Hellman: With PERS reformed, what about our other bad financial decisions?
It seems like every time you hear or watch the news about looming school cutbacks, there is also a story about the PERS burden on the state budget. I pay attention to these stories, because as a retired teacher receiving PERS, I haven't stopped caring about the community.
There's no question that irresponsible decisions made years ago have greatly added to the cost of PERS to the state. The PERS obligations have been declared a legal contract by the Oregon Supreme Court, because they are. Gov. Kate Brown is exploring some creative ways for the state to meet those obligations, but that doesn't change the big picture of the PERS costs to state and local budgets.
Recently, every Republican in the Oregon Senate walked out of a session dedicated to increasing business taxes. They left signs demanding "PERS Reform First." In fact, that reform has already happened. Here's the explanation:
The irresponsible decision made by the PERS Board in the 1990s was to give full stock market returns to the many recipients who had opted to receive a fixed rate of 8% return (the average return of stock markets to that time) rather than unadjusted stock market returns, higher or lower than 8%. When those "Tier One" people on the fixed account retired (including myself), the amount of money in their accounts that had to be matched by the government was higher than otherwise because of the extra payments. These higher costs ramified through the years, leading to the current problem.
But the important point is that both the "money match" and guaranteed rate of return that caused the increased costs were reformed out of PERS years ago. Anyone hired after 1996 lost any guaranteed rate of return, and anyone hired after 2003 lost the money match. The major PERS reform has already occurred, and the majority of current public employees have a much lesser retirement plan as a result. They should be left alone. Teachers are already leaving the profession at near-record rates.
The PERS problem is as much a revenue problem as an expense one. The state has made irresponsible revenue decisions that make the PERS one pale in comparison. People don't like to look at these decisions because they have led to their own tax breaks, but they can't be ignored.
Measure 5 and its following measures, which decimated property-based school operating taxes, may well have been the worst and most irresponsible financial decision the state has ever made. The free lunch sold to voters was that "something else" like a sales tax would replace property taxes that were too high so we could all cut our school operating property taxes by more than half. No replacement, aside from limited lottery dollars, was ever made.
My school operating property taxes are still less than they were in 1990 when Measure 5 was implemented. The loss of state revenue from the reduced property taxes is billions of dollars per biennium. This enormous benefit of lowered taxes was as irresponsible at the overly high PERS payments. What has been done to reform this bogus free lunch? Nothing. It is now in the constitution.
Then there is the financially crazy kicker: What kind of business could operate if, without raising its prices, when it had a good year, it had to return larger-than-expected income to its customers? This is what the kicker does, and it is totally irresponsible. No business could operate that way, and the government can't either.
The amount of kicker money lost by the state since its inception is approaching $3 billion, more than six times the entire state's rainy day fund.
What has been done to "reform" this irresponsible tax benefit? While the relatively small corporate kicker has been diverted to the rainy day fund, nothing has been done with the much larger personal kicker. With all the school troubles more than half a billion dollars will likely be refunded to taxpayers this biennium alone.
Then, of course, there are all the huge tax breaks we've given to business over the years, resulting in huge additional losses of revenue to the state. We even had a special session of the legislature to make sure Nike would not pay additional taxes.
The truth is that if we want to undo bad financial decisions, we do have to also consider the revenue side of the equation. The kicker, Measure 5 and successor property tax limitations, and business tax breaks are as unsupportable as policy as the PERS decisions were.
PERS costs are real, but the PERS system was reformed to discontinue bad policy. When will we be able to say the same about the kicker, Measure 5 and excessive business tax breaks?
Walt Hellman is a longtime member of the Hillsboro Planning and Zoning Hearings Board, a retired Hillsboro High School physics teacher, and president of his neighborhood homeowners association.
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