PERS decision will cost Oregon more than $1 billion

Sen Doug Whitsett

by Sen. Doug Whitsett

Cost of Oregon Supreme Court reversal of 2013 PERS reforms will be well more than $1 billion – “Not a single one of those dollars will go towards hiring teachers, police officers, librarians, paving roads or paying for any other public service. None of the money will make its way into the classrooms or towards the improvement of needed services at the local level.”

Much of my decade of service in the Oregon Senate has been as a member of the budget-writing Ways and Means Committee. In that time, I’ve developed a good understanding of the state’s budgeting processes and the ways in which the delivery of public services are funded and carried out.

Over the last decade, it has become increasingly obvious that one of the biggest factors that prohibits adequate services at the local level is the ongoing cost of the state’s Public Employees Retirement System (PERS). A decision made last week by the Oregon Supreme Court will only serve to complicate the efforts of local officials to provide quality levels of services to their constituents.

PERS has already created enormous future liabilities for state and local governments, as well as for all Oregon school districts. Those liabilities are to be paid by a combination of the investment returns on the PERS Trust Fund and by Oregon taxpayers.

The obligation for taxpayers to make greater PERS funding contributions is inversely proportional to any decreases in the PERS Trust Fund investment earnings. Any reductions in the Trust Fund earnings must be made up by employer contributions, which are funded by taxpayer dollars.

According to Oregon law, the PERS contracts, and the Oregon Supreme Court, it is the Oregon taxpayer that is ultimately responsible for paying those immense liabilities.

In 2013, the Legislative Assembly, in regular and special session, passed PERS reform legislation that significantly reduced that future tax liability. The enactment of those reform bills served to reduce PERS cost to taxpayers by more than $1 billion per budget cycle.

However, the Oregon Supreme Court determined last week that most of the Legislative Assembly’s PERS restructuring was unconstitutional.

The Court ruled that retroactive changes in bargained-for cost of living adjustments violated the provisions of the Oregon Constitution that prohibit legislative changes in existing contracts. That cost of living provision made up more than 90 percent of the PERS savings that would have resulted from the 2013 legislation.

Not all of the Court’s decision was bad news for Oregon taxpayers. It did uphold the constitutionality of parts of the 2013 legislation. The Court allowed the elimination of income tax refunds to PERS recipients that live outside of Oregon and that do not pay Oregon Income taxes. It also allowed the Legislature to make future reductions in cost of living adjustments

However, the unanimous High Court decision wiped out more than $1 billion in biennial PERS cost savings. It also requires the public employers to repay PERS recipients for their reduction in pension payments during the past two years.

The total costs of the Supreme Court decision are still being calculated.

The Court-mandated repayments to PERS retirees will not affect PERS rates during the next two years, because the reimbursements will be paid from a PERS reserve account. The more than $600 million that is currently in that reserve account will more than cover the expense of the cost of living reimbursements.

However, both the increased cost of PERS obligations, and the cost of replenishing the PERS reserve account, will come due during the 2017-19 budget period.

The non-partisan Legislative Fiscal Office estimates that the cost increase for that budget period will be well more than $1 billion dollars. About $360 million will be charged to school districts, about $420 million to local governments, and the rest will be paid by state employers.

Unfortunately, most of that enormous cost will continue in each future budget period.

Not a single one of those dollars will go towards hiring teachers, police officers, librarians, paving roads or paying for any other public service. None of the money will make its way into the classrooms or towards the improvement of needed services at the local level. What this ultimately means is that Oregon taxpayers will be required to pay more taxes without the corresponding tradeoff in increased services.

Our system of government is structured around three co-equal branches. The Legislature writes the laws, the Executive Branch is charged with implementing them, and the Judicial Branch is tasked with making sure that they pass constitutional muster. But in this case, the good-faith effort to reduce the growing costs of PERS pensions by the Legislative and Executive branches has been overruled by the Judicial Branch.

The consequences of that decision won’t be felt immediately at the local level. PERS employer contribution rates for cities, counties and school districts are likely to remain unchanged for the 2015-17 biennium. However, the 2017-19 biennium will present myriad challenges for local officials, as well as Legislators hoping to balance budgets based on existing obligations and the growing demand for more services both locally and statewide.

Make no mistake–almost all of the cost will be borne by Oregon taxpayers. It will come either in the form of higher taxes, reduced services, or some combination of the two. The High Court has spoken, and no amount of Legislative tinkering will be sufficient to undo the $1 billion cost of last week’s Court decision on PERS.

Senator Doug Whitsett is the Republican state senator representing Senate District 28 – Klamath Falls

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Posted by at 07:15 | Posted in Oregon Supreme Court, PERS, Public Employee Unions, Public Employees Retirement System | 22 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Bob Clark

    Here’s an idea. Allow coal, oil and natural gas export projects to go forward and become commercial; and tax them on a per unit shipment basis. I think you could easily raise $100 million or more in these new revenues; and use this new stream to pay down this one billion dollar hole over the next ten years.

    Democrats get their carbon tax, Oregon’s economy boosts its exports and economic activity, and the exports displace mostly other fossil fuel supplies in their countries of receipt (no real impact on CO 2 emissions globally). I believe Wyoming and Montana Powder River basin coals have such a cost advantage over other world coal supplies an export tax levied on them at certain levels would not render them uncompetitive.

    Of course the Luddites have their handiwork called coal dust. But even solar panels and electric battery manufacture have their negative externalities.

    • Eric Blair

      Yes, Luddites, because coal dust is so good for us and our children.

      Of course almost everything has negative externality Bob. But that doesn’t make them equal. Some negative externalities are worse than others.

      • Bob Clark

        Urbanites are probably breathing in more metallics and other unearthed materials than those poor children down by the Railroad track. Lithium as in electric batteries can do some serious things relative to coal dust, but I am not seeing or feeling much effect from either even if their use is increased.

        I live within a mile and half of rail road tracks carrying such materials but I don’t wake up in a sweat about it.

        You’ll most assuredly survive these exports. I know you’ve got to have some constitution; or maybe not; in which case, something else will probably get you instead.

        • DavidAppell

          “You’ll most assuredly survive these exports.”

          So you think coal dust is innocuous. Where is that proof, Bob?

    • DavidAppell

      Many of us also care about CO2, which is warming the planet. Don’t you care, Bob?

      • Bob Clark

        Hi, David. You sound kind of cheerful, and what a pleasure. But any way, as I explain above most of these fossil fuel exports would most probably be displacing similar fossil fuels from other suppliers. I think this most probable for the coal exports because we are talking some of the lowest cost coals available in the world, that being Powder River Basin coals.

        I am rather agnostic as CO 2 emissions for a number of reasons. One, government particularly state government has shown dismal results in its efforts in reducing CO 2 emissions despite the head lines. I can cite for instance a renewable fuel terminal heavily subsidized by the state of Oregon went bankrupt and now is an oil export terminal. Moreover, the biggest gains to date in flattening CO 2 emissions in the U.S came through free market forces, namely, the displacement of coal in generation by lower emitting and cleaner natural gas.

        Moreover, I fear much more the negative effects of expanded government control over individuals and enterprise than I do the perceived influences of CO 2 emissions.

        In my own personal life, I avoid almost always driving my car if the trip is not over 2 miles, walking instead. So, I try to add some balance against putting more CO 2 in air. But this is on a voluntary basis, not requiring the draconian, often backfiring methods of top down government.

        I will also note the City of Portland Sustainability Bureau actually proposed a tax of sorts on the proposed export of propane. And so, in the same vane I propose helping the children by generating new monies for their education through added economic activity even though it carries some headline risks.

        In the long course of history, the steam engine powered by coal and then combustion engine powered by fossil fuels allowed the human specie much material well being which then begat longer living human beings. As a famous Lord in England is recently quoted in the Wall Street Journal: If man is to reduce carbon dioxide emissions and thereby possible effect on global warming, it is natural evolution of market efficiencies through innovation which will lead to such; and very little so because of expanded government controls.

        • DavidAppell

          Bob: CO2 is a strong greenhouse gas, whether you are “agnostic” or not.

          We do not need to be emitting any more of it. Coal itself should be banned even without regard to its CO2 emissions — it is a filthy fuel that kills people, wildlife, and harms ecosystems.

          Do you just not care that it kills people?

          • guest

            SNOOK! Up in the sky, it’s a nerd, it’s a plane? No, just another jet Appellplane contrail-ling all snorts of exhaustive evidence countenanced by a self ordained scientific guru and master beater over the brilliant mind of Chuck Wiese.

        • DavidAppell

          Bob wrote:
          “Moreover, I fear much more the negative effects of expanded government
          control over individuals and enterprise than I do the perceived
          influences of CO 2 emissions.”

          So given a government that spies on you, notes all your phone calls, taps into you Internet traffic and your very movements via cell phone, you think your biggest threat is a change in the source of the electricity for the wall socket into which you plug your toaster.

          Yeah, that makes a lot of sense, Bob.

  • thevillageidiot

    “Make no mistake–almost all of the cost will be borne by Oregon
    taxpayers. It will come either in the form of higher taxes, reduced
    services, or some combination of the two.” guess you will have to be one of the first to lose your seat in the senate since you will not be able to buy votes ( reduce services and increase taxes) unless you have a magic wand that will convince people that both are good for them and you should remain in office. this will affect all the politicians since they all buy votes by trying to keep taxes low or increasing services. Perhaps if you were not so interested in buying votes the state budget would be done by now and all of you would be back to work producing revenue for the state. and there would be no need for a session every year. BTW maybe you should eliminate all elected officials from the PERS gravy train. elected officials may get payed from tax dollars but not really employees of the state. This would apply to the judges as well.

  • Jonathan

    “Make no mistake–almost all of the cost will be borne by Oregon taxpayers. It will come either in the form of higher taxes, reduced services, or some combination of the two”

    A losing attitude. A third alternative is to go to work to find efficiencies in Oregon government, so that services can be maintained without raising taxes. It’s not hard to think of possibilities. My favorite (and probably the biggest) is administrative bloat in Oregon K-12 schools. Especially since the Oregon School Boards Association was one of the biggest drumbeaters for the ill-considered PERS “reforms” that were struck down by the court.

  • Max

    A good idea here would be to tax all private sector workers a 3% PERS tax to help pay for the shortfall so we are not taking away from the classroom. These underpaid civil servants deserve a nice pension…if we all just chipped in 3 cents on the dollar they could have it – and then some.
    Don’t be greedy…help the needy…3 cents won’t hurt anyone.

    • Jonathan

      Actually, it would cost about a half-cent on the dollar income tax surcharge — not 3 cents. If you’re going to make snide proposals, at least get the numbers right.

    • DavidAppell

      Oregon signed a contract. Why should it be able to squirm out of that contract?

  • oregongrown

    This PERS cost explosion needs to be front and center in the coming governor’s election.

    Soon we will hear “CRISIS in the Schools!!!!” CRISIS in this and that”, and that timeworn old favorite “it’s for the children!”

    Gag me!

    None of it is for the children. It IS all going to PERS. And the biggest chunk, over 85% is going to PERS Tier 1. And that is ironic because the majority of reason the Oregon government has raised our taxes, city, county, state and Metro is due to the gluttons in PERS Tier 1.

    And the Arts HEAD Tax in Portland is just another example of how twisted our filthy government is; The reason they say they need money, in every single govt budget is due to PERS (85% Tier 1) and those people get to vote in LOCAL taxes on the rest of us, that they are exempt from. How warped is that? And one part of the decision stayed and that was to make our of state PERS recipients pay taxes on their PERS pensions, instead of us. Again, how warped is that?

    So if the Republicans are too ignorant to run with this PERS cost explosion and let people know just what a swindle it is, they might as well give up. This PERS debacle shows just how filthy our politicians are, that were elected by Big Government and the massive government unions, who supposedly work for us.

    The PERS court decision that was thrown out shows that even that measly “fix” of “just decreasing the increase” would have saved $5 billion. That shows just how big a monster PERS is. I have researched the PERS data, scoured the PERS database, done several different sorts, followed Ted Sickinger’s reporting since The Oregonian sued PERS to get the information made public and all of it together adds up to a massive swindle.

    How could all of these so-called “smart people,” these so-called “financial stewards” actually say they were looking out for the welfare of the people that are forced to pay these obscene pensions? They let thousands and thousands of PERS Tier 1 (Roughly 86% of 120,000 PERS retirees currently) take the upside on stock market returns in the good years and leave the taxpayers to make up the losses (all of them). How could anyone with a 5th grade education not know that it would not pencil to pay those thousands 150%, 160%, 200% of their final salary? How could these people allow all the abuses of PERS? Spiking which allows PERS members to spike their retirement pay 30%+ by loading up on overtime. Then add in Money Match, which the vast majority of PERS Tier 1 used to retire, because it doubles their money. Then add in Doulbe Dipping, of which there are over 10,000 dipping into that Gold MIne, where people get to retire with their grossly inflated PERS pension AND still work so they get both.

    Nothing about PERS pencils. The math never did work. And these Democrats (I was a voting Democrat until 2010) knew all of this and did it anyway.

    • Eric Blair

      Unions do not work for the public (or shareholders); they represent the employees.

      • thevillageidiot

        no they represent themselves. the employees are just a cash cow. Just exactly what have they done lately especially public ones. if you want to know what happens when a union in the private sector gets too greedy and quits representing the worker look no further than portland longshoreman. the two largest shippers no longer port in portland. They are now a out of a job. boo hoo.

        • oregongrown

          Re: ” if you want to know what happens when a union in the private sector
          gets too greedy and quits representing the worker look no further than
          portland longshoreman. the two largest shippers no longer port in
          portland.”

          Exactly right. And that’s another campaign soundbite. Who drove these shippers from Portland? How many millions have been ripped from the Oregon economy with that power play?

          Government unions have no place in government.

  • Jack Lord God

    I’m beginning to see how this works. Pass a law that cuts PERS. Spend the realized, but not adjudicated savings as fast as possible on things like quarter billion dollar studies of dopey CRC bridges and the like. Then when the PERS cuts get overturned, as they do like clockwork, come back to the taxpayers and act surprised.

    How many times are we going to go through this. Taxpayers got ripped off by the PERS negotiations decades ago. That’s when we got soaked. Not now, but way back then. We pay for it now, and there is nothing we can do to get out of that fact.

    What needs to happen now is to learn from it. I suggest that learning start with simple things, like pointing out the utter irresponsibility of the upcoming elimination of the kicker refund.

    Point out that the state needs money to pay for their PERS screw up. So hand over your money to the same sort of people that screwed you over last time in the PERS negotiations that got us in this place.

    • DavidAppell

      The kicker makes it more difficult to project government revenue, and plan for a rainy day. It’s an absurd device that almost no other state utilizes, and it sets Oregon back.

  • gurss who

    Perhaps one day the Citizens of this state will realize that the Constitution is also a contract between the state and it’s citizens which is also broken by the legislature with regularity and accepted by the courts and executive branch with out so much as a hint of it’s illegality.

  • Ron Swaren

    Education got out of hand with the GI Bill. How did a nation which arose within a few centuries to number one position with only a relative handful of professionals, turn into one where nearly anyone with half a brain thinks they will never have to break a sweat at their job? Even during the industrialization process there still was not that large a group of professionals. And a lot of them are just involved somewhere in the bean-counting department, making sure the government gets their cut and someone doesn’t run off with the boss’ money.

    In the final result. most people measure their economic success with one major item; their real estate worth. This doesn’t take higher education. I am not criticizing those who are actually accomplishing breakthroughs in science, or medicine, or technology. The problem has been the creation of an unrealistic dream of what a suitable working lifestyle is.

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