By Ted Sickinger

The Oregonian

Public employee unions representing state workers have negotiated new contracts that would provide pay increases of up to 15% over the next two-year budget period.

The proposed contracts include both step increases and cost-of-living increases in each of the next two years.

Unions officials insist the wage increases are necessary to maintain Oregon’s competitiveness in attracting employees after recent wage growth in the private sector. However, the most recent state salary survey suggests that state employees’ total compensation, which includes generous benefits, is already competitive.

Meanwhile, the pay increases would have an impact on Oregon’s struggling Public Employees Retirement System, incrementally weakening the impact of new pension reforms Gov. Kate Brown signed last month.

The contracts must be voted upon by union members and receive final approval by state lawmakers.

Brown’s office echoed the unions’ sentiments, saying the tentative agreement was a reflection of her commitment to make the state of Oregon a competitive employer, particularly for employees who work in foster care, transportation, public safety and health service professions that serve all Oregonians, including our most vulnerable.

“Since the recession first hit Oregon over a decade ago, state employees have been asked to take low or no COLAs,” said Kate Kondayen, a spokeswoman for Brown. “Now that the economy is strong, we owe it to these hardworking individuals, and the Oregonians who rely on the services they provide, to help make up ground that was lost.

The contracts’ step increases in each of the next two years would average 4.7%. Steps are automatic pay increases that come with longevity in a job. It also includes the addition of a new top step, which would give employees who topped out at their job classification a 4.7% pay increase. Those increases would mostly go to older Tier 1 and Tier 2 employees.

The contracts also include cost of living increases of 2.15% in 2019 and 3% in 2020. Those are bigger increases than in the workers’ previous two-year contract — and higher than the average annual increase of 1.4% over the last decade.

The cost-of-living increases compare to an inflation rate of 2.7% in the 13-state West Region over the past year, according to the federal Bureau of Labor Statistics. State economists predict it will remain near that level during the next two years.

Overall, the state workers’ wage increases would average up to 7.2% annually. Meanwhile, Oregon’s Office of Economic Analysis forecasts average annual statewide wage growth, including inflation, of 3.7% in 2019 and 4.2% in 2020. Economist Josh Lehner said wage growth has been running between 3% and 4% during the past four years.

There was no increase in health care premiums for employees.

Competitive salaries

Melissa Unger, executive director of the SEIU 503, the state’s largest public employee union, said the pay hikes would help state workers catch up with wage growth in the private sector during the last several years.

“If you look at private employment wage growth in Oregon, we have not been competitive,” she said.

The state’s latest salary survey, issued at the end of 2018, concluded that it was a competitive employer, with total compensation, on average, at 97.5% of market. That falls within the 95% to 105% range the state considers competitive.

The study deemed state employees’ salaries — without benefits — a little light, at 92% of market. But the study concluded that Oregon’s more generous benefits made up for that in overall compensation. That study’s methodology was also structured in a way that didn’t count some significant medical and retirement benefits.

The state budgeted $200 million for salary increases in the two-year budget cycle that began this month. It’s not clear how close the contracts’ increases would come to exhausting that salary pot, though additional costs from these contracts could roll up into the following budget cycle because not all the increases will fall within the current budget period.

Unanticipated wage growth

The wage hikes would also have implications for PERS, ultimately creating bigger pension benefits and higher liabilities for the struggling system. That’s because the proposed higher wages would compound in future years and be rolled into the system’s standard retirement formula. The increases are more than double the 3.5% annual wage growth that PERS assumes for public employees, though it is also looking out over a longer time horizon than the current biennium.

State workers comprise about 30% of the payroll covered by PERS.

This spring, lawmakers agonized over and eventually passed a measure that included modest employee cost sharing for the pension system — 2.5% of pay for employees hired before Aug. 28, 2003, and 0.75% of pay for those hired after.

At the time, public employee unions renounced the move and vowed that they’d get the money back for members, either in court or at the bargaining table.

Unger said Tuesday that pensions were certainly a topic of conversation at the bargaining table, but that wage increases reflected efforts to make the state more competitive, not pay back employees for the new pension costs. She said SEIU was still planning a court challenge to the pension cost sharing, and if that failed would be bringing the issue back to bargaining.

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