A Democratic proposal to reduce public pension payments could save local governments money in the short run but increase costs in the long run, according to Roseburg City Manager Lance Colley.
Colley spoke to about 100 members of the Roseburg Area Chamber of Commerce Monday at the Douglas County Fairgrounds. He said government bodies are being asked to make up for a shortfall in the state Public Employees Retirement System caused by the 2008 stock market crash and high benefit payments made in the late 1990s.
He said about 30 PERS reform bills were introduced in the Legislature this session.
“We thought there would be a lot of spirited debate about the legislation,” he said. “It looks like that’s not going to happen.”
Instead, Colley said the Legislature appears poised to pass a comparatively modest reform proposed by the Democratic co-chairmen of the House and Senate Joint Ways and Means Committee. Like other proposals, Senate Bill 822 would limit annual cost-of-living raises. It would also eliminate a tax benefit for retirees living in other states. The plan would save about $800 million next biennium, but only by delaying $350 million in contributions to PERS.
Without reform, Roseburg and other state and local governments would expect to pay PERS contributions amounting to 20 percent of total payroll in the 2013-14 fiscal year, about 5 percent more than this year.
Under the Democratic plan, Colley said the city of Roseburg’s PERS contributions would go down to 18 percent of payroll, saving $150,000 over the next two years. However, Colley said the delayed payments would cost the city half a percent of payroll each of the next 20 years.
Colley said the effect would be similar to refinancing a mortgage to pay over a longer period of time. The total effect would be to increase payments in the long run.
Gov. John Kitzhaber had proposed a plan to cut $860 million from the PERS budget, partly through decreases in cost-of-living adjustments. Neither that bill nor four produced by Rep. Bruce Hanna, R-Roseburg, have much chance of moving forward, Colley said.
Also dead in the water is Senate Bill 754, introduced by the Oregon School Boards Association.
“This was a pretty good bill. It was going to save more than the governor’s proposals, but it will not get a hearing,” Colley said.
Colley said he believes legislation will be challenged in court, as have previous plans.
In response to an audience member’s question, Colley said it is unlikely the public can weigh in directly on PERS reform through a ballot initiative. Previous attempts have been found unconstitutional because they were not written by people who understood the complexity of PERS law, he said.
The problem was primarily caused by the 2008 market crash, during which the system lost 27 percent of its value, about $19 billion.
High payouts during the 1990s also helped draw down the system’s reserves.
The original intent of PERS, Colley said, was to give retirees about half the amount of their final salary as an annual retirement income. When combined with Social Security benefits, an employee who had worked for the city 30 years could expect to retire on about 80 percent of his or her working income.
In the 1990s, retirees who had chosen a “money match,” in which their contributions and investment earnings were matched by PERS when they retired, reaped the unexpected benefit of a stock market boom. Suddenly, many retirees had annual benefits 130 percent of their final salary — benefits public employers are still struggling to pay for.
With less money in reserve, government agencies will be asked to make up the difference.
“It makes for very difficult budgeting,” Colley said. “What that means for most of us is we’re trying to balance the budget by minimizing the impact on services without raising additional resources.”
The schools will pay even more. Their PERS costs are rising about 7 percent to a total 27 percent of payroll. In real terms, each 1 percent increase in statewide PERS contributions costs the same as 300 teachers, he said.
Only a small number of those in attendance Monday were government workers. About eight people raised their hands when Colley asked how many were employees covered by PERS.
Colley, himself a PERS employee since the mid-1980s, has been involved in efforts to reform the retirement system for many years.
• You can reach reporter Carisa Cegavske at 541-957-4213 or firstname.lastname@example.org.