PERS and the city
The coronavirus/COVID-19 impact on Lake Oswego contributions to Public Employee Retirement System (PERS) in future years is likely to be significant. Why is that? Because PERS payments are determined by the value of investments in the PERS system as of December 31, 2019 and December 31, 2021.
As I write this piece, USA equity indexes are down from December 31, 2019. The decrease since December 31, 2019, plus the need to match the PERS target of a 7.2% annual return on investment, means more pressure on government agencies like the city to increase contributions from anticipated contributions.
So, what are the chances of the PERS investments making up the losses plus the targeted annual increases between now and December 31, 2021? Probably, not very good. The result: greater than projected increases in required contributions in the years 2023-2025 and beyond.
Currently, the city pays or will pay about $9.1 to $9.5 million or about 30% of salary for 2019-2021. What will happen when that amount increases to fill the hole left by underperforming to target investments? Here are some possible scenarios:
Between projected PERS contributions, the impact of coronavirus, contracted salary increases, health cost increases, every dollar of projected property tax increase in the next several years and then some will be absorbed. That is before decreased revenue sharing from the state and cost increases in parks maintenance, road maintenance, recreational programs etc.
What has the city done or can do? The city has a number of options. In no particular order, they are:
1) Do not add new ongoing programs. The city offers a wide spectrum of ongoing programs, all of which have supporters. There are always requests for more. Saying no to more is hard, but necessary.
2) No new capital general fund projects except those underway or that use only System Development Charges. System Development Charges can only be used for infrastructure expansion. Repair/replace/upgrade, yes … new, no.
3) If a new program is added, drop an old one so there is no addition of net cost. If there is no additional funding or if funding is going down, then adding a program requires reducing/eliminating other program(s).
4) Raise property tax rates. The city is about $0.06 below its maximum property tax rate. For every penny of increase there is an additional approximately $60,000. It needs to be kept in mind almost everyone in the city recently faced a big increase in property taxes/fees with the city, school, county and Metro bond measures and fee increases. And more school, Clackamas and Metro bond measures are coming.
5) Use up departmental reserves. Each department of the city has funds that were not spent in the previous year. Those funds can be used to pay for PERS increases. That works for a couple of years, but is not sustainable.
6) The City has used up the capacity of the East End Urban renewal district and begun the process of shutting down. This doesn't help in the short term, but will be beneficial over the next two decades.
7) Reduce/eliminate programs/services. Every program/service has advocates. The city will have to decide what is important. The approach of everything is important does not work. If everything is important, nothing is important.
8) Work to become more efficient. Becoming more productive is important. In the service sector there is only so much that can be done. The last productivity increase in haircuts was the electric razor.
There is nuance in looking at PERS impacts. Due to multi-year PERS contributions increases, the city has little to no maneuvering room to maintain existing services.
PERS isn't a black-and-white issue. Our public employees deserve a retirement system they can count on, and contributions into that system are part of what we as taxpayers need to pay if we want quality services. However, that needs to be done prudently, and we have a responsibility — taxpayers and beneficiaries — to work towards PERS sustainability.
Today, PERS is eating away at state, county, city and school budgets. If our goal is "to pay the right benefit, to the right person, at the right time," then we must do more than merely rearrange our prejudices. Otherwise, we're ignoring the warning lights and facing what are sure to be increasingly expensive repair costs.
Jeff Gudman was a Lake Oswego city councilor from 2011-2018 and is a candidate for state treasurer.
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