Here’s what’s wrong with Dem’s PERS reform

Sen. Doug Whitsett (R-Klamath Falls)

Yesterday I delivered a floor speech in the Oregon Senate in opposition to SB 822. That bill was crafted by Democrat leadership in their partisan attempt to address the enormous financial problems with the Public Employee Retirement System. No participation by Senate Republicans was either sought or allowed. The result fell far short of what most Oregonians could describe with a straight face as meaningful restructuring of PERS.

With slight editing, this is what I said on the Senate floor:

With due respect Mr. President the majority party’s plan;

1.) Addresses about 23 percent of the immediate  two billion dollar PERS problem

2.) “Collars” or delays payment on about 17 percent of the problem, making that   $350 million delayed payment plus interest due and payable by the taxpayer in the budget period starting July 1st 2015.

3.) And totally ignores the other 60% of the immediate two billion dollar problem.

Stated another way, SB 822 totally ignores one billion two hundred million dollars ($1,200,000,000) of the current PERS obligation and kicks another $350 million can down the road two years for the next Legislative Assembly to worry about.

Let’s be clear! The Co-Chair’s plan for “collaring” part of this massive obligation is nothing more than a delayed, balloon installment payment for $350 million plus interest. According to a PERS actuarial  analysis, another $60 million in interest that will accrue over the next two years must be added to the delayed payment. That brings the total to more than $4oo million that will be due and payable by the people of Oregon during the budget period starting July 1, 2015.

In my opinion, that is not a solution!

Mr. President, in order to solve a problem we first must define the problem.

Public employers are already paying $1.1 billion more in PERS contributions during this budget period than they were required to pay during the previous budget period. Starting July 1st of this year (2013-15), they will be liable to pay an additional $900 million. Starting July 1st 2015, they will be liable for “yet another” $650 to $700 million according to the PERS actuaries.

The total Increase is two billion seven hundred million dollars ($2,700,000,000)!!! Moreover, the PERS actuaries expect that gigantic increase to continue each budget cycle into the foreseeable future.

That is, it will be limited to “only” $2.7 billion if the assumed eight percent return on Trust Fund Investments is actually achieved. Sound private-sector retirement plans generally assume no more than a four percent annual return on investment.

This incredible $2.7 billion debt, due and payable by the taxpayers of Oregon each budget period, will grow significantly larger in the very likely event that the Trust Fund does not produce a compounded eight percent return on investment.

$2.7 billion is a huge number that needs to be put into perspective.

In the budget period beginning next July 1st, the taxpayer contributions to PERS, including principle and interest payments on Pension Obligation Bonds, will equal 26% of payroll. Virtually all public employers also pay an additional 6 ¼ percent to Social Security for their employees. That means that starting July first of this year, nearly a third of the entire payroll expense will be paid toward employee retirement benefits. No one can seriously believe that is sustainable.

Cities, Counties and Special Districts are obligated to pay at least 40 percent of the entire statewide PERS obligation. Starting July 1, 2015, their share of just the increase in PERS contributions will exceed one billion one hundred million dollars ($1,100,000,000).

The increase in PERS contributions during the current budget cycle is about $440 million. That is equivalent to the full compensation for as many as 3,000 police or firemen.

The increase in PERS payments due this July 1st will be another $360 million, an amount equivalent to another 2,500 critical employees. Moreover, the increase scheduled for July 1, 2015 will cost yet another 2,000 employees.

For local governments, just the increase in PERS costs over a three budget period will be equal the full compensation for more than 7,500 policeman, firefighters and other critical public employees. They cannot spend the money twice. If it is paid into the PERS Trust Fund for the benefit of future retirees it will not be available to pay the wages for these critical public servants.

SB 822 is a Democrat bill. There was absolutely no effort made to incorporate Republican ideas or Republican drafted concepts. For instance, I personally introduced fourteen bills designed to restructure PERS. I was never contacted or consulted regarding any of these concepts. To my knowledge, no other Republican was asked to participate in developing this partisan bill.

From my perspective, SB 822 is tentative, faint hearted and simply not sufficient. It simply does not adequately address the clear and present danger that is represented by the looming PERS fiscal cliff.

Mr. President, colleagues, with respect, who are we trying to fool, ourselves or the taxpayers of Oregon who must pay the bill?