AFT-Oregon

04/19/2019 | News release | Distributed by Public on 04/19/2019 16:12

Public Employee PERS Tax: Unfair, Illegal and Ill-conceived

Top Problems with Governor Brown's 'Shared Responsibility' proposal

Governor Kate Brown's proposal to cut public employee retirements has serious legal and fairness issues. This proposal would implement a new tax on current working public employees - either taken out of salary or retirement benefits - to pay the state's high legacy costs for people already retired. In addition, this proposal puts public employees on the hook for future market downturns. Her plan is deeply problematic for the following reasons:

LEGAL ISSUES

This proposal would send the state into another expensive and lengthy battle at the Oregon Supreme Court. $5 billion had to be repaid after the Moro et. al. v. State of Oregon lawsuit, which was the largest contributor to the UAL in 2014.

  • Legal problem number one: Legislative Counsel analysis states that it would be unconstitutional to require current employees to pay for the Unfunded Actuarial Liability. (LC Opinion Letter, August 31, 2016, p. 9).
  • Legal problem number two: Even if a bill was drafted to find a loophole to avoid that Constitutional protection for employees, the proposal creates a brand new system that has never been tested in court before. This opens up a brand new opportunity for court challenges.

FAIRNESS ISSUES

This proposal is simply unfair.

  • Fairness problem number one: This assesses a new cost to public employees either from their salary or what they currently pay into their retirement Individual Account Program to pay the state's obligation to people already retired. That's a new and targeted tax on public employee benefits.
  • Fairness problem number two: A significant percentage of the public workforce earns less than $60,000 a year, leaving them completely dependent on PERS for any hope of retirement. Since the large 2003 pension cuts, PERS members now contribute 6% of their salary into an Individual Account Program that fluctuates with the market. For retirement security, that 6% contribution is essential. This proposal will take money out of their already tight budgets and reduce the Individual Account Program they were counting on and were promised.
  • Fairness problem number three: Under the proposal, future public employee taxes would be assessed if investment returns for the pension fund drop below 90%. This is not only unfair to working people because it holds them accountable for Wall Street problems, it creates massive instability and insecurity for their retirement funds.
  • Fairness problem number four: While the details of the proposal are so far vague, media reports state that the proposal taxes the retirements of all public employees and dollars from SAIF and the kicker to pay only for education retirement costs. This leaves local public safety, cities and counties on their own.

CREATES NEW PROBLEMS FOR SCHOOLS, PUBLIC EMPLOYERS

This proposal will drive people out of public service and raise costs.

  • New problem number one: Loss of teachers. New teachers in Oregon already make $10,000 less than their counterparts in Washington. They also earn 22% less per week - not per year - than workers in the private sector with similar education and experience. Teachers are already working second jobs during the school year just to get by and Oregon has seen a 49% loss of college students pursuing education degrees over the past 10 years. Further cuts to retirement benefits and taxes only on teachers and other public employees will force them out of the profession, reduce the quality of candidates, and hurt students.
  • New problem number two: Mass retirements. More than 30% of public employees are eligible to retire today. The last time cuts of this scale were passed, there were a record number of retirements - 4,700 school employees left in 2003 alone. (Oregonian, 12-26-2003). School districts, local governments and the state faced workforce shortages. We already have a serious lack of 911 operators, educators, child welfare workers, corrections officers, and other employees. A new benefit tax will make recruitment and retention even harder.
  • New problem number three: Increased costs: With these cuts, employers will have to increase salaries and other benefits to recruit and retain qualified employees and make up for the new benefit tax.

SOLUTIONS

Solutions should focus on the long-term stability of the public workforce and reducing the unfunded liability without additional costs to employers.

  • Solution number one: SAIF reserves. As the Oregonian has reported, $1.4 billion in SAIF reserves could be used for PERS without changing its operating model. Instead of giving out millions in reserves as dividends, these dollars should be used to buy down the unfunded liability.
  • Solution number two: Consider extending the amortization. Oregon's aggressive amortization length for the unfunded liability has increased costs to employers. If the timeline to manage at least part of the unfunded liability was extended, costs would drop. This option should be studied further.
  • Solution number three: Maximize real estate holdings. According to recommendations by Gov. Brown's 2017 UAL Task Force, there are a number of real property assets held by the state which are no longer in use, or for which there may be a higher value use. More analysis is needed to identify those properties as well as those held by local governments that could be sold to buy down the PERS UAL.
  • Solution number four: Increased Lottery Revenue. According to Gov. Brown's 2017 UAL Task Force, targeted and expanded lottery offerings would be allowed under the law and would assist in buying down the unfunded liability.
  • Solution number five: Address PERS as part of total compensation rather than an isolated issue. Public employees earn less in salaries and benefits, which are essential for recruitment and retention of a quality workforce.