PERS Plan Would Limit Tax Rebates, Affect School Retirement Benefits

Apr 12, 2019
Originally published on April 13, 2019 12:34 pm

Oregon Gov. Kate Brown has released her long-awaited plan to tackle the state’s financially troubled public pension system.

The governor’s proposal, made public Friday, includes a long list of ideas to raise around $3.3 billion over the next 16 years to shield Oregon schools from most of the rate hikes facing Oregon public employers. State leaders are trying to dig their way out of a pension debt now estimated at nearly $27 billion.

The plan includes proposals that could affect taxpayers, the business community and the state’s 70,000 school employees. Among other things, it calls for capping next year’s “kicker” income tax rebate at $100 — a move that would divert up to $500 million from taxpayers into the PERS school rescue fund.

“There’s something in here for everyone to love — and everyone to pick at,” said Nik Blosser, Brown’s chief of staff, in an interview with OPB. “The governor’s goal is really to spread that burden in a shared, equitable way.”

In remarks prepared for delivery to a legislative committee Friday, the governor said that she was particularly concerned what could happen to schools in a recession if lawmakers fail to tackle PERS.

“Tweaks to the PERS system will not set us on a path toward stability,” Brown said. “We have had this problem for several years, and I am not willing to go another legislative session without taking significant steps to stabilize school rates and address the PERS unfunded liability.”

During her successful reelection campaign last year, Brown opposed calls by her Republican opponent, then-state Rep. Knute Buehler, to generate big savings by making major reductions in pension benefits for the 175,000 state, local and school employees covered by PERS.

 

But she’s faced continual pressure to grapple with the PERS debt if she’s going to persuade legislators — and potentially voters — to approve $1 billion a year in new taxes for schools.

“It is an important part of getting the schools package accepted,” said Senate Finance Chairman Mark Hass, D-Beaverton. “It’s just a reality we have to accept.”

Even before releasing the plan, Brown took heat from a variety of critics. Most notably, the Oregon Education Association — a chief backer of the governor’s reelection campaign last year — blasted her push to take anything from the future retirement accounts of workers.

“I can’t believe the Governor would suggest cutting teacher salaries, especially in a moment when we’re finally talking about investments in schools,” said John Larson. “Instead of talking about slashing salary and benefits for our teachers, we should be fully funding our classrooms and giving them the resources they need to help students succeed.

Brown’s proposal wouldn’t actually take anything out of the current paychecks of teachers or other school employees. Instead, it would affect the size of their retirement savings account.

The Oregon Supreme Court has made it clear that PERS changes can’t affect the 146,000 retirees currently receiving retirement benefits.

Meanwhile, business leaders criticized the idea of diverting surplus money from SAIF, the state's workers compensation fund, saying that revenues for the public corporation come out of the pockets of individual businesses.

Tim Nesbitt, a former labor leader who now works with the business community on PERS issues, said Brown’s approach leaves public agencies besides K-12 schools in the lurch. He’s organizing support for a pair of ballot initiatives filed last week by former Gov. Ted Kulongoski and former state Sen. Chris Telfer of Bend that would call for larger reductions in PERS benefits.

Blosser, the governor’s chief of staff, defended the focus on school districts. He said PERS rate hikes hit them harder than most government employers because so much of school budgets are dedicated to payroll. He said the governor also wants to set up similar funds for public universities and community colleges but does not have a detailed plan for them.

Under the governor's plans, school districts would still face a rate increase later this year. Average employer costs would rise from about 24 percent of salary to 29 percent. But the governor wants to protect them from further projected increases of up to about 35 percent — a level that could last until the 2030s.

Blosser also said that Brown’s plan does not ask too much of the current workforce — as he argued is the case for Kulongoski’s proposed ballot measures.

“We’re not putting the whole burden on current employees,” said Blosser, adding that they would pick up only about one-quarter of the overall cost.

The Brown administration has also defended taking money out of SAIF. The governor and her aides say Oregon businesses have some of the lowest workers compensation rates in the country and that the program has more than it needs as a cushion to ensure it can pay claims. SAIF operates as a public nonprofit corporation, but its board is appointed by the governor.

Brown faces several political difficulties in winning support for her plan. It would take a two-thirds vote by the Legislature to cancel the kicker tax rebate. That would require buy-in from legislators of both parties.

Under Oregon law, if tax collections exceed state economist projections by more than 2 percent, the excess is supposed to be returned to taxpayers. Currently, the kicker is estimated to provide about $640 million back to taxpayers next year, with the largest amounts going to those who paid the most.

The other elements of Brown’s plan could be enacted by a simple legislative majority, although some portions could face legal challenges.

Public employee unions have also strongly resisted attempts to reduce the retirement benefits of their members. Brown attempts to walk a fine line by asking for some buy-in from current workers without seeking anywhere as much as has been sought by Republicans and the business community.

Currently, Oregon public employees receive pensions paid for by their employers. In addition, workers pay 6 percent of their salary into an individual retirement plan that works like the 401k typical of the private sector. Under Brown’s plan, which covers just school workers, nothing would change for the first $20,000 a year of salary.

Above that amount, school workers hired before 2004 — when the pension plan was richer — would contribute 3 percent of their salary toward shoring up PERS. Newer workers would have to divert 1.5 percent of their salary toward the PERS system.

One of the biggest financial unknowns in Brown’s plan is her call to divert more than $1.3 billion in capital gains and estate taxes over the next 16 years. Those collections would come when those taxes produce higher-than-average receipts. Whether the economy actually produces those kinds of returns is uncertain.

Copyright 2019 Oregon Public Broadcasting. To see more, visit Oregon Public Broadcasting.

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