Oregon’s $272 million “windfall”: a fortuitous prediction indeed

Sen Doug Whitsett

Sen. Doug Whitsett (R-Klamath Falls)

“It appears that the Governor, and Democrat legislative leadership, are willing to do whatever it takes to continue to protect the bloated costs of the Public Employee Retirement System.”

For the past several months, the legislative Democrat leadership has been steadfast, in telling anyone who would listen, that they needed at least $275 million in new revenue, in order to balance the state budgets. The Republican Senate has been equally steadfast, in telling anyone that would listen, that meaningful restructuring of the Public Employee Retirement System is essential to balance state, school and local budgets.

At least two Republican votes are needed in the Senate to achieve the sixty percent majority vote constitutionally required to enact a tax. The same sixty percent majority votes are required to reduce or eliminate a tax deduction or a tax credit. For that reason, Republican Senators have refused to vote for any revenue increases until and unless meaningful PERS restructuring is achieved.

Last week, the Oregon state economist predicted that state revenue collection would increase by about $272 million over the next two years. This fortuitous prediction allegedly resolves the Democrat “steadfast need” for an additional $275 million in tax revenue. Political coincidences can and do occur, but one of this magnitude would certainly be rare.

Governor Kitzhaber then made a “take it or leave it” proposition; wherein, he would support up to $902 million in specified PERS cost reductions, in exchange for $200 million in unspecified tax increases. His offer was “on the table” for about 24 hours. Republican Senators did not accept this brief offer, because it addressed only about one third of the PERS problem, and because the Governor did not make clear who he proposes to tax.

The Governor, and Democrat legislative leadership, immediately attempted to paint Senate Republicans as intransigent, and unwilling to compromise. They stated their plans to move forward on their own with the state budgets, without additional revenue beyond the new found $272 million, and without the critically needed PERS restructuring.

Their new plan is to spend the projected $272 million increase in revenue in order to balance the budgets. They ignore the fact that this money they plan to spend is only forecasted, predicted to be available. They further ignore the fact that the state economists’ prophesies have been reliably wrong for nearly a decade. Worse, the forecasted revenue has consistently been overstated, often by wide margins.

The cost of funding the Public Employee Retirement System is scheduled to increase about $2.4 billion over six years. That enormous sum of money will be due and payable each two-year budget period into the foreseeable future. To put the huge increase into perspective, that amount of money would pay the average salary and benefits for more than 17,000 state local and school employees.

Senate Republicans are attempting to roll-back the PERS taxpayer costs by about $2 billion per two year budget cycle. Reducing the PERS costs by $2 billion would save state government more than half a billion dollars. The approximate one and one half billion dollars savings that remains would be shared by beleaguered school districts and local governments.

The primary consideration of Senate Republicans, since the beginning of this legislative session, has been focused on how to resolve the essential need for restructuring the Public Employee Retirement System.

Taxpayers have already borne the burden of one billion one hundred million dollars in PERS cost increases during the current two year budget period. That PERS cost is scheduled to increase an additional $128 million starting this July 1st and by yet another $809 million on July 1st 2015.

These enormous expansions in PERS cost are occurring even after the provisions of the partisan, Democrat-sponsored, Senate Bill 822 have been implemented. Moreover, these are not one-time cost increases. The PERS actuaries tell us that these expanded PERS costs will continue each two year budget period into the foreseeable future. These increases may be substantially worse in the event that the PERS Trust Fund continues to fail to earn its projected eight percent annual return on investment.

Senate Republicans simply believe that these unaffordable and unsustainable cost increases must be curtailed.

I strongly believe the latest revenue forecast is, once again, grossly overstated. My analysis is based in part on the fact that many taxpayers moved taxable income and capital gains forward, in order to pay the lower tax rates that were in effect for the year 2012. These financial decisions were exacerbated by the impending fiscal cliff that was looming at the time the tax decisions were made.

Fortunate for taxpayers, their taxes are not due and payable twice. The taxes moved forward for payment in 2013 will not be payable in 2014. This means that the taxes collected next year may be expected to be reduced by about the same amount as is currently being prepaid this year.

Similar tax collection numbers are being experienced at the federal level. Federal tax revenue is up nearly $100 billion this year, largely because people were attempting to avoid the fiscal tax cliff. Federal tax collectors are predicting that tax collections will be down about an equal amount next year. It is not clear why our state economists do not seem to be making similar adjustments.

It appears that the Governor, and Democrat legislative leadership, are willing to do whatever it takes to continue to protect the bloated costs of the Public Employee Retirement System. They seem to have little sympathy for the local governments and school districts that have no control over the enormous PERS cost increases that are decimating their budgets. They appear to have even less empathy for the taxpayer, who continues to pay more, for less service.

This sad and unsustainable budget reality will continue until meaningful changes are made to address the PERS structural budget deficit.

  • JacklordGod

    I attended a town hall meeting a couple of weeks ago with my state rep Phil Barnhart. It was seven surly farmer types, myself and the representative. Now Mr. Barnhart freely admitted he was a liberal Democrat, but even he seemed to admit that PERS had made a huge mistake with such decisions as guaranteeing the 8% rate of return for employees at the time.

    Like a lot of liberals, Mr. Barnharts solution to education was to throw money at it without having any idea how much we as a nation already spend on education, our ranking in per pupil spending with the rest of the world and so forth, throwing money at it was the key. That’s to be expected, he’s a self admitted liberal Democrat.

    However even Mr. Barnhart seemed to recognize PERS really needed attention. I’m sure his solution would be to raise my taxes.

    The essential nutshell of PERS is this – Bad, and possibly corrupt, decisions were made that committed us as a state to paying way more for retirement benefits than we should have.

    The solution, thus far, has been to tax a minority of the population, the self employed and “the rich” to pay for these bad decisions. In addition layoffs and furloughs, mostly in education, have also been used to cut costs to pay these benefits.

    So the current method is, “the rich”, the self employed, and our children have all borne the costs for the really poor decision making with PERS years ago.

    It is time for this cost to be shared by all. I think Republicans should support a line item tax to go straight to PERS.

    Add it straight on to everyone’s bill but make it written into law that such a tax has to be a seperate clearly lined out item on the tax form. People should know where their tax dollars are going. They should also be aware that money is being transferred to them toi others, who essentially hit the lottery on their dime.

    Maybe a few years of that would get people thinking a little bit more about who they elect and where their dollars are going.

    Of course the entire problem could be solved overnight if we simply restructured our tax code. Eliminate withholding. Have every taxpayer write out a check once a month or once a quarter for the taxes they would owe. Six months, problem solved.

  • Bob Clark

    I don’t want to trade new forms of taxation, or tax rate hikes, for PERS reform. Keeping tax rates and structures stable is job one for the GOP, if it is going to have a brand at all.
    The Federal Reserve is inflating asset prices, such as stocks, with upper (as in the German pronunciation) easy money creation. With a global labor glut and a revolution in supplying oil and natural gas, general product and service inflation is several years away if at all. So, there is some chance the Federal Reserve may alleviate retirement underfunding. It defies common sense we can just wipe away such legacy liabilities, but sometimes you get lucky. So, I would take the latest revenue forecast and settle on no new taxes. The GOP can go back to constituents saying we got some PERS reform, plus we held the line against new taxes. I think trading additional PERS reform for new taxes isn’t nearly as good a sale to the electorate.
    One reform we might consider is on the Kicker refund. The Kicker should not be tied to a whimsical economic forecast as it is now, but rather to the adequacy of reserves in the state coffers measured via the standard volatility of the last 30 to 40 years in state income tax receipts. Building reserves before kicking any out would counter the argument for the less volatile (or at least perceived so) sales tax. Of course, I would like to completely eliminate the income tax for a sales tax via constitutional amended requiring a super majority of citizens to change; but the road to such tax reformation is fraught with too much danger of ending up with both forms of taxation; boosting the ability of the Democrat/public employee fed machine to continue feathering its benefits at the expense of the majority of taxpaying Oregonians.
    So, let’s close up the legislature right now, and I would even favor giving the legislature next year off (keep your legislative pay and go on an extended vacation. The taxpayer gets to go on vacation when the legislature and government is not in session).

  • WashCoIndependents.com

    I agree with a lot of this. But the Republicans may have totally mucked up their point by holding up the hospital tax.

    I think in journalism it’s called burying your lead.

    The R’s could have just passed the Hospital tax, then posed for some great photo ops with Sue Levin from Stand for Children and the head of the Oregon State School Board Association. Focusing on and demanding PERS reforms. They’s look like the pro education fiscal moderates, and if the D’s made no further reforms, THAT becomes the mid year election theme.

    Now, the Dem’s will be the ones holding press conferences demanding that the R’s quit holding seniors and the poor and health providers hostage. And the R’s will be seen relenting to their demands, because….the hospital tax will pass before sine die

    The only thing I can think of here is that some Dem’s have privately encouraged the R’s to hold on the hospital tax to give them some ammo in the D caucus to urge more PERS reform.

    I guess it’s still too early to tell. But if this session ends with no further PERS reform, as the hospital tax is inevitably passed the R’s will just look weak and rudderless. When the real story should be that the D’s are too weak to stand up to the unions.

  • cecil91

    As a PERS retiree and a loyal member of Geezers of Oregon, I hereby denounce any attempts to withhold, detract, lessen, confiscate, siphon off, or Indian-give any portion of my pension. From my cold dead hands… well, that will happen anyway, but for now, hands off!
    Us geezers didn’t write, legislate, or vote into law yesteryears PERS statutes. We were thus granted because of legislative acts that were beyond our control, and if somebody wants to give you a good deal why would you want to tell them no? It’s easy to bash retirees as a bunch of bloated free-loaders, but I would bet the farm that not one of the bashers is a PERS retiree, and if they were they wouldn’t be bashing.

    • conservatively speaking

      An obnoxious Catch-22 attends cecil91’s overdo.

      PERS has far too many marbles, booty scooped up by sandbagging ringers in rogue games overseen by statehouse croupiers ‘quipped with ‘farce’ sight back in the 90’s.

      Crocodile tiers later, the playing field is still tilted for the house keepers…while privates yet suffer lagging support and no COLA concessions to draw any kind of refreshment from.

      Paraphrasing the what life of Riley: What a revolt’n development continues.

      • cecil91

        Yeah, I never could understand Joyce either. Or maybe you’re channeling Dylan Thomas? Either way it isn’t working.

    • JP

      Its interesting that Cecil and his geezers all of a sudden care about contract law and concepts like ex post facto and bills of attainder when it comes to their wallets/necks. Legislative acts beyond your control eh? Tell that to the GM bond holders. PERS/retirement folks are too big to fail? You had control, you could have chosen to leave “public service” and work in the private sector.

      The music has stopped. There are no more chairs. Looks like your SOL buddy. Take heart because well, there are actually no chairs at all. The ponzi scheme is up and we’re all screwed.

      • cecil91

        Yeah, somebody should “leave” a job because their retirement package is too good. LOL! A person can barely make this stuff up.

        • JP

          So its everyone else’s fault you couldn’t see the flaws in the system? That it wasn’t sustainable? How many gov employee unions used their member fees to maniplulate the system? The only people with no say are the ones paying the actual tax bill. The citizenry should uphold a flawed contract because the gov holds guns to their heads via taxes?

          All while they suffer from the same bad economy and market crash? So much for equality. So much for contract law. Gov can break the law when it wants, everyone else has to abide by those contracts. Regardless, there is nothing left, you’ll be bleeding the citizenry dry for your retirement. Many won’t take being slaves too well when they can barely feed themselves.

          • ardbeg

            “So its everyone else’s fault you couldn’t see the flaws in the system? That it wasn’t sustainable? How many gov employee unions used their member fees to manipulate the system?”

            You couldn’t see the the flaws in Enron, the auto industry, the financial industry? Typical Hive conservative! The only problem is with those I oppose. How many lobbyists for those industries used their member fees to manipulate that system??? Or do you even care? Typical Con, you only see corruption where you want to see it!

        • guest

          David Wu-who 23 skidoo poo, nummy nummy, a cecil sea sick circumfeit, yahoo!

          • cecil91

            You again? How far up ur arse did you shove that purple butt plug?

          • ardbeg

            Not positive but this guy sounds like ‘joelinpdx’- a totally in the closet GOP-‘nt that there is anything wrong with that’ here is on of Joel Cole’s likes on youtube.


          • guest

            You merit a Sigmoid Freud introspection of your recital pouch by numb other than Ardbeg Gastroenteroloquips and the crack team of ‘interns’ he blithely refers to below. .

          • guest

            and or now obscene above…

          • guest

            Former US Rep David Wu-chew is an example of pension usury. google Wu @ oregonlive.

            At the state level, take a revealing look at Oregon.gov/ Release of Retiree info…

            then remember (inflationary catalyst) COLA’s are virtually non existent with private pensions and when a retiree’s annuity exceeds their working income, that’s complete nonsense.

            An additional open sore for the private pensioner, the Oregon State Tax exemption for public retirees is flat out discrimination that should be forbidden.

  • Richard Young

    Are you aware that PERS has been earning an average of far more than 8% on the money earned by retirees over the years? To guarantee 8% is to only give back part of what was earned until recently. Before the great recession began, PERS was fully funded. It will be again if you leave it alone. In the meantime, think of some more creative and less discriminatory ways to balance the budget than to put it on the backs of retired government workers who are often old and feeble taxpayers and are earning only modest pensions. Some people make a big deal of the exceptions like the famous football coach earning tens of thousands every month. A very small percentage are earning more in pension payments than they earned at their last job. But remember if they left their money in the PERS system, it was compounding the whole time they were gone and benefitting the employers as well as the workers. Through compounding interest over the years, the retirees might well have earned more than their final salaries in pension benefit.

    • conservatively speaking

      Richard Young, witness an unmitgated nut-bawl in rawgress. The PERS systemic is rooted in greed and should be cross-bowed before the weed strangles Oregon into bankruptcy.

  • Richard Young

    The PERS holds government workers money in trust until retirement. While the money is held in PERS it is invested and earns far more on average than the 8% guaranteed to the tax paying retirees. Contributing wages to PERS is required by the employers who also contribute to the system. The PERS is like a bank except that it doesn’t invest the money for it’s own use, but instead puts it back into the system to lower the amount employers put in and to pay the guaranteed 8% interest. When the great recession hit, there was no rainy day fund to make up the loss of investment funds. But PERS was fully funded before the recession hit and will be again if left alone. Mess with it, and the lawyers will get the money while everyone else suffers. The national bank down the street has billions of dollars too. Will the legislature want to steal from them too? Only if the newspapers paint them as terrible as they paint PERS.

    • conservatively speaking

      Current PERS still sups boo coo COLAaid and remains unsustainable…while private pensions continue suffering dry mouth.

      • Richard Young

        In normal economic times the cost of living allowance (COLA) of maximum 2% is also paid by PERS investments from money earned by State employees. Private pensions are generally run by insurance companies which take a big cut for themselves. There is less money in the private system for COLAs. If the private workers negotiated a COLA like state employees, they would get it except in cases of bankruptcies. The US Constitution prevents States from welching on contracts especially retroactively and discriminatorily. How would you feel if the State contracted to pay you a certain amount for your work and then passed a law stating that the State didn’t have to pay you?

        • conservatively speaking

          You’re really sic, as in stuck-in-crap what governmentiumistas are farce feeding you, MRRA!

          • Richard Young

            How would you feel if the State contracted to pay you a certain amount for your work and then passed a law stating that the State didn’t have to pay you? I think your language might be less civil than mine is. 🙂

          • conservatively speaking

            You’ve gone ditzy doo-doo if you believe your PERS is above the fiscal scat our state is in.

            Get real and realize your love bloat cannot sail on forever w/o our ship of state keeling over, pilgrim! >:~/

          • Richard Young

            Yes, with legislators trying to take massive amounts of money from just one group of taxpayers, I can see how the ship of state might be keeling over. Seems like a less discriminatory
            solution would be more fair and more successful. It might be a good idea for poor Oregon to join most of the richer states and pass a sales tax -at least an internet sales tax, so that people would buy at more local shops rather than from Amazon with its huge buying power. Then the local economy might improve. The State sure seems to be suffering under the last decades of poor leadership -and “followership.” Take a look at Washington State with its lack of income tax. Lots of billionaires like Bill Gates and Paul Allen have their Seattle area businesses avoiding all income taxes, but providing jobs for a great many people. The economy is roaring in many places. I do hope Oregon recovers soon. It’s a beautiful State and has been for my family for five generations.

          • conservatively speaking

            Five generations…dating back to the Lost Generation? re: wikipedia.org

            Oh, my – how many progressives in that lineage supported a regressive sales tax then and now?

            In lieu of an egregiously costly trifecta of taxing taxation – how about a flat tithe for all? Isn’t that what the Holy Bible ascribes?

          • Richard Young

            A flat tithe is 10 per cent according to my understanding. That’s pretty close to what we have. It might actually work if there were not so many loopholes for large corporations and others. You are right that the sales tax has been rejected many times in Oregon. However, a state sales tax on internet sales only might be acceptable to Oregon residents.

          • guest

            “Oregon, My (our) Oregon” was not founded by socialists insurgents or any other stretch of liberal machination.

            Please, do not stand by and allow our state to be delineated by what’s left of US – and pray what’s still common sense…to be our continuing song.

          • Richard Young

            Thank you for your thoughtful reply -at least it made me think about what kind of people founded Oregon. I think the pioneers must have been seen as risk-takers. Later the industrialists came and established order, but they were risk-takers too. I wouldn’t call the founders of Oregon socialists or any other label, but I think of them as progressive and having to find solutions for lots of new problems in their new home. Surely today’s Oregonians can find new solutions to this economic problem without name calling.

          • guest

            You sound off like with a good heart at stake – alas, Mahonia HallerHaber remains inane calling and his Oregonus Pioneeria remains little more than a Plaza Strip for over the top socialism ‘tween CA and WA commandeering the entire Left Coast.