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(The Oregonian/Dan Aguayo)
Oregon's public pension funding problem is back with a vengeance. The state's public pension deficit doubled this year, and public employers - as well as taxpayers - will see the bill come due starting in 2017.
It's an enormous tab, with implications for everyone in the state. You can read about it in the detailed story that ran this weekend in the Oregonian/OregonLive. Alternatively, here are five things you need to know about this looming fiscal mess:
I don't know from pensions. What's the problem?
Government employers have far less money set aside than they will need to pay future retirement benefits to employees covered by the Public Employees Retirement System. Think of the deficit as a $18 billion credit card bill, with interest accruing if its assets fail to deliver a 7.5 percent annual return. As it stands, public employers aren't even making the minimum payment, so the bill is getting bigger.
Public employers are required to pay off the shortfall over the next 20 years. So cities, schools, and public agencies are about to see their required pension payments spike. They'll need to tap public budgets for billions of extra dollars over the next two decades.
Why is this newsworthy now?
The pension deficit more than doubled this year due to the Oregon Supreme Court's partial rejection of lawmakers' 2013 pension reforms, weak investment returns, and a new set of economic assumptions adopted by the PERS Board. Together, they added $9.5 billion to the bill.
The pension system's actuary has been crunching the numbers to determine the financial implications. Ten days ago, the PERS Board released estimated payments that public employers will have to start making in July 2017. That's still 19 months off, but it's an $800 million hit next biennium, guaranteed, followed by even larger increases forecast in 2019 and 2021. The idea is to get the numbers on the table now, to help agencies budget accordingly.
How does that affect me?
Every extra dollar that goes for pensions is one that government doesn't have to spend on services, whether it's education, elder care, prisons, police and fire, etc. School districts alone will have to come up with an extra $145 million a year staring in 2017. That's the equivalent of 1,450 teachers statewide, or almost 7 school days.
What are lawmakers doing to solve the problem?
Right now, not much. The Legislature took no action after the Supreme Court's decision in May. Democratic leaders says there's nothing on their agenda for the upcoming session. State Sen. Tim Knopp, R-Bend, says he's drafting a bill that offers a number of money saving options, but in the runup to an election, it's not clear Democrats will give his idea a hearing.
What can be done?
Pray for a massive and sustained rally in financial markets, producing profits that can pay more of the pension tab. But the numbers already assume that pension investments generate healthy returns.
If returns can't save the day, two main options remain: raise taxes or cut public employees' pay or benefits.
Unions are backing a ballot measure to raise taxes on large corporations that they claim could raise $2.5 billion a year. That's enough to pay the pension bill and then some.
Others, like Knopp, would like to see the Legislature have another run at cutting benefits. One big money option is to raise employees' share of the payments. Unlike in virtually every other state, employees pay nothing to support the fund today. Rather, their required 6 percent retirement contributions go into a separate individual account that belongs to the employee. Redirecting some or all those contributions to support the pension fund could raise as much as $1.2 billion per biennium. But it's a pay cut for public employees, one they'd likely fight in collective bargaining.
- Ted Sickinger
tsickinger@oregonian.com
503-221-8505; @tedsickinger