Pension-related cost projections for 2019-21 pinch school budgets

Higher-than-expected 2019-21 costs related to employee pensions have surprised some Oregon school officials and could lead them to seek budget cuts in other areas, they say. 

All state employers, including school districts, will learn Friday their individual advisory rates for the Public Employees Retirement System.

The advisory rates are posted now but won’t be official until the PERS Board of Trustees hears the report Friday from Milliman, PERS’ actuary.

In September, districts learned that PERS’ unfunded liability had climbed to $25.3 billion. According to advisory rates, districts would have to contribute $530 million more for the 2019-21 biennium, pushing rates up 6.48 percent. The districts’ average for 2019-21 would be 20.37 percent.

Patt Komar, David Douglas School District director of administrative services, said she had been expecting an increase of about 5 percentage points. David Douglas in Portland instead is looking at an increase of almost 7 percentage points to 30.29 percent of Tier 1 and Tier 2 payroll, one of the highest rates among districts.

“If there is not additional funding, then there will have to be reductions,” she said.

The Jefferson School District in Marion County has relatively low rates because it was able to capitalize on pension obligation bonds in 2003, but its rate will jump 8 percentage points for both Tier 1/Tier 2 and Oregon Public Service Retirement Plan payroll, among the larger increases.

“I knew they were going to go up,” said Jefferson Business Manager Sarah Bishop. “I didn’t anticipate it would be that substantial.” 

Bishop said for small districts such as Jefferson the impact can be magnified, with fewer places to offset expenses.

Because it’s early in the biennium, however, districts are able to take a longer view of absorbing higher-than-expected rates.

“It’s two years out, so we can plan for it,” said Denyce Kelly, director of program resources for InterMountain ESD. She said many districts were feeling good after getting more than they originally expected from the State School Fund, but the larger PERS jump adds some uncertainty.

“If we see a 6 percent to 7 percent increase in PERS, we would consider taking that into account when we go into salary negotiations,” she said.

Kelly said Ballot Measure 101 in January is a bigger concern. If it affects school budgets, there would be less time to plan and spread cuts.

Individual district rates vary widely based on side accounts and the percentages of employees in the different PERS plans. The official rates will be released in the fall of 2018 based on the system’s financial performance as of Dec. 31, 2017.

Milliman will present its regular December report to the PERS board of trustees on Friday. The advisory rates for school districts can be found starting on page 152.

“It’s a good chance for employers to get a sense of what is coming,” said PERS senior policy adviser Marjorie Taylor.

If the PERS fund meets the assumed 7.2 percent rate of return, the average base rate will hit about 30 percent of payroll for 2021-23 and then begin to slowly decline as OPSRP members replace Tier 1 and Tier 2 members, according to the report. Milliman expects the median 20-year return to be 6.72 percent, though, which would lead to base rates flattening out around 30 percent until 2033-35.

Milliman predicted there is a 79 percent chance of base rates going over 30 percent in the next 20 years and a 47 percent chance of rates going over 40 percent.

PERS will post individual rates and valuations on its website as well as sending out reports to employers.

- Jake Arnold, OSBA
jarnold@osba.org