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PERS Plan May Cost Business, Consumers Dearly

Thursday, September 21, 2017

by Mark Hester
Oregon Business & Industry

The Public Employees Retirement System (PERS) Unfunded Actuarial Liability (UAL) Task Force described each of its first two meetings as “brainstorming,” but it’s already clear that most of the proposals discussed so far would create a storm of controversy.

Perhaps, that is unavoidable given the magnitude of the problem the task force is charged with studying – ways to reduce the $25 billion PERS unfunded liability. But there also should be concern that the long-term harm caused by many of the proposals would outweigh the short-term budget benefits. Making a small dent in the unfunded liability will not be enough to stop the long-term growth of PERS, which threatens to soon account for as much as 30% of payroll costs for some school districts.

Task force member Cory Streisinger, formerly of Oregon’s Department of Consumer and Business Services, acknowledged the tradeoffs that exist. “None of our choices are free from downsides,” she said.

Here’s a look at some of the ideas discussed in the first two meetings and the problems they could create.

Taking money from the reserves of the State Accident Insurance Fund (SAIF):

This is one of several possible changes to SAIF, the workers’ compensation insurance program for Oregon employers, that the task force discussed. SAIF’s $1.6 billion surplus may look like a tempting target, and the state could take some of that money and still meet regulatory requirements.

But there are several reasons this is a bad idea:

  • The “surplus” is really working capital. Unlike many businesses, SAIF has only one source of revenue, which is susceptible to economic slumps or unexpected events and, therefore, it needs more money in reserve than a typical business or government agency would.
  • A smaller “surplus” would lead to increased risk and higher rates for its employer customers, many of whom are small businesses without other options for workers’ compensation insurance.
  • Oregon’s workers’ compensation system is one of the best in the country. It doesn’t make sense to risk breaking a program that works well to make minor improvements in a different government program that already is broken.

Operating the Oregon Liquor Control Commission (OLCC) more like a business:

Though the task force inched away from the idea of privatizing OLCC, it did discuss making other changes to reap more revenue from liquor sales. Just as changing SAIF would lead to higher workers’ compensation rates, some of the OLCC ideas – especially increasing liquor taxes – would lead to higher liquor prices.

Other ideas, such as increasing the number of liquor outlets and improving marketing would pose another potential problem, noted task force member Charles Wilhoite of Willamette Management Associates. Increased consumption of alcohol could have health and social costs, he said.

Privatizing some functions of public universities:

The task force discussed several ways to sell assets or transfer control of some operations at public universities and colleges. This idea is ironic, considering that the motive for reducing PERS costs is to make more money available for education. If there is a way to operate universities more efficiently and profitably, the benefits should go to students in the form of lower tuition – not to PERS recipients.

Applying some of the money in state rainy day funds toward PERS:

This idea goes beyond ironic. It’s wrong and should be discarded. Oregon has one of nation’s most volatile fiscal structures. The state, like the nation, is deep into an economic recovery and growth is slowing. Rainy day funds should be preserved for an inevitable downturn.

To read the reports submitted to the task force, click here.

With each of these and other ideas – such as raising fees for licenses and services – that the Task Force is considering, somebody will end up paying more or taking on more risk, whether that is the private sector employees and employers who rely on and pay for SAIF, or anyone that goes to a liquor store or on a fishing trip.

The task force will present its recommendations to the Governor, who then could propose legislation to be considered in the 2018 Short Session. But before asking Oregonians to pay more, the Legislature needs to do what it failed to do in 2017 and make a serious effort to control spending.

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