Despite new bucks, PERS still could gobble up school budgets
SALEM — Educators, students and advocates celebrated as Gov. Kate Brown signed a sweeping new law that could channel about $1 billion per year into Oregon public schools — money critics suggest could end up a casualty of spiraling retirement costs.
Proponents say they built in safeguards to avoid just such a circumstance, and they point to a PERS reform bill that passed the Senate this week as evidence that they're working to control those costs.
The conflicting claims entangle two of the 2019 Legislature's most thorny issues: taxes and pensions.
"Until we get a handle on the PERS problem, we are going to be faced with this in another two years," Senate Minority Leader Herman Baertschiger Jr., R-Grants Pass, warned. "The PERS issue needs to be addressed, and it needs to be solved, or we will not have enough money again in two years to fund our schools appropriately."
The Student Success Act is jammed with provisions for nearly every area of need in Oregon's K-12 schools — from behavioral and mental health support to career and technical education and beyond. About half of the money it raises from a new tax on businesses will be given to school districts as grants. The rest of the money goes to early learning and state programs with defined purposes, like increasing the availability of school breakfasts.
"We built this specifically so that we have a fairly stable funding source that can go forward that's going to go for those things," said Sen. Arnie Roblan, D-Coos Bay.
Meanwhile, PERS costs for public agencies have been growing over the past decade.
Cities, counties, school districts and other public entities are obligated to pay for the benefits they've promised to their workers, and that's forced many of them to find the money by cutting spending elsewhere. For many school districts, that's meant laying off teachers.
Kim Sordyl, a former member of the state Board of Education and a vocal critic of the PERS system, argues that new money will be swallowed up by the ever-increasing amount that school districts contribute to their employees' pensions. "Those contributions are snowballing, and they will eat up most of the Student Success money," Sordyl said.
With or without the extra $2 billion per biennium, school districts will be paying for employee retirement plans, Sen. Mark Hass, D-Beaverton, pointed out. He disagrees with the idea that because their PERS expenses are growing, it's not worth raising revenue for schools. "The logic there is, 'So don't give schools this extra $2 billion, because it will just go to PERS,'" said Hass, who worked on the tax plan. "If you don't give them the $2 billion, this PERS bill doesn't go away."
Cutting school workers?
School districts in Oregon get about three-quarters of their money from the state school fund, and it's up to them to choose how to budget and spend that money, according to Peter Rudy, Oregon Department of Education spokesman. Rudy said the "vast majority" of a school district's expenses, including staffing costs, are paid for with money from the state school fund. Federal money covers most of the rest.
Student Success money is restricted. When they apply for Student Success grants, school districts are required to explain how they will use the money, and they have to report back to the Education Department. There are a number of allowed uses for the grants. Paying for PERS expenses is not one of them, the act's architects say.
"It's not going to go to funding PERS," Roblan said. "It's going to go to funding things in the classroom and making sure our goal of getting to 90-some-percent graduation rate is fulfilled."
The act has an emphasis, Hass said, on "accountability — from application requirements to reports that have to be checked and rechecked by the department." That's not to say Roblan and Hass aren't concerned about the PERS dilemma. Both of them voted Thursday, May 23, in favor of Senate Bill 1049, a bipartisan proposal geared toward reining in rising PERS costs. It passed the Senate 16-12, with five Democrats voting against it and three Republicans in support.
Several public employee unions, including the Oregon Education Association, oppose the bill, but it has the backing of Democratic leaders.
"That is the mechanism to try to address the concerns that all the new revenue will go to PERS," said Ken Rocco, the Legislature's nonpartisan fiscal officer.
Rep. Rob Nosse, D-Portland, said he voted the bill out of committee Tuesday, May 21, and plans to support it in the House "so that the tax increase that I voted for so proudly a few weeks ago has a chance of making a difference in the classroom and the workforce for our schools."
He explained, "School is teachers and professional assistants and janitors … and if the cost of your workforce is going up because the retirement costs are going up, that's going to eat into the Student Success pot."
As PERS drains more and more money from school budgets, Nosse added, it becomes harder for districts to hire staff. That, in turn, means classroom sizes stay large and student needs aren't addressed. "Better schools means more workers," Nosse said.
The state's largest teachers' union sees it differently. "You can't improve schools by losing educators, and that's exactly what would happen if this bill passes," said John Larson, a Hermiston High School teacher and OEA president.
Although he believes reforms are needed, Nosse said it's "agonizing" for him to vote to cut future PERS benefits — not least, he acknowledged, because he's earned the backing of unions. "That is my base," Nosse said. "I mean, I come out of the labor movement in this state."
A former math teacher and principal at Marshfield High School who retired in 2004, Roblan receives nearly $8,000 monthly from PERS. Despite that, he supports efforts to reform the system, and he said he's hopeful that labor groups will recognize the need to rein in rising pension costs.
"It's going to take a lot of work for people, but I have a belief that people will recognize — including employees — if you don't do it, then you lose people," Roblan said. "Or you get bigger class sizes, or you do other kinds of things, because they've only got so much of their resources that they can spend towards (PERS), and they don't get any of these new resources to spend towards it, so it's going to affect other parts of the system if we don't figure out how to get it more under control."
Schools have been underfunded in Oregon since voters approved Ballot Measure 5 in 1990, slashing their share of property tax revenue, Roblan said.
Oregon has one of the country's lowest on-time high school graduation rates — in the continental United States, only New Mexico and Washington, D.C., are worse — and also lags behind most other states on the amount of instructional time it requires.
Now, PERS is putting more pressure on school districts across the state.
The Beaverton School District, the state's third-largest, is contemplating layoffs as it stares at a $16 million increase in PERS costs. "PERS expenses will continue to challenge all governmental budgets across the state for several biennia," Superintendent Don Grotting warned in his budget message.
To the Oregon School Boards Association, that's all the more reason for the state to grant school districts more money to spend specifically on education — reducing class sizes, adding instructional hours, providing more electives and college preparatory courses, and beyond.
"Passing (the Student Success Act) allows them to pay their PERS obligation and also make significant investments into areas … that have potential for success," spokesman Alex Pulaski said.
Democrats and groups like the OSBA were ebullient after House Bill 3427 passed the Senate and was signed into law, with several key senators describing it as one of the most important votes they have taken. Brown officially signed the bill May 16.
"From our perspective, this is the biggest win for Oregon students, for the future of Oregon, that we could have possibly imagined," Pulaski said.
Roblan and Rep. Barbara Smith Warner, D-Portland, who co-chair the committee that developed the Student Success Act, said they made a conscious decision not to address PERS in their legislation. "We didn't tie doing the Student Success work to PERS reform, because as I have said publicly and privately, we've done PERS reform twice in the last 15 years; we haven't done revenue reform in almost 30," Smith Warner said. "That was the highest-priority need."
However, the Senate moved quickly to pass SB 1049, the PERS reform bill, less than two weeks after approving the Student Success Act.
"I think for a lot of us, that was kind of an implicit logic that we need to do both of these," Hass said. "They're both hard votes for everybody."
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