Today, Oregon Gov. Kate Brown released her plan to deal with the state’s financially troubled public pension system, or PERS. The pension system has been running in the red for years, its debt is estimated at $27 billion. Much of Brown’s plan is geared to blunting the impact on school districts, given proposed PERS rates will increase.
Nik Blosser, the governor’s chief of staff, said the rate hikes are harder on schools than most government employers because so much of their 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 plan, school districts would still pay a rate increase, and their average employer costs could increase from approximately 24 percent of salary to 29 percent. The governor is seeking to shield the schools from an even higher 35 percent increase, that could last into the 2030s.
The governor’s proposal, seeks to raise $3.3 billion over the next 16 years in an effort to shield Oregon school distinct budgets from rate hikes facing Oregon public employers. In comments prepared for a legislative committee Friday, the governor said she is particularly concerned what could happen to schools in a recession if lawmakers fail to tackle PERS.
Brown’s plan would affect taxpayers, the business community and the state’s 70,000 school employees. For instance, it calls for capping next year’s “kicker” income tax rebate at $100 — this would divert up to $500 million from taxpayers into the PERS school fund.
The ‘kicker’ is a tax rebate the state sends when there is a tax revenue surplus.
Also, Oregon public employees currently have pensions paid for by their employers. They also, pay 6 percent of their salary into an individual retirement plan that works like a private sector 401k.
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, would contribute 3 percent of their salary toward shoring up PERS. Newer workers would also have to divert 1.5 percent of their salary toward the PERS system. The rationale is the system was richer prior to 2004, and those employees benefit from that.
The governor’s plan would also shift surpluses from SAIF to pay towards the PERS debt. SAIF operates as a public nonprofit corporation – and it’s board is appointed by the governor. Currently, the worker’s compensation fund has a surplus.
Brown also proposes diverting more than $1.3 billion in capital gains and estate taxes over the next 16 years. But, that would happen only if those collections are greater than average, which is dependent on the economy – so those funds would be less certain.
“There’s something in here for everyone to love — and everyone to pick at,” said 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.”.
However, Oregon Education Association President John Larson, said, “I can’t believe the Governor would suggest cutting teacher salaries, especially in a moment when we’re finally talking about investments in schools.”
Brown’s proposal does come as lawmakers are seeking a corporate activity tax to enhance school funding by $2 billion. The tax would be for a little less than half of 1 percent of revenue on companies earning over $1 million. However, to get legislators and possibly voters to pass the tax, most observers believe the PERS shortfall must be dealt with first, and Brown has to juggle between competing interests to do that.
“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.
“It is an important part of getting the schools [tax] package accepted,” said Senate Finance Chairman Mark Hass, D-Beaverton. “It’s just a reality we have to accept.”
Business leaders have criticized the plan, expressing frustration that if SAIF has surpluses, they would prefer to see their rates adjusted lower, rather than having the surplus diverted elsewhere. However, the governor’s administration points out Oregon businesses benefit from some of the lowest worker comp rates in the country, and there is more than enough reserve to pay claims.
Tim Nesbitt, at one time a labor leader, is now working with the business community on PERS issues, and he says that outside of schools, Brown’s proposal is unfair to other public agencies. Currently, he is organizing support for ballot initiatives filed last week by former Gov. Ted Kulongoski and former state Sen. Chris Telfer of Bend that propose larger reductions in PERS benefits.
Cancelling the kicker rebate requires a two-thirds vote in the Legislature, and that would mean buy-in from both political parties. Brown’s other proposals could be passed with by a simple majority.
Brown, running for reelection last year, came under heavy fire for not having dealt with the PERS debt. Now, in her last term, Brown says, “Tweaks to the PERS system will not set us on a path toward stability,” adding. “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.”