By DENNIS THOMPSON JR.
For The Associated Press
SALEM - There's another budget crisis brewing in Oregon.
It's still a year and a half away, but when it hits, it will affect every level of government in the state.
The crisis will come in the form of huge increases in the amount of money that employers must pay into the Oregon Public Employees Retirement System. PERS has to increase the contributions to make up for investment losses that occurred during the stock market free-fall of 2008.
"The market downturn dug a huge hole in PERS that needs to be made up," said Brenda Wilson, the city of Eugene's intergovernmental relations manager and PERS consultant to the Oregon League of Cities. "Even though there were positive earnings last year, the hole is bigger than that. Not every single employer will see a rate increase, but the vast majority of them will."
The increase will cost Oregon governments participating in PERS a total of more than $1 billion in additional employer pension contributions, according to information provided by PERS after public-records requests from the Statesman Journal. To cover that expense, cuts to classrooms, parks, libraries and myriad other community services will have to be considered. Some local governments might lay off workers.
All governments involved in PERS state agencies, cities, counties, school districts, fire districts, special districts and other public entities are watching closely to see what their specific increases will be. PERS plans to announce the new rates in June and adopt them in September. The rate increases will take effect in July 2011.
Everyone knows the crisis is coming, but every government's response will be different.
In general, local governments such as cities and counties expect to plan for rate increases in the budgets they are crafting now, even though they won't take effect until after the coming fiscal year.
State agencies also are gearing up for the increase, gathering information and considering alternatives. However, there's little they can do at this time, given that they operate on a biennial budget. A new governor and a new Legislature will inherit the PERS rate increases.
School districts are expected to be the hardest-hit by the rate increases, given how much of their budgets involve personnel costs. But they might not be able to do much preparation for the coming crisis because they have their hands full with present budget problems.
The PERS rate increases will come as a greater shock to the governments because their current rates are at a historic low, based on market conditions just before the economic downturn occurred, Wilson said. She compared it to the shocks that Oregonians experience this time of year when the weather can swing from cold and damp to sunny and warm.
"It's going from a historic low to a historic high," Wilson said. "A lot of employers have been budgeting for this, but some didn't. Some of them may be more than a little surprised at their rate increase."