Originally published in The Oregonian, February 8, 2013 –
Coping with rising PERS costs and sagging tax revenues –
by Dennis Richardson
Oregon’s public retirement system and the legislators who must oversee it face a tough dilemma. The system is being squeezed from both sides — spiraling costs and falling revenues. Oregon’s Public Employees Retirement System does not have enough assets to pay its future retirement commitments.
Currently, PERS is “in the red” by approximately $14 billion to $16 billion. Even worse, the unfunded liability is underestimated, since it is based on the unrealistic assumption that the PERS fund will earn an investment yield of 8 percent each and every year. That’s highly unlikely; for the past five years, the PERS fund yield has averaged only 2.8 percent. The practice of basing these estimates on unrealistic assumptions hides the truth about how seriously PERS is underfunded.
Even if we accept the understated estimates of $14 billion to $16 billion, the negative effect on our cities and counties is substantial — because PERS costs are increasing while real property tax revenues are “compressing.”
The recently released report by the League of Oregon Cities (LOC), “2013 State of the Cities,” explains why property tax revenues are failing to keep up with expenses:
“Measure 5 limits general governments (cities, counties and special districts) and schools to taxing no more than $10 and $5 per $1,000 of a property’s market value respectively. If taxes exceed those limits, the amounts collected are reduced until the limitations are met, a process known as ‘compression.’ ”
The LOC report goes on to say that in 2011-2012 more than half of all Oregon cities were in compression, as were all 36 counties and more than 90 percent of all school districts.
The additional PERS costs to Oregon’s cities and counties during 2013-15 are estimated to be $260 million. This is a 144 percent increase in PERS costs for local governments since 2009-11. The harsh reality is that this $260 million would otherwise help fund local police, sheriff and fire protection, road maintenance, libraries, parks or other quality-of-life services provided by local government.
To put the combined effects of the PERS cost increases and the compression of property tax revenues into perspective, the LOC report says that the city of Salem has been forced to cut its workforce by 115 employees since 2008-09, including 11 police and eight fire department positions, and has cut the hours of operations of its libraries and other services.
The city of Redmond lost 30 percent of its property tax revenue in 2011-12 alone, and has left four city police positions vacant and cut its road maintenance budget in half.
Without action from the Legislature or the people, this squeeze will worsen substantially in the years ahead. PERS costs will increase by nearly $1 billion over the next two years, and there’s no end in sight to the increases. Keeping up with growing PERS costs is like filling sandbags against a rising sea of red ink.
Oregon’s legislators and our governor must be willing to make necessary adjustments to PERS and correct the assumptions that are overestimating returns. To overcome powerful forces that resist any PERS reforms requires public outrage. All Oregonians must demonstrate their unified support for an Oregon budget that works for all citizens. I urge you to communicate with your state senator and representative. Let them know where you stand.
Without PERS reform, skyrocketing PERS costs will continue to depress the quality of life for all Oregonians. Legislators must have the courage to face the challenge and reform PERS without further delay.