League of Oregon Cities wants PERS relief for employers

The League of Oregon Cities (LOC) is calling for action this legislative session to address rising Public Employee Retirement System (PERS) rates for all covered public employers.

The plan proposed by Democratic Gov. Kate Brown to the Legislature on Friday, April 12, directed all benefits towards education interests. In her comments, Governor Brown stated that if action isn’t taken to address the looming pension crisis the Hillsboro School District will see rates increase to more than 30 percent of payroll.

The City of Hillsboro and the other 240 cities in Oregon will experience a similar fate without state action and assistance.

Revenues Not Keeping Pace

The revenue side of the balance sheet is simply not keeping pace with the expenditure side for cities. For example, despite rapid growth, the city of Warrenton, has seen only a modest increase ($45,000) in property tax revenues, while PERS costs have increased dramatically ($135,000).

With limited options for increasing revenues and no relief for PERS rate increases in sight, many cities, including Warrenton, will have to cut services to balance budgets.

“We see this time and again with cities,” LOC’s Scott Winkels said. “Revenues are capped either constitutionally or cut by the Legislature, but costs are unlimited and eventually city services suffer.”

How to Mitigate These Challenges

The LOC is calling on the Legislature and Governor Brown to take the following steps to address the problem:

• Don’t make the ledger imbalance worse. The League is calling on the Legislature and Governor Brown to pledge not to inflict any additional unfunded costs on cities.

• Capitalize the Employer Incentive Fund (EIF) that was created in the 2018 short session. That program was intended to provide a 25% state match to new cash contributions government employers make to their side accounts, which allows employers to pre-pay their pension costs and reduce their rates and long-term liability. While the fund was created at the urging of Governor Brown, it was not funded in her budget or in the PERS plan presented on April 12. We are asking for $400 million for the incentive this session.

• Apply proposed tiered employee contribution requirements system-wide. The plan outlined by Governor Brown included the partial shifting of employee contributions away from their deferred compensation plan towards their defined benefit pension. However, the presentation did not make clear if that was to apply only to school employees or to state and local government employees system-wide. We are, asking Governor Brown to make clear that all employees should contribute to their pension costs going forward.

• Do not cut any existing state-shared revenue with cities, include cities in distributions when raising surcharges and other taxes/fees, and do not impose new tax/fee preemptions on cities. The current surcharge on liquor isn’t included in state shared revenues, but the state preempts cities from imposing their own taxes on alcohol to address local costs. This is just one example where the state could help its own situation and the plight of local governments.

• Finally, we need to change the dynamic. It’s time to recognize that all levels of government provide vital services, that we are partners, and that solutions to our shared problems should be inclusive.