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Small revenue increase won't avoid PERS cliff

Lawmakers are upbeat about last week's revenue forecast, which predicts the state's income will increase slightly, because the Legislature won't have to back away from spending increases approved during this year's session. But while the current two-year budget is sound, the state is facing a massive hole when legislators  start work on the next budget in 2017.

That's because the Oregon Supreme Court struck down significant portions of Public Employee Retirement System reforms enacted in 2013. The result of that ruling, as The Oregonian reported last week, is that the pension system's unfunded liability has nearly doubled, and is likely to exceed $20 billion by the end of this year.

The bills don't start coming due until 2017, but they are coming, and the result will not be pretty.

The state's public employers combined will need to come up with $800 million in pension contributions in the next biennium starting in 2017, $860 million in 2019 and $930 million in 2021, The Oregonian reported.

That means, among other things, that school districts won't have as much to spend on teachers, school days and reducing class sizes, cities and counties will have less for police officers and firefighters, and state agencies will have to lay off staff or leave positions unfilled.

But we're not hearing much discussion of addressing this reality starting in the 2016 legislative session, because the PERS bill won't come due until the following year. Lawmakers are not fond of facing budget shortfalls until they absolutely have to, which is one reason the state tends to lurch from crisis to crisis with periods of calm in between.

Local governments and school districts are being warned to prepare themselves for the hit to their budgets starting in 2017. Lawmakers, too, should prepare, by resisting the urge to spend that increased state revenue in 2016 and instead bank it for the following year, when there will be less to work with.

An initiative petition backed by unions and others intended for the November 2016 ballot would increase taxes on large corporations, raising an estimated $2.5 billion a year — enough to cover the increase in PERS costs and still provide more money for schools and other public services. Whether that is a good idea is a topic for another day; signatures are still being collected.

But regardless of whether new revenue is raised, Oregon's pension system still has years of increasing costs ahead of it, and state leaders should prepare for that now rather than later.