Oregon Public Broadcasting

Oregon’s unfunded pension liability jumped $3 billion since it was last calculated. The long-term debt announced Tuesday at the Public Employee Retirement System’s board meeting means school districts and state and local government agencies need to pay more money into pension funds.

Rob Manning was at today’s PERS meeting and joins me now.

Beth Hyams: What kind of increases are we talking about here?

Rob Manning: The overall liability, as you mentioned went up three billion, from $13 billion up to $16 billion. It’s complicated to explain – but that number in reality, is a little lower, because some school districts have taken out bonds to pre-pay some of that obligation.

Beth Hyams: How did it get so high?

Rob Manning: The costs are driven by money that’s obligated to current and future retirees. Money to pay those costs comes from two places: earnings in the market, and contributions from public sector employers, like school districts and state agencies. Since the market has not kept up with the 8% growth built into the system, public employers are having to pick up the slack.

Beth Hyams: And how much are those contributions going up?

Rob Manning: We don’t know the specific numbers on individual governments or school districts, but it could mean an increase of forty or fifty percent.

The PERS board looks at the cost to public employers by calculating it as a percentage of overall payroll. For the current biennium, average contribution rates for local governments and school districts are around ten or twelve percent – schools are a little higher. But for the biennium starting next July – the 2013-15 cycle – average contributions jump to fifteen to eighteen percent. That might not sound like a lot – but it’s a lot of money, because you're you’re talking about huge numbers when you take payrolls for school systems, local governments and state agencies.

Here’s how James Dalton breaks it down – he’s the chair of the PERS board.

James Dalton: “If you look over the biennium, that’s about a billion-one, just to cover the same payroll.  So, that means if your budget remains flat as a state agency, you have to find that billion-one somewhere else, just to pay for the increased cost of PERS.”

Now, this is not a uniform increase by any means – but the costs could mean cuts to school and city services.

Individual school districts and local governments have separate liabilities – some have higher pension costs, and some have absorbed costs by taking out low-interest bonds to pre-pay their retirement costs.

Beth Hyams: Is this a one-time charge – or are PERS costs going to continue to go up?

Rob Manning: If we go back to the main principle involved – that pension funding comes from the market and from employer contributions – then one way that costs could conceivably come down is if the market performs better. But PERS relies on an 8-percent return – in 2011, the returns were decent, but were still below that. In order for employer contributions to really start heading down, the market would have to do better than 8 percent.

Beth Hyams: California Governor Jerry Brown announced a deal earlier today with public employees to our south intended to save money. Oregon has taken steps to rein in PERS in years past. Might Oregon take another stab at reforming PERS?

Rob Manning: As you said, PERS has been changed twice in the last 15 years or so. Both times, new “tiers” of employees were created with less expensive pension plans.  Attempts to change existing benefits for current workers or current retirees have been challenged in court by public employee unions. But those challenges  have often been thrown out.

There are advocates from various directions looking at potential changes to the system that could survive court challenge, and we may hear about some, leading up to the 2013 legislative session.

 

Beth Hyams: Before then, though, we’ll hear more about the costs to individual cities and school districts?

 

That’s right. In a month, the PERS board will receive numbers on how much the increase will add to the pension bills for cities and individual school districts. 

This story originally appeared on Oregon Public Broadcasting.

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