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PERS liability leaves little wiggle room

Business leaders gathered in Portland for their annual Oregon Leadership Summit last week singled out the unfunded liability facing the state's Public Employee Retirement System as a major concern because it could hinder efforts to increase investment in public education and transportation projects the summit participants identified as priorities. Business leaders said PERS reforms should be a top priority for lawmakers in 2017.

The problem is, most of what can legally be done to reform PERS has already been done. The rest either won't pass judicial scrutiny or would require major concessions from public employee unions at the bargaining table.

Oregon's public pension system actually has been in much better financial shape than funds in other parts of the country, despite stock market losses in the recession that pummeled its assets.

Then last year, the Oregon Supreme Court threw out reforms enacted by the 2013 Legislature that reduced cost-of-living increases for retirees in an attempt to save money. The court said the state cannot alter accrued pension benefits after the fact. That ruling means a $5.1 billion increase in PERS costs.

In all, the PERS system is facing an $18 billion unfunded liability. That will have to be made up over the next several bienniums by increased payments from public employers — school districts, cities and counties as well as state agencies.

The Medford School District, for example, faces $2.3 million in additional PERS payments over the next two years. For now, the district plans to dip into its contingency fund, but eventually cuts will need to be made if no new revenue is forthcoming.

The PERS system is a favorite target among critics of government, largely because of decisions made decades ago to reward public employees with generous pension benefits in place of pay increases. A booming stock market then added more money to the pension fund, and some workers ended up earning more in retirement than they did during their working years. Most of the employees in that Tier 1 group have already retired, and the benefits they earned cannot be taken away.

The excesses of that former pension structure have been eliminated for more recent hires. Essentially, PERS has been fixed going forward. But the system must continue to honor its commitment to those earlier retirees as long as they live. That means one of two things: raise more money through taxes, or cut spending.

A third option — continue to adjust the system for current employees by requiring them to contribute more toward their pensions — will face opposition from employee unions, which will demand pay increases to offset members' contributions, thus eliminating any savings.

Business leaders who say they want more investment in schools and transportation should figure out what cuts they would support in other services or what kind of tax increase they could tolerate to raise more revenue.