpayer funded contribution could spike much higher if another decline occurs in the investment markets.
The unsustainable cost of public employee retirement benefits is severely limiting the budgets of all levels of Oregon governments. About 27 percent of government employers are state agencies, about 40 percent are city, county and special districts, and the other 33 percent are school districts. Every taxpayer dollar spent to fund retirement benefits is a dollar that cannot be spent to provide critical services such as teachers, police, firemen and medical care.
Governor Kitzhaber has been talking with legislative leaders, behind the scenes, in an attempt to work out another “grand bargain” to fix PERS.
Make no mistake the purpose of the “deal-making” is purely political. I am confident that nearly two thirds of the Senate including all 14 Republicans, and a significant bipartisan majority of the House, would vote in bipartisan favor of any stand-alone bill that significantly restructures the cost of PERS. However, the Democrat legislative leadership is unwilling to allow such a stand-alone bill to come to a vote.
Public Employee Unions are strongly opposed to any reductions in PERS benefits. Those unions actively opposed the reelection of several legislators that voted for the significant PERS cost reduction that was enacted in 2003. They focused their efforts on the Democrat primary elections, and succeeded in unseating Democrat legislators that supported the reform bill.
Governor Kitzhaber is attempting to broker a deal that will reduce the cost of PERS and also raise enough new revenue, through increased taxes, to keep the public employee unions from attacking incumbent Democrats. However, he must have at least two Republican votes, in each chamber, to levy new taxes.
Republicans legislators and their political supporters are generally opposed to increasing taxes. Moreover, the Oregon Legislative Assembly already has more than two billion dollars more in general fund and lottery revenue to spend, than at any other time in Oregon history. So the need for more revenue is difficult to justify.
The third feature of the “grand bargain” is a series of tax reductions for small and mid-sized businesses designed to stimulate much needed private sector job growth. The tax reductions are also designed to help offset the resistance expected from Republican supporters directed at any Legislator who votes in support of tax increases.
In a perfect world, our Legislative Assembly would simply vote to fix the PERS problem. Unfortunately, we live in a state controlled by political pressures and personal motivation. This is the partisan mine-field that the Governor is attempting to navigate.
Perhaps by coincidence, Sept 30th is also the last day of the Legislative authorization for spending to finance the I-5 Columbia River Crossing Bridge. That authorization was enacted in HB 2800 and is specifically dependent upon the state of Washington agreeing to pay their share of the construction costs. The Washington legislature has declined to finance the bridge.
A concerted effort is now being made to build the bridge anyway, and to convince the Oregon Legislature to finance the entire bridge construction project. They are asking for urgent approval of a plan that is still in the process of being formulated. From what I have been able to determine to date, the plan appears to be fiscally imprudent, very likely illegal, and potentially unconstitutional.
My political experience has taught me not believe in political coincidences. We’ll have to wait and see what Sept. 30th brings.