2017 PERS rate increases: Growing cost to Oregon schools

Sen. Tim Knopp_thb

Sen. Tim Knopp

PERS rates projected to almost double in next 9 years

Salem, Ore. – Last week, Senator Tim Knopp (R-Bend) responded to the adoption of 2017 Public Employee Retirement System (PERS) advisory rates estimated to cost school districts already reeling from a $1.785 billion shortfall in 2015-2017. Bend-La Pine School District faces a 3.76% to 4.76% rate increase, and Redmond School District faces a 3.87% to 4.87% rate increase.

“These expected PERS cost increases will force school districts to lay off teachers, increase class sizes, and cut more school days,” explained Knopp. “We cannot ask our schools to shoulder an even greater PERS burden while legislative leaders continue to ignore the looming $5 billion liability local governments and school districts will be forced to pay. The 2016 session is our last chance to enact constitutional reforms before the bill for Oregon’s $5 billion PERS liability comes due.”

Without additional reforms, PERS rates are projected to continue increasing until 2024, when they would be almost double the 2015 rates. Senator Knopp will introduce legislation in 2016 to constitutionally reform PERS and save the state and local governments from a looming fiscal cliff totaling $5 billion. Possible reforms include the creation of a defined contribution plan for future employees, redirecting employee contributions, and using a market rate for money match annuities.

“The majority party already uses Oregon’s K-12 budget as a political pawn, underfunding education to pay for other bloated agency budgets,” said Knopp. “The legislature must fix PERS now and protect our greatest asset – our children and their education.”

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Posted by at 05:38 | Posted in Education, Oregon Senate, PERS, Public Employees Retirement System, State Budget | 26 Comments |Email This Post Email This Post |Print This Post Print This Post
  • HBguy

    It is no coincidence that the Our Oregon initiative IP 28 will increase tax revenue by 5.2 billion dollars.

    Even progressives are questioning the politics behind IP 28

    https://www.oregonoutpost.com/ip-28-and-the-corrupting-influence-of-money-on-the-dpo/

    • It’s nice to see that even progressives question the politics behind IP28. Just like economists of all stripes question imposing Gross Receipt Tax policies at all. Hopefully the political and economic weaknesses of this proposal will be enough to sink it.

  • David from Mill City

    PERS is a contract. From the point of view of Oregon taxpayers it is a bad contract, but it is still a valid contract. Contracts cannot be changed unilaterally. They can only be changed if both parties agree to accept the proposed change. As the employees and retired employees in Tier I and II PERS have already lived up to their side of the contract it is extremely unlikely that they will agree to a change that permits the State of Oregon renege on its side. So all this talk of “reforming” Tier I and II PERS is just a lot of hot air and posturing, that wastes time and diverts attention from what needs to be done. What we need to is for everyone to accept and acknowledge that the State of Oregon and its political subdivisions has a contractual obligation to make good on its Tier I and II PERS obligation, and then start developing ways to mitigate the impacts of meeting this binding contractual obligation.

    A starting point would be for the State Legislature to transfer all Tier I and II PERS obligations from all Oregon school districts to the State. The bulk of the funds that these districts are paying their Tier I and II PERS obligations with already comes from the State so at the monetary level there is no immediate impact to the State Budget. But it would remove one local budgetary headache and mean that more of the funds allocated to schools would make it to the classroom. And as it was a failure at the level of the State of Oregon that has gotten us in this mess it is only fair that the State deals with the impacts.

    Long term, we need to establish three things: a sound estimate of the total amount of the Tier I and II PERS obligation over its full duration, the distribution of this obligation over its expected life time and an extremely conservative estimate of annual PERS investment income over that life time. With that data it would be possible to establish a Bond based program at the state level which would spread equally the total Tier I and II PERS obligation out over its duration. This would mean that rather then a first increasing and then declining, as the recipients die, annual Tier I and II PERS obligation the state would have a consistent amount to budget. Yes, this proposal would mean that with the interest on the bonds the total amount of money expended on meeting the Tier I and II PERS obligation would be greater then the contractual obligation, but by spreading it out the impact on any single budget.

    • HBguy

      There are changes that experts said are constitutional and will save money. But Kitzhaber didn’t propose them. We could try those. And, if PERS can’t be changed for Tier I and II, the State and other agencies could negotiate contracts going forward that didn’t offer any step increases to Tier I and II employees.
      First however, the State would need to pass a statute outlawing public employee strikes and taking over all contract negotations between teacher unions and school districts. That would buffer the friction between teachers and school boards, and prevent teachers from closing schools down through strikes.
      It would be a very very very tough several years. Maybe not a great alternative to just ponying up the money, but there is an alternative.

      • Eric Blair

        Well, that probably won’t work since most employees who are Tier I or Tier II are already at the top of their steps. Unless you meant cost-of-living increases.

        • David from Mill City

          Besides, such discrimination is not likely to hold up in court. Which would mean the effected employees would get their pay plus damages and the State would end up spending more money in damages and court costs.

          • HBguy

            It’s not discriminatory if its done by contract, or for non contract personnel, the agency simply say’s that’s the top of the range. Quit if you want. The fact that those people are all tier 1 or 2 isn’t discriminatory at all. Thats just how it works.

        • HBguy

          Right now, it seems like many contracts negotiation includes adding some new top rates. Lets not do that anymore. And yes, freeze COLA’s for those who have reached top of their rates.

          • Govermentium Opposemal

            COLA bears resound like Kookaburras high up in oiled gum trees. Laughing like cuckolds, laugh as their droppings fall on the private sector having no such grounds for cost effective containment.

      • David from Mill City

        I would be interested in seeing the proposals you are referring to. I think it would be more accurate to describe them as being possibly constitutional and which may save money, as the constitutionally will be determined by the courts, and the cost of the litigation needs to be factored in to the potential savings.

        It is time to stop all talk of “reforming” Tier I and II PERS and figure out how best to meet the States contractual obligation.

    • thevillageidiot

      “As the employees and retired employees in Tier I and II PERS have
      already lived up to their side of the contract it is extremely unlikely
      that they will agree to a change that permits the State of Oregon renege
      on its side.” What was it they had to live up to? oh yes they took less of an increase to their base salary in the initial years. but the base salary has been increasing the rest of the time. the tier I and II obligation is going to last for about the next 40 years. considering a portion of Tier I are still still working and the Tier II have only just started to retire. Mitigation will almost be as difficult as trying to change the contract. any mitigation will be met by great resistance from all on PERS. This includes all elected and appointed officials. this is one area that can be mitigated because we the taxpayers did not authorize the legislators to become part of the PERS. Same for all appointed positions.

      “The bulk of the funds that these districts are paying their Tier I and II PERS obligations with already comes from the State
      so at the monetary level there is no immediate impact to the State
      Budget.” don’t you mean taxpayers when you say state?
      “Long term, we need to establish three things: a sound estimate of the
      total amount of the Tier I and II PERS obligation over its full
      duration, the distribution of this obligation over its expected life
      time and an extremely conservative estimate of annual PERS investment
      income over that life time. that is pretty well known. and the conservative estimate will be difficult to do because of the guaranteed return on investment of 8% to tier I.
      “With that data it would be possible to establish a Bond based program at
      the state level which would spread equally the total Tier I and II
      PERS obligation out over its duration.” So you are advocating an increase in taxes to pay for the bonds. that is just stupid. borrowing money that you cannot pay back without an increase in taxes to pay for an obligation that can’t be paid for without an increase in taxes. How much longer do you think the taxpayers of Oregon will put up with this type of thinking. Probably indefinitely as this is the way legislators buy votes. And they pay back generously to those who buy them (legislators) to keep the coffers full (unions). So until the wages of unionized state employees are truly determined by the people footing the bill nothing will change. There is one other way to mitigate the PERS issue. Let things go underfunded with no tax fix until the program is truly bankrupt. get PERS declared bankrupt and send it to the federal Pension Guarantee fund to be paid. at this point the PERS recipients will get about 50 cents on the dollar. the taxpayers are off the hook and no more retirement pensions. but this will not happen either.

      • Jonathan

        They worked under a contract, and did their jobs. The rest of your post is just a rant.

        • Donkey Shamus

          And how many contracts out there, private or public aren’t worth the ink they scribe for.
          C’mon, smell the stench of droppings from your perch Mr. Jonathan lispingsome sea bird.
          Or, perhaps, you think the Pied Piper of Hamlin wasn’t a dildo bird?

      • David from Mill City

        The PERS pension plan was part of the total compensation plan that the employees receive in return for working for the State or other public agencies. The employees did the work, so they are entitled to all of the compensation. The same goes
        for legislators, other elected officials and paid appointees who served during the period covered by PERS Tier I and II.

        The type of mitigation that is needed would not effect the amount of money paid out to those due PERS Tier I or II pensions, but rather how and when the funds necessary to meet the state’s contractual obligation are obtained. As I have said earlier PERS is a contractual obligation that cannot be changed unilaterally.

        Currently, PERS Tier I and II funding is front loaded, the amount of money needed to pay these pensions
        will climb annually until the last PERS Tier I and II eligible recipient retires, then it will begin to decline, slowly at first, as the recipients die. Till it reaches zero, when the last one dies. My proposal is for the state to take over all PERS Tier I and II obligations. Then to take the best estimate of the total amount
        payable, subtract the low estimate of likely investment income and divide that amount by the best estimate of the remaining duration of PERS Tier I and II (the number of years till the last recipient is expected to die). The result would be the amount the state would pay annually towards PERS Tier I and II funding over the whole duration of the PERS Tier I and II pension system. The Bonds would be sold to cover funding shortfall at the beginning, and paid off from the funding surpluses at the nearer the end of the pension system. This means that meeting of the States PERS Tier I and II obligation would
        become a constant amount, lower then what is currently being paid now, but higher then what would be spent near the end of the PERS Tier I and II system.

        As to bankruptcy, the total assets of the State of Oregon would need to be liquidated during such a
        process. It is very likely those assets exceed the liabilities of the State including PERS Tier I and II obligations. So the net result would be a fully funded PERS Tier I and II at the cost of our State Park and University Systems as well as all our city and county parks, schools and other public holdings. I do not believe such a proposal would get much public support.

        • thevillageidiot

          at least the unions win. the elected officials and appointees are the negotiators (representatives) of the PERS against the union. do you not see a conflict of interest. How is the taxpayer of Oregon fairly represented when we have absolutely no voice in the process.

  • Jonnylaw

    Don’t forget police/fire are PERS employees also. Why is it the GOP only ever mentions teachers with regards to PERS?????

  • Jonathan

    The stuff he is proposing either won’t save much money, or will be found illegal by the Oregon courts. Oregon is going to have to pay off its PERS obligations, like it or not. The way to do this may be to extend the payments out past the lifetimes of the Tier 1 employees.

  • Marc Feldesman

    The drivers are largely administrative greed and excess. Do bargaining statewide since the state covers the salary for the most part. This removes the school boards from the equation altogether. Second, consolidate school districts geographically to no more than 6 (191 now). This significantly and substantially reduces the duplication of administration, services, overhead, and results in only 7 superintendents, 14 area supervisors and assistant supers, 6-12 bus contracts, centralized kitchens for each district, a single human resource structure for each district. The savings potential is significant, and does not reduce teachers or increase class size. If people truly care about “the children”, this proposal offers the possibility of real savings but eliminating all the redundant services, and duplicative positions that result from 191 school districts each offering the same basic array of services. Moving to statewide collective bargaining for teachers reduces the mismatch between actual resources supplied by the state, and the knowledge the bargainers from both sides have about the actual size of the pie. Don’t bargain unless the statewide share of the school budget is released. Just remember that according to research supported by the US Department of educators, salaries for teachers are growing at half the rate of administrative salaries, and, more importantly, the administrative hiring has occurred at 5x the rate of teacher hi rings since 1997 (same is true of colleges and universities).

    • Jonathan

      Good points about administrative bloat, even if I don’t agree with all the solutions. Oregon has high overhead i.e. non-classroom expenses compared to other states. Eliminate this and it would free up a lot of money.

      • Marc Feldesman

        What solutions don’t you agree with? Statewide bargaining, or consolidating the school districts? Both are potentially huge money savers. One eliminates high administrative overhead; the other eliminates the necessity of having a district by district negotiations with all the administrative time and legal counsel necessary in each district. This doesn’t remove the areal needs for slightly different salaries, but it removes the game that school boards play where they eventually give whatever they want even though they don’t have the money to pay for it.

        • Jonathan

          I like having the independent boards, on the whole. They need to learn to cut costs.

    • While consolidating school districts sounds good in theory, in practice it has already been tried in Oregon and resulted in exactly the opposite results than you hope for.

      “Consolidation is nothing new in Oregon. From 1992 through 2001, legislation resulted in 277 school districts being consolidated down to 198. Rather than fewer districts resulting in less administrative overhead, at the end of the period there
      were actually more central office staff per pupil than at the beginning. Also, non-teaching staff grew faster than teachers and real per student spending rose more than 11 percent.”
      source: https://cascadepolicy.org/pdf/pub/2-8-11SchoolConsolidationlPDF.pdf

    • thevillageidiot

      you have to love central planning. it works so well. the economies of size (aka Walmart) don’t always work and where they do you find the biggest one (most clout) in the room wins. but steve says it best.

  • Halving all is not enough

    PERS is on a financial par with an Obama and family all expenses paid outing or vacation.

  • HBguy

    An interesting article on how to make a change that is fair and has significant impact. Based on a neglected City Club report from 2011.

    https://www.oregonoutpost.com/the-impactful-2016-pers-fix-fair-quick-constitutional/

  • Sean D’Way

    Point an index finger to the dictionary definition of PERDITION;
    Then, abstract a parallel middle finger and perceive PERSedition as a $imilie.

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