Outgoing Oregon Investment Council Chairwoman Katy Durant said Oregon lawmakers have failed to face up to the state’s huge unfunded pension liability, which she said Monday could run well above the oft-quoted estimate of $22 billion.
At a state Capitol roundtable hosted by Sen. Betsy Johnson, D.-Scappoose, and Sen. Tim Knopp, R-Bend, Durant repeatedly outlined the damage that schools and other public services will suffer if the state fails to curb the growing deficit of the Public Employees Retirement System (PERS). The Oregon Investment Council is charged only with investing PERS dollars and not with developing state pension policies, but Durant said she and other council members have pushed back against those who want them out of any policy debate.
She said it is up to Oregon Gov. Kate Brown and lawmakers to address the issue, adding, “I don’t think the unfunded liability is $22 billion. I think it’s much higher.”
OSBA Board Member Cheri Helt (Bend-La Pine) told the gathering of public officials, lobbyists, and others that PERS cost increases are eating away at school staffing and programs. The next round of PERS increases will cost Bend-La Pine $4.5 million, Helt said.
“We will have to cut jobs or cut days,” she said. “It’s days or it’s programs or it’s teachers.” Already, she said, teachers are responsible for over 200 students a day and Helt fears losing good but overworked teachers.
No one minimizes the political and legal challenges of cutting PERS costs. In 2015 the Oregon Supreme Court struck down the Legislature’s 2013 attempt to scale back some benefit increases for retirees.
The court’s ruling that struck down the Legislature’s “grand bargain” and added $5.1 billion to the system’s unfunded liability, PERS estimates. Yet some argue that there is still room within the law to cut future benefits for current employees.
Durant, wrapping up nearly 12 years on the Oregon Investment Council, listed seven suggestions that would in some cases trim costs and in others would help create a political environment more receptive to change.
First, she said, “let’s be honest about the (size of) the unfunded liability. “ Second, the state should begin paying down the principal on that liability. Next, she recommended shifting elected officials and judges who are making or interpreting laws about PERS out of the system by giving them a 401(k) retirement plan, saying that as PERS beneficiaries they have a conflict of interest in working on laws that will affect them personally.
Durant suggested that government agencies establish “a mechanism to terminate non-producing employees,” an idea she quickly recognized as highly controversial. She also suggested increasing the PERS retirement age, now set at age 58; shifting some employee pension payments away from personal accounts and into the pension fund; and freezing cost-of-living increases until the PERS system is funded to at least a 90 percent level. The system is now about 71 percent funded.
Johnson and Knopp appear to be fighting a lonely campaign to keep the PERS issue front and center as the Legislature prepares to tackle a $1.7 billion funding shortage in the next biennium. Rising pension costs account for about 20 percent of that total. The bipartisan workgroup formed by the two senators has no official standing as a legislative committee.
Among OSBA’s legislative priorities in the coming legislative session are revenue reform and addressing cost drivers such as PERS.
Johnson and Knopp both shared Durant’s message about PERS costs as well as the difficult political outlook for addressing a complex and politically volatile issue.
“If we kick the can another biennium or two, I think the problem is basically unsolvable,” Knopp said. “There will be disinvestment in services the public needs.”