Oregon's leaders are beginning to understand the depth of financial disaster that exists in the Public Employees Retirement System. It's just the beginning.

All the uproar of this year's state budget crisis is dwarfed by the financial shortfall facing PERS. And if elected leaders and government employees cannot find answers and make changes, there's going to be a statewide conflict that can end only one way: defeat of operating tax increase proposals at all levels of government across the state.

We say this from the midst of a community that has supported tax levies of all kinds over the decades in order to have high-quality public services. State budget problems have spilled over to local government and school districts, some of which will propose local options levies this fall.

But here in Yamhill County, and across the state, people simply will stop voting for those levies when they learn what is happening. What is happening is this:

n According to unchallenged reports, public employees in Oregon are retiring with an average lifetime pension payment of 105 percent of the average of their three highest salary years. A local expert on PERS analyzed current trends, and said that without major changes this will increase to 110 percent this year, 115 percent next year and 120 percent the year after that.

n Employees hired before 1995 are guaranteed a 12 percent return on their individual retirement accounts, even when the pension plan loses money. That comes from an 8 percent annual guarantee, compounded by the "money match" system that doubles payouts upon retirement.

n During years when the stock market soared, PERS officials credited employee retirement accounts with 20 percent and higher returns, instead of putting money into reserve funds as required by law.

n According to unchallenged reports, the PERS system is $8.5 billion short of money to fulfill its pension obligations. Unfortunately, no one is publicizing the estimate by a nationally known pension expert that the shortfall likely is $15 billion by now. That comes from Alan Stonewall, a pension and actuary expert who was chairman of a special PERS task force in 1994 and recently was an expert witness in the city of Eugene's lawsuit against PERS.

This week, the Oregon Senate approved a bill that would abolish PERS for employees hired after Jan. 1, 2004, leaving it to the 2003 Legislature to create a new system. That bill, awaiting action in the House as we go to press Friday, is a step in the right direction, but it will not solve the enormous financial problem.

Here are two examples of how confrontational this issue could become:

Oregon public employee unions have threatened to sue the PERS board because it finally updated actuarial tables to reflect current life expectancy. The unions oppose any reduction of future pension payments, even when mandated mathematically. They consider current and rising pension payment levels a lifetime contractual obligation, and that may mean court challenges to any changes.

Worse, perhaps, was the banner headline in last month's PERS newsletter: "PERS is financially sound." It sent our mind back to George Orwell's classic novel, "1984," where we met Winston Smith. His job at the Ministry of Truth was to update the past by falsifying records; "The Party" controlled not just their lives, but reality itself, using the principles of "doublethink."

Here was the PERS version of doublethink in discussing concerns that public pensioners might have: "These concerns are unfounded. PERS is financially sound and its ability to pay benefits now and in the future is assured."

How can that be, given the facts presented in Mr. Stonewall's white paper? Simple, fellow citizens: As the newsletter pointed out, any shortfall in PERS merely represents a "rising cost of the system for employers and, ultimately, taxpayers."

So, not to worry! Taxpayers will have to pay. The $8.5 billion shortfall - or $12 billion, or $15 billion - must be paid by taxpayers. Simple as that. Why all the hand-wringing?

Oregonians in the private sector know how their pensions compare to PERS. They have accepted the generous PERS program of recent decades, but they won't tolerate paying for an out-of-control system while foxes guard the henhouse.