Central Oregonian

Lawmakers must make PERS reform a priority

January 07, 2013

The Oregon State Legislature will face a number of important issues when they convene on Feb. 4.

Perhaps the most important, and hotly contested, will be reform of the Public Employees Retirement System (PERS).

The Legislature last tackled reforms in 2003. Although those reforms were beneficial, they have turned out to be not nearly enough. Since the market downturns in 2008, PERS now faces unfunded liabilities of $16 billion, more than the entire two-year general fund budget for the state.

With unfunded liabilities soaring, the PERS board approved a 45 percent increase in employer contribution rates beginning this July. That translates to approximately $900 million during the 2013-2015 biennium.

As costs to cover the PERS shortfall continue to rise, taxpayers are going to feel the pain through increased taxes, lowered public services, or both.

The only way to solve the problem is to control costs by paying beneficiaries less than they would otherwise get. The problem is that benefit rates are written into law, as well as employee contracts. Any change that controls costs risks lawsuits and difficult contract negations.

Governor Kitzahaber currently supports two changes to the system that may help fill the gap. The first is to limit annual cost of living increases to the first $24,000 of PERS benefits. This would maintain the retirement of lower income PERS retirees, while theoretically eventually lowering the unfunded liability to $4.3 billion. It would also save employers approximately $800 million per biennium. However, the proposed change would almost certainly lead to a lawsuit with the outcome less than clear.

The Governor’s second proposed change would be to end the practice of offsetting Oregon income taxes for retirees who live out of state, and therefore pay no Oregon income taxes. That change would reduce the unfunded liability by less than $500 billion. It would also lead to a reduction of three to 10 percent in the checks of out of state retirees. Unlike the previous change it is unlikely that there would be any kind of legal challenge to the change.

Unfortunately, neither of the Governor’s proposed changes entirely solves the problem even if they survive legal challenge.

Republican lawmakers, including local representative Mike McLane, have announced intentions to introduce more sweeping reforms to help address the problem. However, in a recent interview with The Oregonian, McLane was quick to note that with Democrats controlling both chambers, any changes will need Democratic support. Let’s hope that Democratic Legislators will seriously consider the Republican proposals and the two sides will work together to address the problem.

Too often Oregon’s Legislature has talked about the problem, but failed to act. With PERS swallowing an increasingly larger percentage of the state budget we can’t afford to put solutions off any longer. The time has come to address the problem.

Representative McLane will be in Prineville tomorrow to speak at the first “What’s Brewing” meeting of the year. The meeting, which is open to the public, will take place at Meadow Lakes Golf Course, at 7 a.m.

McLane will discuss the challenges and issues facing Oregon this year and the importance of looking for solutions that are based on common ground rather than our differences. Now is your chance to come and hear what solutions to PERS reform Republicans will be offering in the next legislative session and to share your thoughts and concerns about how Oregon can move ahead on the problem.