Oregon Gov. Kate Brown unveiled a comprehensive plan to shrink school pension costs by diverting some revenue streams and requiring employees to contribute more.
The proposal released Friday prioritizes reducing the pension liability for school districts over that of other public employees in the state’s Public Employees Retirement System to prevent teacher layoffs, Brown said in testimony before a Ways and Means subcommittee.
“I’m introducing a detailed framework for achieving my primary goal this session for PERS: stabilizing PERS rates for schools,” Brown said. “My solution is focused on achieving this equitably and fairly through a shared responsibility model.”
PERS, currently funded at 80%, has an estimated $26 billion deficit. The system provides pensions for 900 employers in the state, including cities, counties, police departments and fire districts as well as school districts.
Brown formed a taskforce last year around reducing the pension liability. Some of the ideas in the new plan have already been introduced.
“Today, the PERS system is underfunded: the funded status is 80%,” Brown said. “But what may surprise you is a majority of states are worse off. So regardless of what you may have heard, we are not smack in the middle of an immediate crisis like other states.”
She added, however, that Oregon’s crisis is just over the horizon. “We can see it coming, and we must do something about it this session.”
She cited Hillsboro school district as an example where the PERS rates for the 2019-21 biennium are just over 28% of payroll, but would increase to more than 33% by 2021-23, costing the school district and additional $1.9 million.
“This is on top of other increased costs. What will the district do? I think you all know the answer, because some are doing it now: cut teachers,” Brown said.
Portland, North Clackamas, Salem and virtually every other school district in the state is in a situation similar to Hillsboro, Brown said.
It will cost $2.5 billion over the next 16 years to cover the unfunded liability costs.
Educators have balked at the aspect of the proposal that asks them to contribute more.
“I can’t believe the governor would suggest cutting teacher salaries, especially in a moment when we are finally talking about investment in schools,” John Larson, president of the Oregon Education Association said.
One aspect of the proposal would institute pension contributions from employees for the first time in Oregon. Today, employees’ 6% retirement contributions go into a supplementary defined contribution plan similar to a 401(k).
The governor’s plan calls for active Tier 1 and 2 members of PERS — those hired before August 28, 2003 — to contribute 3% of their pay to an account that would help pay for their pension benefits. Employees’ first $20,000 in salary would be exempt from the contribution.
Those hired after that date, called Tier 3, would contribute 1.5% of their pay after exempting the first $20,000 in salary.
Those changes could bring in about $100 million per biennium starting in the two-year budget cycle that begins in July 2021, and increase gradually from there.
Her proposal would also cap the personal kicker tax rebates that taxpayers are expected to receive when they file their 2020 taxes. Taxpayers would receive the first $100 in rebates and the remainder would go into the schools account. That would contribute an estimated $400 to $500 million, but it would require a supermajority vote in the Legislature.
Interest on unclaimed property held by the Department of State Lands and state debt collections exceeding historical averages. The governor’s office estimates that could raise $185 million over 15 years.
Transfer nearly $500 million of the $2 billion capital surplus at SAIF Corp, a state-owned workers’ compensation insurance company, to the school fund. This could be accomplished with a simple majority vote of the Legislature.
Transfer $100 million in general/lottery funds that the governor included in her proposed budget, plus an estimated $83.3 million in tax revenues from the repatriation of corporate profits formerly held abroad that was stimulated by federal tax reforms passed in 2017.
On top of those one-time sources, the governor wants to redirect $1.6 billion in state revenues to the fund over the next 15 years. Those include tax dollars that lawmakers already agreed to divert to help schools in 2018. But the governor wants to extend the period they would be dedicated to the school district account from six to 15 years.
That includes diverting capital gains and estate tax revenues that exceed a rolling historical average that could raise an estimated $1.4 billion over 15 years.
