We suppose we should be grateful that the Oregon Legislature has even acknowledged the slow-motion crisis that is the Public Employees Retirement System. The problem is that the action the Legislature is primed to take this session — in the form of Senate Bill 1049 — is basically the same strategy it’s used for decades: kicking the can down the road.
Even state Sen. Sara Gelser of Corvallis, who is gaining a reputation this session for unusually blunt talk, recognized the problem: She was one of five Democrats who voted against the bill, which passed on a 16-12 vote. (The mid-valley’s other senator, Republican Fred Girod of Stayton, was one of three Republicans who voted for it; he called it “the hardest vote of our lives.”)
To be fair, there is a hard part of Senate Bill 1049, and it’s going to be hard for members of the House of Representatives when they take up the measure: The bill proposes redirecting a portion of the retirement contributions employees currently make to a supplemental 401(k)-like savings plan. Under the provisions of the bill, some of those contributions — 2.5% of pay for employees hired before Aug. 28, 2003, and 0.75% for employees hired after — would go into an account that would support pension benefits.
By reducing the amount of money going into the supplementary retirement accounts, the plan would reduce employees’ overall retirement benefits by 1 to 2 percent of pay, according to The Oregonian’s Ted Sickinger, whose reporting on PERS continues to be essential.
That might not seem like a lot, but as Sickinger noted, many public employees say they’re underpaid today, and there’s some merit to that argument. And public employee unions are bitterly opposed to these provisions in Senate Bill 1049, so voting for it did require some political courage on the part of senators.
But here’s the problem with the bill: It doesn’t put much of a dent in the $27 billion unfunded liability currently stalking the state’s pension system. And, in fact, some 75% of its cost savings (estimated at about $1.2 billion to $1.8 billion in the 2021-23 budget cycle) come from extending the minimum payment schedule on the deficit by eight to 10 years.
Gelser didn’t mince words: “We are pushing this cost off to future legislatures, to other Oregonians hoping that at some point in the future we will come back and find something that is politically feasible,” she said during debate on the measure. “That doesn’t make sense to me because that is how we got to this place right now.”
If the bill passes the House, and is signed by Gov. Kate Brown, taxpayers won’t pay off the PERS deficit until the 2041-43 budget cycle, as opposed to paying it off by 2035.
But that relies on a pair of questionable assumptions. First, it assumes that the system continues to generate its average rates of return on investments, but that’s an area in which the system has struggled in the past. (To be fair, it often has been saddled with unrealistic rates of returns in an attempt to make the books look a little better.)
The second assumption is even more questionable: A prolonged economic downturn could play havoc with these plans. And one thing is for sure: Our extended economic expansion will not endure forever. In fact, some economists (including some who work for the state) say it could come as early as next year. We can’t say when the downturn will occur. But you can be sure it will come,
Part of the reasoning behind Senate Bill 1049 is to help ensure that the revenue headed to Oregon’s K-12 school districts thanks to a new tax on businesses won’t be swallowed up by increasing PERS premiums. The bill will help prevent that. But legislators are fooling themselves if they think this is the last word on PERS reform.