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City Club hears argument for why labor must join business to deal with multibillion liability in exchange for discussion of new taxes for the state budget.

TRIBUNE PHOTO: PETER WONG - John Tapogna, right, president of the Portland firm ECONorthwest, speaks at the Feb. 17 Friday Forum of the City City of Portland on Oregon's public pension system and prospects for additional state revenue. Others from left are moderator Betsy Hammond, The Oregonian; Jim Green, executive director, Oregon School Boards Association, and Salem-Keizer School Board member, and Tim Nesbitt, independent consultant and former president, Oregon AFL-CIO.Oregon's public employee unions have as much at stake as anyone else in resolving multibillion-dollar public pension liabilities, an independent consultant and former Oregon AFL-CIO president says.

Tim Nesbitt said those costs will consume a growing share of state and local government budgets — and unions will have to put the issue on the table in exchange for business groups agreeing to discuss more taxes in the current legislative session.

"If we don't do anything to change the path we are on, we are going to be acquiescing in a major claim on state, school, city and county budgets," Nesbitt said at the Friday Forum of the City Club of Portland.

"If we continue to meet these costs, we are going to have few resources left for pay raises, health benefit increases, staffing and new employees."

Nesbitt spoke at the second of two panels sponsored by the City Club to look at the public pension system and how it relates to prospects for changing Oregon's tax system. Oregon relies almost entirely on personal income taxes for public schools and state services, and property taxes for other local services.

The state faces a gap of $1.8 billion in the next two-year budget cycle that starts July 1. Part of it results from increased pension costs, not only to state agencies but also Oregon's 197 school districts, which get the lion's share of operating money from the state.

According to projections by the actuarial consultant for the Oregon Public Employees Retirement System (PERS), contributions by the more than 900 government employers have a 50-50 chance of reaching 30 percent of payrolls in a few years.

The average rate will jump by 4 percentage points, to 21 percent, in the 2017-19 budget cycle. The rate increase could have been as much as 11 percentage points, but because of a PERS Board rule, part of that increase will be spread over two more budget cycles through 2023.

The projected 20-year actuarial liability of the system is close to $22 billion.

About two-thirds of that total is owed to retirees who earned benefits before a 2003 overhaul of the system. About half of Oregon's 200,000 public workers now are covered by the new system, which offers less generous benefits than the pre-2003 plans.

"It is still a better plan that anything I had in my 25 years in the union movement," said Nesbitt, who was deputy chief of staff — and for the final six months, chief of staff — in Gov. Ted Kulongoski's second term in 2007-11.

The Oregon Supreme Court ruled in 2015 that lawmakers cannot reduce pension benefits retroactively, but they can modify future benefits — lower cost-of-living adjustments now apply — or have employees share pension costs.

"It would not be fair to ask employees to completely solve this problem and shoulder all of the burden," Nesbitt said. "But I think it's incumbent on them to look at the effects on budgets, service levels and the quality of their work life — and to find solutions so we can manage this going forward."

Some union advocates argue that public employees did not create the huge liabilities and that some way should be found to accept those obligations. But Nesbitt said business groups and Republicans, whose support is needed for new taxes, will not accept that.

"If what we are proposing to use the (new) revenue for is to continue to chase deficit budgets and try to catch up with these unpaid bills for PERS, voters will not see that as much of a gain," he said.

In addition to pensions, John Tapogna, president of the Portland firm ECONorthwest, said lawmakers also could take a harder look at health insurance costs for public employees — spotlighted in a newly released report from the Center for Public Service at Portland State University — and the number of people in state prisons and local jails.

In response to an audience question, Jim Green, executive director of the Oregon School Boards Association, said bankruptcy is not an option for local governments in Oregon.

Green said the least likely options for new money are a retail sales tax — Oregon voters have rejected it nine times, most recently in 1993 — and higher property taxes, which voters put limits on in the 1990s.

Green said Measure 97, a corporate tax increase that voters defeated Nov. 8, was "a bridge too far," given that lawmakers would have gotten total discretion over $3 billion annually in new revenue.

In an introduction, John Horvick, vice president of the Portland firm DHM Research, said Oregonians value a variety of things — the environment, education, housing, public safety and transportation — but do not assign a strong priority to just one.

"We need to recognize one thing: We have to pay for it," Green said.

Green said Oregon has its partisan splits. Democrats control the governorship and both legislative chambers, but lack the 60 percent majority to approve new taxes.

"But whether you are a liberal Democrat or a conservative Republican, you are an Oregonian," he said. "You ought to care about what we do in this state for our kids, our roads, and our most needy across this state."

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