12 Mar

PERS debt can be tweaked, not shrugged off

Every legislative session seems to have a key phrase, a mantra bouncing around the walls of the capitol like a lobbyist. At various times over the past decades, the list has included “school funding,” “tax reform” and “first lady.”

This year’s hot phrase is “PERS fix,” a solution to the $22 billion in unfunded liability in the state’s public retirement program. Without one, we’ll have a steady explosion of state and local government pension payments extending longer than a decade, depleting all other government activities in a state with classrooms more crowded than Times Square on New Year’s Eve and counties where calling 9-1-1 produces a recorded invitation to try again next week.

It would be great to have a PERS fix that prevented that.

Unfortunately, there is no such fix.

There are adjustments to the state’s Public Employees Retirement System that could be made, plausibly should be made, and could survive legal challenge. But all together, they make only a dent – estimated anywhere from $2 billion to $6 billion – in the $22 billion, and will have their main effect well down the road, because even baby boomers have to die sometime. Whatever happens, state and local PERS payments are likely to continue to increase.

Quick dramatic solutions don’t exist. States can’t go bankrupt, and cities in Oregon – unlike places like California or Michigan – can’t go bankrupt either.
Closing down PERS and putting up a “Moved – No Address” sign also won’t work.

Most of the system’s obligations are to already retired workers, and the state can’t legally change the terms they worked under during their careers. That was the flaw in the legislature’s PERS “Grand Bargain” of 2013, later largely thrown out by the state Supreme Court.

For current workers, the state can only change things going forward, not benefits already earned – and still being earned up until any new rules go into effect. Setting up an entirely new system for newly hired workers – the only ones for whom it would be legally possible – wouldn’t have a major effect until well after global warming has set in.

Among the possible options is directing the 6 percent of salary going to PERS to the system’s general fund instead of employees’ personal funds, although that could apply only to future earnings. New rules could require the 6 percent to be paid by the employee instead of the employer, although some labor contracts would then require a pay increase to cover the difference. Some costs could be kicked down the road by bonding, an idea that can itself be toxically controversial.

“If everything in government is complex, PERS is at the top of the list,” says Sen. Richard Devlin, D-Tualatin, longtime co-chair of the Joint Ways and Means Committee. “I really just don’t think there’s a silver bullet out there.”

All the easy steps have already been taken, says Sen. Tim Knopp, R-Bend, vice-chair of the Senate PERS work group, yet doing nothing could produce a “catastrophic collapse of the system,” particularly local governments and school districts.

If somehow both houses make their way through the dizzying maze of PERS issues and find a proposal, it still might not be enough. There would need to be something to lure Democrats and public employee unions.

“It can’t happen by itself,” projects Tim Nesbitt, a former union leader and Kitzhaber advisor now studying the issue for the Oregon Business Council. “It has to be part of a tax package. It’s got to be more than balancing the budget. It has to have new K-12 and higher education investments.”

And, presumably, an agreement by the business lobby not to support a ballot box campaign against the new revenue.

But even that deal might not be enough.

“I think the package is probably even bigger than that,” envisions Knopp. “I don’t think you get a revenue package without significant cost controls, plus maybe a transportation package.”

And maybe the state assisting local governments and schools with their increased payments.

So after navigating the complexity of PERS, legislators might still need to find their way through several other equally convoluted issues, like players working through rising levels of a video game. It could produce the grandest of grand bargains – or a catastrophic collapse.

And at the center would be a PERS problem not exactly fixed, but somewhat eased.
But also at the center would be a realistic look at Oregon’s finances, at what Oregonians want to do and how they plan to pay for it. For decades, Oregonians have insisted they could vote themselves tax cuts without affecting services, and that they could vote for appealing ideas – from prison expansion to stronger high school programs – and just figure the money would come from somewhere. When budget crises erupted – with the approximate frequency and predictability of rain – the problems were blamed on temporary bad economies.

Now we have a strong Oregon economy and a bad state budget. Something needs to change – hopefully before the economy does.

It’s time for some realism, about PERS and the rest of our financial situation, and about what we want and how we’ll pay for it.

We may not get to call it a Grand Bargain.

But it would be grand.

NOTE: This column appeared in The Sunday Oregonian, 3/5/17;

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