Changes To PERS Advance To Oregon Senate

Tight-lipped Oregon legislative leaders on Tuesday set the stage for tense votes in the House and Senate over a controversial pension bill that is opposed by many public employees.

In a quick series of votes in the Legislature’s budget committee, lawmakers approved a measure that would require teachers and other state and local government workers to divert a portion of their retirement contributions to paying down the system’s $27 billion debt.

“It’s something I thought I would never do,” said Rep. Paul Holvey, D-Eugene, of reducing retirement benefits. But the failure to act, he said, will result in employer rate hikes that “will cut services — and people will lose jobs.”

The biggest savings in Senate Bill 1049 wouldn't come in reductions to pension benefits. Those are relatively low compared to benefit cuts sought by many Republicans and business lobbyists. The biggest financial change comes in stretching out the period for repaying most of the debt from 20 to 22 years.

That may seem like a small difference, but it provides about two-thirds of the savings in the bill. Overall, the measure is projected to reduce the rise in employer rates by 5.4% of their payroll.  The measure also calls for diverting  $100 million in profits from the State Lottery’s planned foray into sports betting, with the money being used to help pay down the pension debt.

Sen. Fred Girod, R-Stayton, who helped negotiate terms of the bill, said it does less than he would like in grappling with the long-term financial problems facing the Public Employees Retirement System.

Related: Oregon Legislative Leaders Present New Plan For Tackling Big PERS Debt

However, he added, “we have a huge mountain to climb between now and 2035, and this really kind of levels that mountain.”

Girod said he remains worried that the state will once again fall into a deep recession that will slash investment returns and once again put the state into a big hole.

Legislators are under heavy pressure to cut the system’s debt, which is forcing PERS to raise retirement costs to state and local government to levels never seen before in Oregon. The average public employer will soon start paying 25% of salary in retirement costs.  And if nothing is done, that will rise to more than 30% and stay there until the mid-2030s.

The bill was primarily put together by Senate President Peter Courtney, D-Salem, and House Speaker Tina Kotek, D-Portland. Their agreement to grapple with PERS assured the support of a key legislator – Democratic Sen. Betsy Johnson of Scappoose — for the $1 billion-a-year business tax hikes for schools that were approved last week.

On Tuesday morning, Courtney, Kotek and Johnson sat stonily as the bill was approved by a subcommittee of the Joint Ways and Means Committee. In the afternoon, the full committee passed the bill on a 15-5 vote. All the no votes came from Republicans, but several Democrats said they were only voting yes to get out of committee and intended to oppose it on the floor.

Sen. Rob Wagner, D-Lake Oswego, noted that he has come to understand the complex PERS system while working for both organized labor and management. But he said that in the end, he had to oppose the bill because it’s not right for legislators to cut benefits without letting firefighters, teachers and other public employees work it out at the bargaining table.

Workers “know and they’re used to it that there will be wage cuts,” Wagner said.  “They understand the math. They just want to be at the table when they talk about the dignity of their retirement security.”

The committee action set up tense votes in both the House and Senate that will likely require support from Republicans — who are in the minority in each chamber — to win passage.

Union officials said they will lobby hard against the bill, and they’ve also made it clear they intend to go to court to overturn the measure if it is approved.

“This is feeling like it is a very personal attack,” said OEA Vice President Reed Scott-Schwalbach, a Spanish teacher in Gresham, “and people are letting their legislators know how disappointing this is.”

Related: 'OPB Politics Now:' The $22 Billion Question: Understanding PERS

Several PERS employer groups — such as the Oregon School Boards Association — as well as business leaders back the bill.

“This is not everything we want,” said Sandra McDonough, president of Oregon Business & Industries, “but it’s something.”

McDonough said she and other backers of a proposed initiative that would make bigger changes to the state pension system have not yet decided whether to attempt to take it to the ballot in 2020.

Under SB 1049, PERS would divert a portion of employee retirement contributions that now flow into an individual retirement savings account. Workers hired before 2004 — and who have the most generous pensions — would see 2.5% of the 6% of the salary they put into retirement diverted to paying off the debt.

Newer workers would see 0.75% diverted.

In addition, workers earning under $30,000 a year would not be affected.

Supporters of the bill did drop one earlier provision that had angered many public employees. It would have reduced the interest rate used to calculate pension benefits for some long term workers. PERS officials say questions about its legality led to its removal.

In another development, Courtney did break his silence on the bill to announce that the state-owned workers compensation insurer — SAIF — has agreed to take an estimated $91 million out of its reserves to pay down the unfunded pension liabilities of its own workforce.

Gov. Kate Brown had once hoped to tap hundreds of millions of dollars out of SAIF’s reserve, as did public employee unions. But that was heavily opposed by business groups, and the idea was dropped amid negotiations with businesses over the bill to raise taxes for schools.