So is PERS fixed?

by Dan Lucas

After Gov. Kitzhaber successfully shepherded the five bills of the “grand bargain” package through the Legislative special session in early October, he declared that any further PERS reforms were “off the table.”

Senate Bill 861 in the special session and Senate Bill 822 from the regular session that ended in July were passed with the intention of reducing the PERS unfunded liability by about $5 billion — primarily by reducing cost of living increases. These PERS reforms passed this year helped to bring the PERS unfunded liability down to around $11 billion.

The reason that Gov. Kitzhaber and the Oregon Legislature were concerned with the PERS unfunded liability was because it was causing the PERS employer contributions to grow at all levels of state and local government in Oregon, including school districts. That left less money for classrooms, firefighters, police and critical social services.

For example, in its current budget, the Salem-Keizer School District notes that “The District’s largest expense, personnel (approximately 63% of total expenses for all funds) continues to increase year after year given association contractual agreements and PERS obligations. The retirement liability for PERS is considerable and is a continuing drain on future resources unless measures are passed such as Senate Bill 822 to mitigate this.”

The passage of SB 822, as well as a 1.9% PERS rate increase “collar” (mechanism to gradually phase in needed increases), allowed the Salem-Keizer School District to reduce its PERS rate “down from approximately 31% to 27% of payroll.”

Presumably the special session’s SB 861 will further help reduce the school district’s PERS rate.

Paying more than 25% of payroll just for non-Social Security retirement pensions may seem steep — it’s only an average of 3.7% in the private sector — but it would have been much worse if not for some courageous PERS reforms back in 2003. A 2011 report on PERS by the City Club of Portland noted “The Legislature’s 2003 reforms addressed many pressing problems, placing Oregon in a better financial position than many other states and on course to a future where public employee retirement benefits are both adequate and affordable.”

Although the 2003 PERS reforms made PERS much more sustainable for retirees hired after 2003, it didn’t address the major cause of the PERS unfunded liability. The 2011 City Club of Portland report pointed out “the generous, often excessive, benefits promised to the 250,000 public employees who joined the system before 2003 continue to burden PERS, and there are inadequate measures in place to protect PERS from the inevitable variability in investment returns.”

The remaining $11 billion PERS unfunded liability will continue to quietly sap the budgets of all levels of state and local government in Oregon, including school districts. Additionally, if the courts reverse any of this year’s PERS reforms it will further increase the burden of the PERS unfunded liability. The first of the legal challenges to this year’s PERS reforms has recently been filed with the Oregon Supreme Court.

Ultimately, it will be the future budgets of our school districts and state and local governments that will determine if PERS is indeed fixed.

To read more from Dan, visit www.dan-lucas.com