Issues
Could Bigger PERS Payments Mean Fewer Teachers in Lane Co.?
Recently a highly placed official with Eugene 4J Public Schools spoke off the record with a member of Lane Solutions’ editorial staff. He revealed to us the cold, hard facts about the coming mandated increase in Public Employees’ Retirement System (PERS) payments and their effects on Eugene students.
During the coming biennium, mandated PERS payments by Eugene 4J will increase by 6.55%, or about $4,900,000 per year. By State law this, plus current PERS payments, must be made first. In other words, before 4J hires one more teacher, buys one new textbook, or makes one new computer available to our children, it must pay this additional amount into employee retirement.
So, what will this increase cost our children? Plenty. According to this official, a teacher costs 4J about $95,000 per year. Each one percent increase in PERS payments costs about $750,000 per year. So every one percent increase in PERS payments means that our children lose almost eight teachers!
The cost of a 6.55% PERS increase? The possible loss of nearly 52 teachers! The result – more kids per class and less education.
Should the PERS increase be covered by teacher layoffs, who will lose his or her job? Thanks to union rules seniority trumps teaching ability, performance and results. So the last hired become the first fired. This means that less expensive teachers are the first to go. A first year teacher costs about $32,000 less than a teacher with 20 years seniority, or about $63,000 per year. If all the layoffs come from this group, 4J will have to lay off 78 teachers!
In previous issues of Lane Solutions readers have learned how PERS rules and disputes concerning them are both made and adjudicated by the very State officials who profit from their own decisions, thus stacking the deck against taxpayers.
One result of this stacked deck is that PERS retirees are compensated for Oregon income taxes they must pay on their PERS income – even if they live elsewhere and therefore don’t pay Oregon income taxes. That’s right – a PERS retiree living in Delaware gets money from Oregon taxpayers for the Oregon income taxes he or she doesn’t pay!
The 4J official who revealed for our readers the true cost of PERS increases concluded the interview with some even more disturbing news: The increase in health insurance premiums is even larger than the PERS increase, and so may result in even more teacher layoffs. But more about that in a future issue of Lane Solutions.
PERS Members Both Write and Benefit From PERS Laws
Fewer than 9% of the 3,800,000 Oregonians are in Public Employees Retirement System (PERS). But PERS members have total control over PERS laws. No Oregon PERS law can be made or changed without their consent. It wasn’t always this way. When PERS was first created in 1945, PERS members did not control the process. They had to negotiate with state legislators, who at that time were not permitted to join PERS. As a result, both parties involved in PERS – the public employees and the people of Oregon – had independent representation when PERS laws were made.
That procedure remained in place through 1970, and so did PERS retirement benefits. For the first twenty-five years that PERS existed, a retired PERS member received a retirement benefit, after working a full career, of approximately 50% of his or her final average salary. One half of the retirement benefit was funded by the employee and the other half by the people of Oregon.
But in 1971 the Oregon Attorney General ruled that legislators could join PERS. Since then, most have signed up. And why wouldn’t they? Once in PERS, legislators had a personal financial incentive to increase PERS benefits. And that is just what they did. By 1981 they had dramatically increased PERS retirement benefits. During that period PERS legislators also created new benefits. One of these guaranteed that each year their employee PERS accounts would earn a minimum rate of return and that law allowed PERS members to decide what the guaranteed minimum return would be.
Another new law created the PERS Pick Up. The Pick Up gave PERS members two separate benefits. First, it gave them the right to shift the obligation to pay the employee PERS contributions from themselves to the people of Oregon. Second, it increased their employer funded pension by treating the amount picked up as salary in computing their final average salary, although it was not treated as salary for any other purpose.
Once they had substantially increased PERS benefits the PERS legislators made all elected judges PERS members, starting in 1984. For the first thirty-eight years that PERS existed, judges had their own independent retirement plan. That insured they would be impartial when deciding PERS lawsuits. Once judges became PERS members, however, they could not be impartial. Their personal retirement benefits would depend on their decisions.. By forcing judges into PERS, PERS legislators neatly stacked the deck in favor of PERS in every PERS lawsuit.
This move paid off handsomely for PERS members a few years later. In 1994 Oregon voters passed Ballot Measure 8, which eliminated three benefits. In 1996 the PERS judges on the Oregon Supreme Court invalidated Ballot Measure 8 and reinstated those PERS benefits.
Today PERS funding is Oregon’s highest financial priority. But it was not elevated to that status by the people of Oregon. This priority was given to PERS funding by the very same PERS legislators who personally benefit from it. As long as legislators can join PERS, PERS members will control PERS laws.
So do not expect any changes to PERS. If you are concerned about this situation, ask your legislators if they are PERS member. Then tell them what you think about legislators making the PERS rules that benefit themselves.
Daniel C. Re
www.inrethepeople.wordpress.com
Daniel C. Re is an attorney practicing in Bend, Oregon
Re: Why I Am Suing PERS
By Daniel C. Re
On May 13, 2011, I filed a lawsuit against PERS in the Oregon Court of Appeals. The lawsuit challenges the constitutionality of three PERS administrative rules that are based on the 1996 Oregon Supreme Court decision that invalidated Ballot Measure 8. Oral argument in the case has been set for August 23, 2012. The primary issue is whether judges who are PERS members can decide PERS cases.
PERS was created in 1945. For the first 38 years that PERS existed, Oregon judges had their own independent retirement plan and were not PERS members. During that period, Oregon judges were neutral when they decided PERS cases. But in 1983, the Oregon legislature passed a new law that required the judges to join PERS.
That law took away the judges’ neutrality in PERS cases and deprived Oregonians of their right to independent judges when PERS cases are decided. By making all judges PERS members, the legislature stacked the deck totally in favor of PERS members every time a PERS case goes to court. The invalidation of Ballot Measure 8 in 1996 has required hundreds of millions of dollars every year to go to PERS to make sure most PERS members will never have to pay one cent in PERS contributions. If Ballot Measure 8 had been upheld, the hundreds of millions of dollars that are now going to PERS members each year would be available to provide vital services, such as education and public safety, to all Oregonians. But it’s not, it’s just going to PERS members.
Independent judges protect us from governmental abuse. That is a fundamental right. I do not believe the government can take that right away from us. This is a battle that must be fought. And that is why I am suing PERS.
Daniel C. Re, www.inrethepeople.wordpress.com.
Daniel C. Re is an attorney in Bend, Oregon. He will address the Rubicon Society in Eugene on Thursday, August 2 at noon. The meeting is open to the public and there is no charge. Click here for more information: http://www.rubiconsociety.org/events/dan-re-pers/
Misjudgments Haunt PERS
The misjudgments of the past continue to haunt Oregon’s Public Employees Retirement System (PERS). Days ago the Oregon Supreme Court issued the last word on years of litigation that goes back to 2000, when the PERS board tried to credit member accounts with outlandish 20 percent earnings.
PERS was originally created in 1945 to provide retirement benefits to Oregon’s public employees. Now legislators had changed the law so that they could retroactively join PERS and judges automatically became PERS members. This represents a possible conflict of interest to PERS reforms. To compound this conflict of interest, essential services from local municipalities such as prison beds, law enforcement, and school days, are being sacrificed while PERS expenditures skyrocket.
Public employers objected and a court later set the earnings at slightly over 11 percent. But the higher credited earnings already had been deposited in the accounts of more than 28,000 people who retired between 2000 and 2004, and these “window retirees” had fought ever since to keep for themselves the overpayments that now tally more than $150 million.
However, on Dec. 30, the Supreme Court ruled again that PERS is obliged to recoup the overpayments. Starting in April, the retirees have to give the money back, either in lump sums or through deductions from their monthly benefit checks. That’s as it should be. The money was never theirs to begin with. A PERS error in their favor is still an error — not an opportunity to pocket additional benefits at taxpayers’ expense.
Oregon’s Public Employee Retirement System is between $14 and $16 billion underwater. The future unfunded liability to Oregon’s public employees in excess of current investments is so large that it exceeds Oregon’s biennial general fund budget. Worse still is that, at the behest of the public employee unions, the Oregon legislature adopted a provision that requires that payments to the PERS system be made before any other money is spent. For taxpayers this means that before any service is delivered by the State of Oregon, current PERS obligations must be funded.
But $156 Million is nothing to sneeze at. Okay, it’s only about one percent of the unfunded future liability, but it’s $156 Million that PERS didn’t have last week. That is if PERS actually collects it. When the Legislature convenes in February, PERS advocates are planning to pressure it to respond to recent rulings by arguing that they should be able to keep the overpayment of benefits.
Beyond pressuring the 2012 Legislature, the public employee unions are ready for the 2012 elections. Under the guise of their unified political arm – Our Oregon – the unions have taken a page from Bill Sizemore’s political playbook and flooded the initiative process with THIRTEEN separate ballot measures. But whereas Mr. Sizemore had to go out to the general public to find signatures and funding for his efforts, the public employee unions, with their nearly $130 Million biennial war chest – collected for them by the State of Oregon and its political subdivisions – have more union members than signatures required to qualify for the ballot. Mr. Sizemore would take six to nine months to collect signatures while the public employee unions can do it in less than a week as the union stewards walk through government offices pressuring their members in the workplace.
The most pernicious among the thirteen Our Oregon initiatives are Measures 42 and 43 which embed in the Oregon Constitution the right of public employee unions to utilize the payroll check off system for their political activities. While the unions widely criticized Mr. Sizemore for trying to burden the Oregon Constitution with matters better left to the legislature, those same unions apparently think it’s just fine to embed their issues in the Constitution.
In addition to the $130 million available to Oregon’s public employee unions from mandatory member dues each biennium, unions have the vast resources of their sister public employee unions on both state and federal levels because national public employee unions move money to and between states to support and oppose political issues.
Public employee unions represent their members, not the public or taxpayers. You can understand their motivation. But the Legislature and Oregon voters must answer a different question: What’s in the public interest?
PERS REFORM ONLY WORKS WITH A FIREWALL AGAINST LEGAL CHALLENGES
Voters are ready for PERS reform. Essential services such as prison beds, law enforcement, and school days, are being sacrificed while PERS expenditures skyrocket. During 2009-2011, PERS spending will amount to approximately $825 million. That spending is set to increase by $495 million to $1.3 billion in 2011-2013.[i] It is clear that the system is broken. We must introduce legislation to fix the growing problems pertaining to the overall “PERS machinery.” We must eradicate wasteful spending while ensuring that public workers receive retirement benefits as promised.
Passing PERS reform is only half the battle. In the past, Oregon courts have overturned PERS reforms by invoking the Contract Clauses of both the Federal and Oregon Constitutions. To paraphrase, the Contract Clauses say that the state can’t pass laws that impair the obligations of existing contracts.[ii] The Oregon Supreme Court has consistently held that PERS members have “vested contractual rights in pension benefits.”[iii] Accordingly, the Federal and Oregon Contract Clauses serve as substantial barriers to PERS reform.
Nevertheless, courts have recognized a legal distinction between legislation that “impairs” a contract and legislation that merely “breaches” a contract between public employees and the State.[iv] The Oregon Supreme Court will allow legislation that breaches contracts, but will invalidate laws that impair contracts.[v] The Oregon Supreme Court has determined that legislation that impairs existing contracts are “statutes that prevent both performance of the contract and compensation to the nonbreaching party.”[vi] Well-drafted legislation can get around this distinction and merely result in a “breach” of contract, rather than unlawful “impairment” of the obligations of the contract.
As we move forward in our effort to curtail inefficient government spending, we must introduce reforms with this legal distinction in mind. There is no doubt that opponents of reform will bring legal challenges, but well-drafted legislation can and will survive.
[i] 2011-13 Estimated State Agency Payroll
2009-11 Salaries and Wages = $5,850,731,907 ($825,251,701 = Total PERS expenses, 2009-11)
(Source: Legislative Fiscal Office)
Assumed growth in State payroll expense = 3.75% (Assumptions: 2.75% inflation + 1% Real Wage Growth)
(Source: PERS Actuary)
$5,850,731,907 X .0375 = $219,402,446.51 (Assumed increase in State payroll for 2011-13.)
$5,850,731,907 + 219,402,446.51 = $6,070,134,353.51 (Total anticipated State payroll for 2011-13.)
2011-13 Estimated State Agency PERS Calculations
$6,070,134,353.51 x .098 = $ 594,873,167 (9.8% for 2011-13 State’s employer contribution rate)
$6,070,134,353.51 x .06 = $ 364,208,061 (6% Employee’s IAP paid by State for State employees.)
$6,070,134,353.51 x .0595 = $ 361,172,994 (5.95% paid by State on Pension Obligation Bonds.)
(9.8% + 6% + 5.95% = 21.75%) = $1,320,254,222 (Total anticipated PERS costs for 2011-13 )
$1,320,254,222 – 825,251,701 = $495,002,251 (Additional PERS costs for 2011-13 State Budget)
Note: “The rate components are as follows: 9.8% (2011-13 employer contribution rate) + 6.0% (member
IAP contribution) + 5.95% (POB service cost).” ”… a 21.75% total cost basis.”
(Source: PERS Administration—3-11-2010 Email to Rep. Richardson—emphasis added.)
[ii] Hughes v. State, 314 Ore. 1, 33 (1992) (citing Taylor v. Multnomah County Deputy Sherriff’s Retirement Board, 265 Ore. 445, 450 (1973)).
[iii] Hughes v. State, 314 Ore. 1, 33 (1992) (citing Taylor v. Multnomah County Deputy Sherriff’s Retirement Board, 265 Ore. 445, 450 (1973)).
[iv] Kopilak, David, Hughes v. State: Breaching Statutory Contracts Without Violating Oregon’s Contract Clause, 72 Or. L. Rev. 487, 488 (1993).
[v] Ibid.
[vi] 72 Or. L Rev. at 500 (citing Hughes, 314 Ore. at 31).
Eliminating PERS for Legislators and Judges Takes Away Conflict of Interest
PERS was created in 1945 to provide retirement benefits to Oregon’s public employees. Legislators and judges were not eligible to join PERS. Everyone affected by PERS was fairly represented when PERS laws were made and PERS disputes were decided by neutral judges. That, however, began to change in the 1970’s. By 1984, the legislators had changed the law so that they could retroactively join PERS and judges automatically became PERS members. Thereafter, PERS members have made all of the PERS laws and they have decided every PERS lawsuit. That is the problem with PERS.
Oregon will have $3 billion less to spend in 2011 – 2013 then it had in 2009 – 2011. But laws passed by PERS legislators guarantee that this shortfall will not reduce the money paid to PERS. The PERS budget for 2011 – 2013 has been increased by $1.1 billion, to $7.5 billion. PERS members have also decided that during the 2011 – 2013 biennium the people of Oregon will pay over $870 million to pick up employee PERS contributions for PERS members. That money could have been used to provide services to all Oregonians but instead it will be used for PERS members only. This is what happens when PERS members have total control over the PERS decision making process and it is a serious problem.
The solution to the PERS problem is to remove legislators and judges from PERS. Legislators are the elected representatives of the people, not hired employees, and they should not receive employee benefits. Judges should have their own independent retirement plan, just like they did prior to 1984. These changes would restore the fairness that existed when PERS was established in 1945 and they would end decades of financial abuse that has cost the people of Oregon billions of dollars.
Article written by Daniel Re
Voters Want State Government Reform
Polling in 10 states shows that Americans want politicians to cut spending and reduce public employee benefits before they raise taxes.
Americans believe that bold action to restrict spending is necessary to stabilize the finances of state government.
Last month, in a wide-ranging national survey of 1,000 randomly selected, registered voters, and in 10 polls in individual states each with 400 respondents, my polling company found that voters strongly favor measures to pare the compensation of current and future public employees. They strongly oppose higher taxes.
Specifically, over three-quarters (78%) say their state faced a budget crisis this year, and 68% say that the crisis was resolved with spending cuts. Overwhelmingly they blame politicians for creating and exacerbating the problems: 48% say “elected state officials made careless and self-serving decisions,” while only 6% say “state governments did not tax enough.”
The top priorities for resolving current fiscal issues are to cut government spending (47%) and to ask for greater sacrifice from current public employees, by having them contribute more towards their benefits (31%). By almost two-to-one, they think that current public employees should have to contribute more toward their pension benefits because of budget problems.
Kitzhaber ignores $650M hole in budget; gives unions 3.5% pay increase
by In the news Thursday, August 4. 2011
Oregon Transformation Project – FlashFact
Recent negotiations between Governor Kitzhaber and two public employee union groups, SEIU and AFSCME, produced a win for union members. Between permanent pay raises, healthcare benefits including vision, dental and life insurance, and a continuation of the 6% PERS pickup, these union members are receiving a net pay increase of nearly 3.5%.
So who is responsible for paying these increases? Taxpayers.
Which begs the question: With a $650 million hole in our current 2011-13 state budget, how can we afford such increases?
The current budget was passed with $650 million worth of assumptions; spending cuts and cost savings that have little hope of materializing. With state revenue likely to fall short of expectations and increasing state liabilities, the hope that we can grow our way out of this budget shortfall and maintain our spending levels is unrealistic.
Translation: The legislature put off making the tough decisions on spending, and now the Governor has put even more responsibility on the backs of taxpayers.
According to an estimate from the American Enterprise Institute, Oregon has a nearly $42 billion unfunded pension liability.
Under this estimate, every employed Oregonian is responsible for $28K towards public employee retirement.
The private sector in Oregon, which makes up about 82% of state employment, has seen a loss of over 110,000 jobs in the last four years. Private sector employees pay upwards of 30% for healthcare costs, and with the majority of them holding defined-contribution retirement plans, they have experienced significant retirement fund losses due to the stock-market collapse.
How long can the private sector withstand the burden of propping up benefits received by only 18% of the employed population?
Sources: http://oregoncatalyst.com/10813-kitzhaber-sells-taxpayers-pay-union-backers.html, http://www.qualityinfo.org/olmisj/ArticleReader?itemid=00006781, http://www.oregontransformation.com/2011/07/22/co-chairs-corner-5/
Source: Kitzhaber ignores $650M hole in budget; gives unions 3.5% pay increase
No PERS Member Left Behind
by Larry Huss Wednesday, August 17. 2011
Daniel Re is an attorney in Bend who has undertaken a one-man fight to restore sanity to Oregon Public Employees Retirement System (PERS). He has begun a series of lawsuits to demonstrate that the current state of PERS affairs are a direct result of politicians and judges who are direct and substantial beneficiaries of the system that they created, regularly enhance and protect against taxpayers.
Periodically, I turn this column over to Mr. Re for his well researched and documented reports. The following report is stunning in its clarity and its demonstration of a system that is corrupt from top to bottom:
“On August 2, 2011, the Oregon Department of Education issued a news release with the headline “Student Achievement Increases but Fewer Oregon Schools Meet Federal Standards Under New Adequate Yearly Progress Targets”. Those targets were formerly part of the law known as No Child Left Behind. The latest tests fell far below the target, only 54% (645 of 1200) of Oregon schools met the standards, compared to 71% in 2009-10. Those statistics, however, do not tell the real story. The fact that more than half of Oregon’s school met the standards is actually a remarkable achievement because in the 1970’s the Oregon legislature adopted another plan that has been given the state’s top financial priority. That plan, No PERS Member Left Behind, always gets funded first. In financially difficult times, money that could have been used to educate Oregon’s children must instead go to PERS.
“Governor Kitzhaber’s 2011 – 2013 proposed budget shows the consequences of No PERS Member Left Behind. That budget included $7.5 billion for PERS. That represented a $1 billion increase from the prior biennium. That extra billion was needed to make up for the PERS stock market losses in 2008. That same proposed budget allocated $5.5 billion for the K–12 education, approximately the same amount as the prior biennium. The Superintendent of Public Instruction stated that the $5.5 billion was $1 billion less than what was required to maintain the instruction Oregon’s children had received during 2009-2011. Unfortunately, there was nothing the Governor could do about that. No PERS Member Left Behind mandated that $1 billion go to PERS and that meant it was not be used for K-12.
“The objective of No PERS Member Left Behind is simple. It guarantees PERS members that they will receive their retirement benefits, no matter what. If governmental agencies are forced to cannibalize themselves in order to make their PERS payments then that is what they must do. No PERS Member Left Behind made PERS payments their primary function. Providing the services that those agencies were originally created to provide became a secondary function. At the end of 2010, the PERS fund held approximately $56 billion. If every last cent of the $56 billion is lost through bad investments or any other reason, No PERS Member Left Behind requires the people of Oregon to repay it, with interest.
“The No PERS Member Left Behind program was created by Oregon legislators who joined PERS after they were permitted to do so by an Attorney General opinion in 1971. These are a few of the actions taken by those PERS legislators that made No PERS Member Left Behind the successful program that it is today:
“1. In 1975 the PERS legislators gave anyone who had ever served in the legislature the right to retroactively join PERS and then they kept that retroactive right open for the next sixteen years.
“2. In 1979 they created the PERS pickup which allowed PERS members to require non-PERS members to pay their employee PERS contributions for them. Originally, the pickup was intended to last for just two years but by 1981 those PERS legislators enjoyed having other people pay their PERS contributions for them so much that they made it permanent. PERS estimates that during the 2011–2013 biennium, the pickup will cost $874 million.
“3. In 1983, 84 of the 90 legislators were PERS members and they forced Oregon’s judges to become PERS members and they gave the judges a larger PERS Pick Up benefit than any other PERS members. The pickup amount for judges was 7% of salary, while other PERS members received a 6% pickup. In 1994 the people of Oregon passed Ballot Measure 8 which eliminated the PERS pickup. In 1996, the PERS judges on the Oregon Supreme Court decided that the elimination of the PERS pickup was unconstitutional, by a 4 to 3 vote. Since January 1, 1995, the effective date of Ballot Measure 8, billions of dollars have been used to pay pickup contributions rather than to provide services to all Oregonians.
“4. In 1989 they increased the sanctions against public employers who do not pay their PERS assessments on time. This law, the keystone of the No PERS Member Left Behind program, clearly established PERS funding as Oregon highest financial priority.
“No PERS Member Left Behind was created by PERS legislators who have financially benefitted from it. It is a major reason why all Oregon schools have cut school days and have fewer teachers. Multnomah County School District No. 1J’s 2011/12 Budget Overview, page 83, shows that the district will pay PERS almost $5 million more than it did for the 2010/11 school year. In order to pay that extra $5 million, the district must make additional service reductions.
“Oregon’s schools did the best they could during the 2010-11 school year to prepare Oregon’s children for the new Adequate Yearly Progress Targets. While those results were lower than hoped for it is doubtful that anyone could have done better when faced with the insurmountable obstacle of No PERS Member Left Behind. And besides, that’s not the primary objectives of the schools anyway. During 2010-11, the schools fully paid their PERS assessments so it was a good year, a very good year. Oregon’s children and, therefore, its future may have been shortchanged, but no PERS member was left behind.
“Daniel C. Re”
For those wishing to learn more about the work of Dan Re, you can visit his website at Inrethepeople.com/.
Source: No PERS Member Left Behind
State Budget vs. Union Benefits
by Cascade Policy Institute Thursday, June 30. 2011
By Christopher Robinson
Mediation continues in Salem between two major labor unions and Governor John Kitzhaber’s team over public employee benefits. The governor is seeking concessions from SEIU and AFSCME regarding the Public Employees Retirement System (PERS) and the state employees’ health insurance plan.
PERS members pay 6% of their salary towards retirement. Currently, the state pays for this mandate as part of a previous deal. The state also pays 100% of employees’ health insurance premiums.
It’s no secret that Oregon is facing budget shortfalls, including financing for public employee benefits. Attempts at legislative reform have largely failed. State negotiators initially aimed to end the 6% pick-up and to require that employees pay 5% of insurance premiums. They have since dropped the pick-up demand.
Union supporters argue state employees have already made concessions by forgoing certain wage increases in favor of hardier retirement benefits. However, this still does not account for free health insurance premiums or the wealth of other benefits union membership provides. SEIU Local 503 members are eligible to receive, among other things, free life insurance and legal compensation. AFSCME members get heating oil and rental car discounts.
The worst case scenario of not being able to fund state employee benefits is bankruptcy. Making a few concessions wouldn’t be a bad idea, and Oregon taxpayers likely would agree.
Christopher Robinson is a research associate at Cascade Policy Institute, Oregon’s free market public policy research organization.
Source: State Budget vs. Union Benefits