PERS reform: 'Catastrophic is probably not too strong a word'

By JONATHAN J. COOPER,Associated Press Published: Nov 26, 2012 at 11:00 PM PDT Last Updated: Nov 27, 2012 at 3:54 PM PDT
PERS reform: 'Catastrophic is probably not too strong a word'

SALEM, Ore. (AP) — Oregon lawmakers who want to lower the costs of pension benefits for government employees face a difficult dance to craft changes that produce meaningful savings without reneging on iron-clad promises made to workers in years past.

A number of ideas have been suggested, but any significant legislation that makes it through the Legislature and earns the governor's signature is likely to land quickly in a courtroom, where previous attempts to cut pension costs have been overturned.

The push to cut pension benefits is driven by a steep rise in the burden on taxpayers to make up for investment losses in 2008, when the Great Recession eroded 27 percent of the pension fund's value. It left an unfunded liability that was last measured at $16 billion at the end of 2011.

Government agencies will spend $3 billion on pensions in the next two-year budget, up 45 percent from what they're paying now.

The added costs will directly contribute to larger class sizes and less money available for a host of other public services, government officials have said. The Oregon School Boards Association has promised to push for changes so districts can spend less money on retirement benefits for their employees.

"Catastrophic is probably not too strong a word," said Republican Rep. Mark Johnson of Hood River. "There is no fat left in any of those budgets. It's strictly coming out of classrooms, it's coming out of personnel."

Johnson, who is also a school board member, said he'll introduce a bill to curb pension costs next year. Democratic Gov. John Kitzhaber also has said he'd like to see changes.

On average, government employers will pay 21 percent of their payroll toward pensions, up from 12 percent before the recession.

Public employee unions say legislators need to be careful not to renege on decades of promises to workers.

Specific proposed legislation hasn't yet been made public, but discussion has centered on a few proposals:

  • Capping the annual cost-of-living increases, allowing them to apply only to the first $24,000 of annual income. The average retirement benefit is just under $26,000 annually, so many workers would be unaffected. In a 2010 analysis, Public Employees Retirement System officials estimated the change could save $576 million for each two-year budget cycle. However, the state Supreme Court overturned a past attempt to temporarily freeze the cost-of-living adjustment.
     
  • Ending or curtailing a common practice known as the 6-percent pickup, where government agencies pick up their workers' required 6-percent retirement contribution. PERS estimates full elimination of the pickup would save $750 million per biennium, but actual savings would be less because many employees would bargain for a corresponding salary increase.
     
  • Eliminating for retirees living outside Oregon a supplemental pension payment intended to cover Oregon income taxes. Since non-Oregon residents don't pay Oregon income taxes, critics say it's unfair to give the supplemental payments to those retirees. PERS estimates the move would save $72 million per budget period.

Despite the loud demands for a pension-system overhaul, the political and legal path is precarious. It will require support in a Legislature that will be dominated by Democrats, many of whom were elected with significant financial support from public-employee unions that have aggressively fought cuts in pension benefits and the politicians who support them.

Proponents face a challenging conundrum. The only way to generate substantial and immediate savings is to cut benefits for existing workers and retirees, but the Oregon Supreme Court has thrown out several attempts to do that. The court in 2005 did, however, uphold some benefit cuts that the justices did not view as a contract between the state and public employees, and the proponents are hopeful they'll find more savings that pass court muster.

Becca Uherbelau, a spokeswoman for the Oregon Education Association, said any pension overhaul should meet three criteria: It should save money now, be constitutional and be fair. Legislators should boost school funding and overhaul the state tax system, Uherbelau said "but we recognize PERS has to be part of that discussion."

The teachers union is the state's largest public-employee group.

Presumptive House Speaker Tina Kotek, a Democrat, laid out the same criteria for PERS legislation, saying the savings must be immediate, constitutional and fair.

"Our system has been well-run and well-funded," Kotek said. "But like other parts of the country, because of the collapse of wall street four years ago, we're dealing with the increased liability issue."

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Follow AP writer Jonathan J. Cooper at http://twitter.com/jjcooper .

Copyright 2012 The Associated Press