Part of Oregon's escalating costs of state government is directly related to the Public Employees Retirement System—PERS. In the State's current 2009-11 Budget, more than $825 million will be paid for PERS retirement benefits. In the next budget the State's PERS expenses will increase to $1.3 billion—a 60% cost increase in one budget. (Click here.) What can be done to lessen PERS costs and increase revenues to pay the PERS debt?

The Oregon Supreme Court has ruled that PERS benefits are protected for the employee. Even a Constitutional Amendment (Ballot Measure 8), passed by the voters in 1994, could not rein in benefits of PERS Tier 1 retirement plan. (Click here.).

After the "tech stock bubble" popped in 2000, low stock market yields in the Oregon PERS Fund (OPERF) left PERS underfunded by $17 billion. Legislative changes in 2003 and strong OPERF investment yields in the years that followed effectively eliminated that $17 billion "unfunded actuarial liability" (UAL).

Then the financial crisis of 2008 struck and the OPERF dropped from its high of $65 billion in 2007 to a low of $41.5 billion in March 2009. In the year since then, OPERF investments have recovered about $10 billion of the losses, but the remaining UAL is a debt that must be paid—amortized over time, like a 20 year mortgage. If the additional payments cannot be paid by OPERF investment yields, they must be paid out of the budgets of the 872 PERS employers, including the State of Oregon.

Today's newsletter will consider 10 potential solutions to Oregon's PERS and Budget crisis. Several of the suggestions presented below were sent to the "newsletter blog" by Oregonians who read Part 1 of this PERS focused newsletter.

The ideas presented below are intended to promote discussion of possible PERS reforms. The consequences of each must be thoroughly researched and considered.

The low hanging fruit to "fix PERS" was taken during the 2003 legislative reforms. None of the suggestions below would be easy to implement and all of them are controversial. Regardless of what actions are taken by the Legislature, the ultimate requirement for eliminating the $12.9 billion UAL will be to pay it off with OPERF investment yields and increased employer contributions.

It is 2010 and we are dealing with the unintended consequences of legislative decisions made over the past 40 years. It is like our fathers cosigned on someone else's billion dollar debt, and somehow we inherited responsibility to make the payments for the next 20 years.

For ease of reading, I will state each suggestion and link to its discussion. The reader can then follow those links worthy of additional consideration. (Please read the links.)

As a reminder to my concerned readers who are PERS members or retirees, I will state three points from Part 1 of the newsletter:

1. The Oregon Supreme Court has made it clear…No one is going to take your PERS;

2. The PERS financial crisis is real; it is going to be expensive; the money to fund the PERS liability must come from somewhere; and

3. The PERS crisis funding issues must be addressed. (I am just a state legislator and country lawyer from Central Point, please do not shoot the messenger.)

POTENTIAL SOLUTIONS TO "FIX PERS"

The suggested PERS Solutions fall into three categories—those affecting Current Retirees, Current Employees, and Future Employees. Solutions that would affect CURRENT PERS RETIREES (former PERS employees)

1. Stop paying the 9.8% "bonus benefits" to PERS Retirees who moved to Washington to avoid paying Oregon Income taxes. (Click here.)

Solutions that would affect CURRENT PERS MEMBERS (current PERS employees)

2. Find a way for the employee to contribute the employee's own 6% to PERS. (Click here.)

3. Instead of focusing on salary, view employee compensation as the total cost of employment, and bring public employee compensation packages in line with comparable compensation packages in the private sector. (Click here.)

4. Since PERS benefits cannot be changed for as long as the employee remains employed, consider the "nuclear option" and lay-off all State workers effective December 31st and rehire effective January 1st under a new, affordable retirement plan. (Click here.)

Solutions that would affect FUTURE PERS MEMBERS (new hirees.)

5. Create new PERS Tier 4--Defined Contribution plan for all new PERS employees. (Click here.)

6. Create new modest 401 (k) style defined contribution plan for Legislators and get them out of PERS—avoid the conflict of interest. (Click here.)

7. Revise salary and benefit packages for future employees and bring new public employee compensation packages in line with comparable compensation packages in the private sector. ( Click here.)

8. Reduce size and costs of PERS and State Government by attrition and promote private sector jobs by contracting to private companies' services currently provided by PERS workers. (Click here.)

General Provisions to enable sufficient funds to pay PERS

9. Limit future budget increases to population growth and inflation; increase Rainy Day Fund reserves and pay off State's UAL, Side Account bonds and other State debts. (Click here.)

10. Refer to Oregon voters another "Measure 8" Constitutional Amendment and give the Oregon Supreme Count another chance to enable PERS Tier 1 future revisions. (Click here.)

Conclusion

The costs and consequences of a half-billion dollar, 60% increase in PERS expenses to the 2011-13 State Budget are substantial. The State's resources are insufficient to maintain current service levels in times of prolonged revenue decreases and substantial budget increases. (Click here.)

Begging for more temporary "stimulus" money from the federal government merely delays the inevitable adjustment that must be made in Oregon's spending and budgetary decisions. Our forefathers founded the State of Oregon, one of the "United States" of America, not a weak, subservient jurisdiction addicted to the scraps tossed our way by an all-powerful central government.

To me, it is obvious that Oregon desperately needs a course correction. Oregon needs to change its economic strategy from reliance on federal hand-outs to one of living within its means. As I have observed before, such a course correction will require prioritized spending, conserving one-time resources and sloping expenditures downward to deal with the economic realities that must be confronted to balance the 2011-13 and future State Budgets. Although Oregon's PERS debts are substantial, they can be paid off, and it will require a change in legislative attitude about the size and capabilities of government, and a change in legislative spending habits.

My two PERS newsletters were intended to explain what PERS is, why it costs so much, why its debt must be paid, what it is going to cost the State, and what potential actions could be taken to save money and deal with the PERS crisis. The question remaining will be whether the Legislature has the vision, the commitment and the courage to set aside the politics and take the steps necessary to "fix PERS" and to fix Oregon. Thank you for caring enough to wade through the complexities that is PERS. We must encourage our Legislators to take the steps necessary to do something about it.

Sincerely,

Dennis Richardson
State Representative

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