Sal Peralta - Don't circle PERS wagons
As the 77th Oregon Legislature heads into its second month, battle lines have been drawn over Gov. John Kitzhaber’s effort to rein in the cost of the state’s Public Employees Retirement System.
State and local governments face an $800 million shortfall in the current biennium as a result of increased PERS costs, which ballooned from 9 percent of the state’s payroll in 2001 to 21 percent in 2012.
These increased costs have contributed to cutbacks, including unpaid furlough days for state workers, a shorter school year, fewer teachers and a litany of other problems for state workers as well as for Oregonians who depend on the services provided by teachers, state police officers and other civil servants.
The governor’s budget proposes to address these shortfalls and contain system costs. It would apply cost-of-living increases to only the first $24,000 in annual retiree benefits and eliminate, for PERS retirees who leave Oregon, a 9 percent payment intended to cover state income taxes. These two seemingly small changes will save the state of Oregon more than $870 million in the next legislative biennium.
The fact that these proposals are controversial may be a surprise to Oregonians who have spent their careers in the private sector, where raises and cost-of-living adjustments are predicated on the health of the company providing the benefits.
But in the world of state government, addressing retirement costs for state employees presents significant challenges for reform-minded elected officials.
With more than 340,000 active and inactive enrollees, those whose lives are affected by PERS constitute a massive voting bloc in a state with just 2 million registered voters, and lobbyists representing unions hold dominant positions in state government.
During the past 10 years, the state’s two largest public employee unions — the Oregon Education Association and Service Employees International Union (SEIU) — together have spent more than $25 million in state and local elections, making them easily the two largest political contributors to Oregon campaigns. Almost all the money has flowed to Democratic candidates and causes.
The last Democratic governor to take steps toward containing the cost of PERS drew a primary challenger endorsed by SEIU. The union also spent roughly $500,000 to defeat Greg Macpherson, a Democrat with a leading role in negotiations on the governor’s behalf.
Naturally, the first impulse of these lobbyists, so accustomed to getting their way, is to circle the wagons to protect their members’ benefits. There’s good reason to question the wisdom of that impulse. Although the governor’s plan is a bitter pill for state workers, it also is an essential first step toward turning the state of Oregon around.
Oregon ranks 35th in per capita income, 30th in K-12 education spending. Returns on that investment aren’t great. Oregon ranks 47th in high school graduation rates and student-teacher ratios. We are in the bottom 10 percent of student instructional hours.
These poor rankings indicate our state is trailing the nation. They suggest our economic problems likely will worsen over time and will continue trends of the past. Forty years ago, Oregon workers earned 108 percent of the national average; today, their wages have fallen to 91 percent of average.
These problems are bigger than PERS, but they underscore the challenges Oregon faces.
We need more teachers but cannot afford to hire them. As PERS costs grow, they will take a bigger and bigger bite from state services. As that happens, we can expect voter frustration to increase.
One need only look at what happened in Wisconsin, once a reliably Democratic state, where benefits had similarly grown out of control. The state has shifted solidly into the Republican camp largely because public employee unions refused to make concessions.
Voters will tolerate declining services and increasing costs for only so long before they take action. Unions and their allies in the Legislature would be wise to take steps now, before voters take matters into their own hands, resulting in a costly, divisive fight.
The governor’s proposed reforms will enable the state to control costs and hire 500 additional teachers without affecting the lowest-paid retirees.
Gov. Kitzhaber wrote the right prescription for Oregon.
Guest writer Sal Peralta is a media consultant for the News-Register and secretary of Oregon’s Independent Party. He lives in McMinnville with his wife, Tanya, daughter Bella, and two dogs. When he is not working or thinking about public policy, he can usually be found playing the violin or in his man cave learning how to produce videos.