PERS bill drama warns of story lines still to come

Rep. Mitch Greenlick (center) was called from his desk on the House floor. When he returned, he changed his vote to support to support public pension reforms. (Photo by Jake Arnold, OSBA) 

The House passed a public pension reform bill Thursday, May 30, in one of the most dramatic votes this session.

Senate Bill 1049 will save public employers hundreds of millions of dollars by spreading out payments and reducing benefits beginning next biennium. It will lower average statewide public employer rates an estimated 5.4 percentage points, starting in 2021-23, using multiple tactics: 

• It adds two years to the payback period for some of the debt. The accounting move will hold rates below current projections for the next decade, but public employers will pay out more over the long run.
• It redirects a portion of employees’ contributions to the Individual Account Program, which is like a 401(k), to pay off PERS debt. Tier 1 and 2 employees, who have richer pension benefits, will redirect 2.5% of their pay, while Oregon Public Service Retirement Plan members will redirect 0.75%. Employers pay the contribution and the change would not lower employees’ pay, but it would decrease the size of their eventual retirement accounts.
• It caps the final average salary for pension calculations at $195,000 and allows retirees to work after retirement.
• It allocates $100 million plus future sports betting revenue to a state matching fund for side accounts that help lower employers’ rates.

The bill’s provisions would reduce employer contributions by $1.2 billion to $1.8 billion a biennium, according to the Legislative Fiscal Office. Nearly three-quarters of these cost savings come from the  reamortization.

Rep. Paul Holvey, D-Eugene, carried the bill. Throughout his more than 15 years in the Legislature he has been a champion of organized labor, which opposed the bill. His conflict in carrying this bill was immediately apparent.

“I know a lot of my good friends in labor are really angry with me for doing this, but I swore an oath to serve the state of Oregon,” he said in his introduction of the bill.

The bill, he said, was imperfect, but without support for tax increases to pay down PERS debt the state didn’t have many options to stem the impending pension crisis.

Republican legislators spoke against the bill, including Rep. Gary Leif, R- Roseburg. Leif said the Legislature had made a promise to public employees that should not be revised.

Holvey, in his closing statement, took umbrage with opponents’ rhetoric. He said Democrats had tried to raise taxes to cover the state’s obligations to workers but had been blocked by Republicans.

After a long pause for the final vote from Rep. Mitch Greenlick, D-Portland, who appeared to be struggling with his choice, the bill initially failed 29-31.

House Speaker Tina Kotek held the vote open, though. She called several Democratic legislators who had voted no into individual meetings. Presumably, these meetings were not comfortable.

Approximately 25 minutes later, two representatives, Greenlick and Rep. Andrea Salinas, D-Lake Oswego, changed their votes to yes, giving the bill the required 31 “ayes” for passage. No Republicans voted yes.

OSBA supports the bill, which has drawn praise from public employers and business groups. All sides agree PERS’ growing bite out of public services, including education, must be curbed. School districts’ average PERS cost for 2019-21 is expected to be roughly double what it was in 2015, with base rates approaching 30% of payroll.

The longer debt payback made some legislators uncomfortable, but most of the debate focused on the decreases to employee benefits. Public employee unions, including teachers, have protested the bulk of the PERS pain falling mostly on newer hires.

The bill leaves no one happy. Republicans would like to see more cost containment. Democrats would like to see the payment burden more evenly distributed, but fiscal responsibility was part of the bargaining for other legislation they supported, including the Student Success Act to infuse $1 billion a year in new tax money into education.

Multiple public sector labor organizations have described this bill as a betrayal. Some progressive Democratic activists have gone so far as to call for primary challengers to the “yes” Democrats in the 2020 election.

Because Kotek was able to push this priority bill through without GOP votes, the Republican Party lost the ability to trade members' support for concessions on other bills. The minority party has few leverage points for the rest of the session. 

The PERS problem has not been laid to rest either. Rates continue to be painfully high, and when a long-expected recession hits, it will likely worsen PERS’ financial situation.

At the same time, this bill’s modest changes will be challenged in the courts.

SB 1049 is a step in the right direction, but it will take continued public pressure to move Oregon down the path to a sustainable benefit system.