Last month, the Bend-La Pine School Board adopted a budget for the 2018-19 fiscal year. In a preface, Superintendent Shay Mikalson sounded an alarm about the state Legislature’s “pending and compounding PERS crisis” and the damage it could do to Oregon’s education system. A similar warning could just as easily have come from dozens of other school districts, city or county governments struggling to contend with the rapidly rising cost of Oregon’s public pension system.
Is Gov. Kate Brown listening? Judge for yourself.
Just weeks later, after the U.S. Supreme Court prohibited public sector unions from forcing nonmembers to give them money, the governor issued a press release decrying public employees’ newly won freedom to choose. It was, in fact, a joint press release that spoke not only for the governor, but also for the state’s biggest labor unions, which consistently oppose cost-saving reforms to Oregon’s public pension system and contribute lavishly to the election campaigns of Democrats such as Brown. Despite the fact that it was a platform for some of Brown’s most generous contributors, the press release came from Brown’s office and appeared under the state seal.
The governor’s true allegiance couldn’t be more clear, and that’s bad news for Mikalson, students and even many teachers and staff.
Consider some of the numbers packed into the district’s budget as well as those that loom on the horizon. Bend-La Pine’s general fund budget for operations is just shy of $170 million for the 2018-19 fiscal year. About 83 percent of this sum goes to salaries and benefits for district employees. Salaries will amount to about $91.8 million. Health insurance will cost the district another $21.9 million. And PERS will cost about $18.8 million.
To put the PERS number in perspective, public pension payments will cost the district about $5.7 million more than instructional materials, instructional technology, athletics, charter schools, transportation and substitute teachers — combined.
The bill is so big, in part, because the state’s pension system has an enormous, long-term shortfall, known as an unfunded actuarial liability. To close the gap, the state’s pension system periodically adjusts the contributions public agencies like Bend’s school district must pay. Bend-La Pine’s rates for 2018-19 are as follows: 17.99 percent of payroll for employees with more-generous Tier 1 and Tier 2 pension plans, and 12.66 percent of payroll for newer employees with less-generous OPSRP (aka “Tier 3”) pension plans.
Those rates might not mean much in a vacuum, but consider the advisory rates published for the 2019-21 biennium. Bend-La Pine’s Tier 1 and Tier 2 rate is likely to increase from its current 17.99 percent of payroll to 24.77 percent, an increase of almost 38 percent. The OPSRP rate, meanwhile, is likely to rise from 12.66 percent of payroll to 19.15 percent of payroll, a jump of about 51 percent.
The district’s PERS bill, in other words, will increase by millions of dollars almost overnight.
As its PERS contributions swell, the district has less and less money at its disposal to spend on other things, including additional teachers and other classroom staff. The effect on students is obvious. But the phenomenon inevitably has consequences for district employees, whose workloads might otherwise be reduced by the addition of colleagues. And, of course, it has serious consequences for would-be teachers and staff who aren’t hired in the first place.
This trajectory, as Mikalson recognizes, is alarming. So don’t be surprised to hear district officials discuss the possibility of a local-option tax levy with increasing urgency. Such a tax, which requires voter approval, may or may not be worth supporting, but one thing is certain: Much of the money it generated would do nothing more than help the district tread water amid the PERS flood.
Mikalson is correct, too, in referring to this as the Legislature’s PERS crisis. Lawmakers could do something if they wanted to. Though state Supreme Court decisions have placed some cost-saving measures off-limits, legislators are not entirely helpless. The court, for instance, did give lawmakers wide latitude to limit retirement benefits on salary not yet earned.
Prodding the Legislature into action will require some leadership from the governor’s office. This means Brown would have to push for policies that are almost certain to irritate the union groups that made up last month’s press-release posse.
Don’t hold your breath.