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.
Leiken: Lane County’s Crumbling Public Safety System
On Thursday, November 29, 2012, the Lane County Sheriff’s Office closed another 35 jail beds resulting in the release of more than 30 inmates from the Lane County Jail. By Friday afternoon two of the released inmates were already back – one arrested for robbing a bank and one for unlawful entry and theft.
The release of these inmates from the Lane County Jail is directly related to the significant reduction in federal funding and is indicative of the lack of active management of the federal forests that make up half our land base. I fully support Sheriff Turner and his dedicated staff during this challenging time. They are sworn to protect us, but have been confined by inadequate resources.
Many voices have called for Lane County to move beyond federal timber revenue sharing, yet we cannot ignore the economic potential of the forests amongst which we live. Lane County Commissioners, even this week, continue to debate the form and function of a property tax measure dedicated to supporting the jail. But to fully rebuild a functioning public safety system (jail, patrol, prosecution, youth services, and treatment and prevention) would take more than a doubling of Lane County’s existing property tax. Residents have never supported tax proposals of that size, and there is no reason to expect they will now even in spite of the dismantled state of our public safety system. A property tax increase at this time throws cold water on our fragile recovery and, under Measure 5, the only options available to voters are temporary solutions. What’s more, those options could actually impinge on the tax revenue of our community’s fire, school, city, and other taxing districts.
Lane County’s partnership with the federal government goes all the way back to 1906, when the first national forests were created and County Commissioners throughout the West lobbied Congress to create a mechanism that would replace tax revenue lost by creating enormous amounts of publicly owned lands. Congress has all but completely walked away from this promise. I thank Congressmen DeFazio, Walden, and Schrader, and Governor Kitzhaber for forcing a dialogue to find a way to ensure both the essential ecosystem and the crucial revenue that provides for the security of Lane County families.
What we’ve seen this week – what we’ve seen as our system has eroded over the last several years – is the result of the reduction of tens of millions of real dollars. It cannot be blamed on uncontrollable cost, bad management, or waste. No single, immediate solution will fix our system. We need a long term solution to a sustainable public safety system that lays out the incremental steps to get there. We are committed to identifying such a cohesive strategy.
Sid Leiken is Chair of the Lane County Board of Commissioners
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/
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).