28 March 2013 Legislative Update – PERS Reform Update

OSCC Legislative Update

 
 THERE IS NO CONFERENCE CALL THIS WEEK. “LIVE FROM THE CAPITOL” CONFERENCE CALLS WILL RESUME FRIDAY APRIL 5 at 2:00.
Update on PERS Reform
Senate Bill 754 is real reform. Senate Bill 822 is not.
The Governor’s proposal. Governor Kitzhaber put the first PERS reform proposal on the table prior to the 2013 legislative session. The Governor’s proposal is modest, but also does some good things with respect to freeing up over $850 million in taxpayer resources that would have otherwise been spent on PERS payments in the 2013-2015 state budget.
The Governor’s proposal does two things. First, it limits the PERS cost-of-living-adjustment (COLA) to the first $2,000 of monthly benefits ($810 million in savings). Second, the Governor’s proposal eliminates the extra PERS payments that are added to cover the cost of Oregon taxes for out-of-state PERS recipients ($55 million).
Total effect of Governor’s proposal: Reduces total PERS unfunded liabilities by $4.7 billion, and saves $865 million in taxpayer money for the 2013-15 budget and beyond that can now be spent on added school days, additional teachers, and added public services instead of PERS payments. Senate Bill 754. This proposal, introduced by the Oregon School Boards Association, is the proposal that is endorsed by AOI and business groups. It is a comprehensive proposal that will free up at least $1.2 billion this biennium to fortify school budgets and public services.
Senate Bill 754 has five components. (1) Like the Governor’s proposal, it caps the COLA to the first $2,000 in monthly benefits. (2) Like the Governor’s proposal, it also eliminates the state tax remedy for out-of-state PERS recipients. (3) It prohibits “spiking” of final average salary used in determining benefit levels. (4) It reduces the assumed interest rate in money match calculations. (5) SB 754 re-directs employee contributions from employee accounts into the pension fund.
Total effect of SB 754: Reduces total PERS unfunded liabilities by up to $6 billion. Immediate budget savings in the 2013-15 state budget of between $1.2 billion and $1.3 billion. Senate Bill 822. This proposal is the newest proposal introduced by the Democratic co-chairs of the Ways & Means Committee – the legislature’s chief budget architects. It is a scaled-down proposal that relies on missed PERS payments to achieve $805 million in savings in 2013-15.
Senate Bill 822 has three components. (1) It has a scaled down COLA limit that is tiered by income. COLA reduced to 1.5% for incomes between 20k and 40k, 1% on PERS incomes between 40k and 60k, and 0.25% for PERS incomes over 60k. (2) Eliminates the state tax remedy for out-of-state PERS recipients. (3) Directs the PERS Board to set aside $350 million in government employer increases that were supposed to be paid into the retirement system over the 2013-15 biennium. This is the exact same thing as skipping a mortgage payment!
Total effect of SB 822: This proposal reduces PERS unfunded liabilities by $2.5 billion. It saves $805 million in the 2013-15 budget, but does so simply by skipping a $350 million PERS payment. This is a harmful accounting gimmick that simply pushes extra PERS costs on to future school kids and school budgets. The long term budget savings are $455 million, which only puts a dent in future cost increases. For more information on SB 822, read the March 26th Oregonian editorial “This isn’t real PERS reform.”http://www.oregonlive.com/opinion/index.ssf/2013/03/this_isnt_real_pers_reform.html#incart_river
The message from local chambers is simple: The Legislature needs to pass SB 754. To add teachers, reduce class sizes, add school days, and help restore local government services – SB 754 is the only bill that will achieve this. Skipping PERS payments – like SB 822 does – is not real reform and simply makes for bigger budget problems in two years.