A Generational Mistake

CascadeNewLogoBy Steve Buckstein

The Oregon Supreme Court last week struck down key 2013 legislative reforms to the Oregon Public Employee Retirement System (PERS) that would have saved taxpayers billions of dollars.

The Court in effect added some $5 billion back to the unfunded liability of the PERS system, which will now stand at over $14 billion. If not offset by new taxes or spending reductions elsewhere, public bodies such as school districts and state agencies will have to allocate even more of their budgets to pay for worker retirement benefits.

Before most Oregonians understood that the state retirement system was headed for trouble, Cascade Policy Institute published a 2001 report which concluded that “PERS is almost guaranteed to fall into steep unfunded liabilities over and over again because of its design.”

This conclusion was seconded last week when EcoNorthwest economist John Tapogna noted that “Oregon made a generational mistake in public policy, and the Supreme Court has essentially ruled that we have to live with it.” He noted, “That puts Oregon in a challenging economic position for the next couple of decades.”

The best way to keep such generational mistakes from happening again is to limit the size and scope of government so that future politicians have less control over our lives. Let’s make the $14 billion PERS generational mistake our last.

Steve Buckstein is Founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy think tank.

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Posted by at 04:30 | Posted in Economy, Government reform, Oregon Government, PERS, Public Employee Unions, Public Employees Retirement System, State Government, State Taxes, Taxes | Tagged , , , | 21 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Becca

    remember, those morons get PERS, so why would they change anything???

    • DavidAppell

      What would you change about your contractual retirement agreement?

      • .

        Affordable common $ense, cohesive with private sector logistic, Senor, d’oh who winces at such a facet. .

  • MrBill

    I think pensions are attractive to a lot of politicians because they can score points today by increasing benefits, but they’ll be long gone when the day for keeping those promises arrives. Someone else will have to keep them.

    Pensions make great political sense. They just make poor economic sense.

    • Eric Blair

      All pensions, or just overly-generous ones?

      • MrBill

        I’m not sure being over-generous is the point. the problem with PERS is it’s unsustainable.

        it would have been better to set it up as a defined contribution plan like an IRA or 401k.

        • Eric Blair

          Which, of course, is what it is now, and has been since 2003.

          • MrBill

            I believe they moved to a hybrid system in 2003 with defined contribution and benefit components. good start, but not far enough.

          • Eric Blair

            What more needs to be changed?

          • Jonathan

            You are right, it is a hybrid system. The devil is in the details. I don’t know of anyone who is claiming that Tier 3 is affecting the unfunded liability in any serious way. Do you have reason to believe to the contrary?

            Personally, if I were starting out in public employment in Oregon, I would probably opt for a pure 401-k type plan, if I had that option, to be as independent of the state of Oregon (which I wouldn’t trust) as possible.

            I believe the public colleges offer that option to new faculty; I don’t know if any other state agencies do. (And of course, the public colleges are now mostly non-state funded.)

          • MrBill

            At this time no. But having that defined benefit component gives a foothold for politicians to come in, promise increases, and eventually create the same problems with Tier 3 as we have with Tier 1.

            Again it comes down to one group benefiting politically by making promises that have to be kept by someone else. Short term it makes good political sense, but it makes poor economic sense long term.

          • Jonathan

            I very much doubt that what you say is going to happen. Ever since around 1996, the momentum has been to pare back the terms of public pensions in Oregon. I don’t see the slightest chance of anything like Tier 1 ever coming back.

            In fact, if I were starting out, as I say, I would prefer to have the option of a pure 401k type plan, rather than the current Tier 3, precisely because I would not trust either the competence or the integrity of the state of Oregon.

  • Ron Swaren

    Oregon Department of Revenue has virtually no clue as to how to go after tax scofflaws. Trust me, there are a lot of them, and also in federal taxes where the IRS says they now lose about $500 billion per year. Working in construction I also observed a lot of abuse of the unemployment system, sometimes even in collusion between the employer and the employee. A lot of people have very little in the way of scruples, when it comes to money. What this means is that people who actually do pay their taxes will have to make up for those who don’t.

  • Bob Clark

    Geez, despite three years of over 40% in total stock market gains, PERS is effectively at the same level of unfunded liability it was in 2012 (If the $14 billion number above is accurate).

    We can’t do much about past obligations, except maybe recall some Oregon Supreme Court justices replacing them with other types of politicians in black robes. But we can reform the public employee retiree system to match that of federal employees retirement system (FERS) for new state and local public employees; FERS being an employee self directed menu of passive index investment funds, combining matching investment contribution (and social security calculation inclusion). It is a lot more simple and gets the politics out of the system.

    • Jonathan

      That has already very largely been done in 2003.

    • Jonathan

      By the way, you are completely wrong about the recent stock market boom (or recovery). It very definitely has erased much of the unfunded liability. You can find this with some looking in the PERS accounting reports.

  • Jack Lord God

    A “generational mistake” is putting it lightly. Look, we all know what happened – public employee unions represent one side in a negotiation, but nobody is there representing the taxpayer, even though the government side purports to do that.

    Essentially taxpayers were left holding the bag in a negotiating process in which they had no part. Your kid stole the credit card, ran it up, and now you are left with the bill.

    Steve Buckstein is very right that there is no direct solution to this problem in the future other than limiting the scope of government so the consequences of corrupt and incompetent processes, which we must realize are endemic, are minimized.

  • Jonathan

    The recent PERS blip in the courts is not impossible to deal with. It is about 5% of the general funds budget. It can be handled by finding efficiencies in Oregon government. That should not be too hard to do, especially for the Cascade Policy Institute. It does NOT require wholesale cuts in services, nor does it require tax increases.

    • .

      Ha!

  • Darkman

    I have joined the dark economy several years ago. I only take cash for anything I do. I never report anything to anyone. I don’t care a whit about PERS as I am not paying for it…only losers who file do. Fools. Come on over to the dark side…you wouldn’t believe it!!! I have no bank account. Why would you? They don’t pay interest. Ever heard of bitcoins? They work. So do doubloons. Or about anything tangible if you need to barter. I have no cell phone they can trace…she’s from the dark side…scrambled like the eggs you eat in the morning. My onion setup is also untraceable…as is my address…and I use phony plates on my car…I have no license…no SS card anymore…changed my name…no medical history…no nothing. The man doesn’t even know I exist. What an idiot.
    ANYWAY, it is not for everyone, but for me, it works quite well. You would not believe the stuff I get away with on a daily basis…and no one is the wiser. Not a single fool knows anything about my dark life…which is totally tax free…as there is no sales tax…and I don’t pay state or federal at all….so it is a nice life….very nice.

    • Gary Hatcher

      Wow, all the benefits of society without any of the costs and you are proud of it. I bet you also criticize all those welfare cheats that are living of the goberment. Police, fire, national defense, roads and other public services all at no cost to you. You are a thief.

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