Coming City Budget Time Bomb

city hallPublic employees can be some of the most unappreciated people in the world, often maligned or one mistake away from being featured in a nasty headline—and the pay has not always been so great either. On the flip side, they generally get excellent benefits that include a substantial retirement package.

The Public Employee Retirement System (PERS) administers these benefits, and the public funds them. When the benefits were first offered, the state basically formed an I.O.U. with the beneficiaries, which local governments are now having a hard time paying.

So what’s the problem? It turns out that when the estimates for future costs were made and agreed upon, no one thought the country was on the verge of an economic depression. This, coupled with medical advances that contribute to longer life, has created quite a strain on local and state-wide budgets.

A recently published newsletter from the League of Oregon Cities estimated that no solution will be found to the budget deficit until cities are contributing, by some estimates, 30% of their annual payroll costs to the paying of PERS. Can someone say, “Yikes!”?

According to Nancy Brewer, Finance Director for Corvallis, there are only two ways to fix the PERS problem: 1) the system needs to earn more on investments; or 2) employers need to pay higher rates.

So what does all of this mean for the City of Corvallis? It’s not fun, folks. Brewer stated, “On a $33 million payroll (about what the City is projecting for fiscal year 2016-’17), this will increase costs by more than $1 million.” As it stands, Corvallis has set aside $1.6 million into a PERS reserve, which will help offset the foreseen cost increases, but it won’t be enough.

Brewer said, “Basically, to continue to meet the funding requirements, we will need to secure additional revenue or cut costs. The City Council’s Sustainable Budget Task Force is working on these kinds of alternatives to make a recommendation to the City Council.”

The state legislature has attempted to help, but to no avail. “Consensus is that there is not much they can do to have a significant impact,” Brewer said when asked about the state’s potential involvement.

What could really fix the issue, however, is for the market to rebound, and for the PERS system to earn 10% or more annually for the next 10 years. Yet the fact remains, if something doesn’t change, the worst case scenario is bleak. “The worst case is the system continues to earn less than the 7.5% targeted rate the PERS board assumes and the underfunded status of the system drops and the projected future year rate increases get bigger than currently expected,” said Brewer.

By Kyra Blank

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