PERS Reforms Save Schools, Local Governments from Big Hits

2013 PERS reforms will avoid an estimated $828 million in cost increases for schools, local governments and state agencies this biennium.  These avoided costs will recur every biennium for the next 20 years. 

When legislators entered the 2013 session, 2013-2015 PERS costs for school districts, local governments and state agencies were scheduled to rise by more than $900 million, with further increases scheduled for 2015 and 2017.  The cost increases were the result of a toxic combination of the 2008 market crash and expensive Tier 1 Money Match benefits.  The increases were particularly steep for school districts, preventing them from hiring new teachers, reducing class sizes and adding back school days, even as state revenues increased.   That’s why fixing PERS and investing in education were the top two priorities of the Oregon Business Plan in 2013.

Thanks to PERS reforms passed by the legislature in the 2013 regular (SB 822) and special sessions (SB 861 & 862), this biennium’s PERS increases have been reduced by an estimated $828 million.

School districts alone will avoid nearly $270 million in PERS rate increases in 2013-2015, the equivalent cost of about 1400 teachers.

These avoided costs will recur every biennium for the next 20 years.

Oregon’s PERS financial troubles are not over.  This year’s reforms have reduced PERS unfunded liability by $5 billion.  Paying off the remainder of the unfunded liability will still require PERS rate increases in 2015 and again in 2017.  But the reforms passed by the legislature have reduced future increases, and by replacing the deferred payment of SB 822 with real liability reductions from SB 861 during last Wednesday’s special session, school districts and local governments will have lasting, predictable savings.

We’d like to thank the Governor, Oregon’s legislative leaders and all legislators who voted for the package.   The decisions they made Wednesday were not easy.  PERS is more than just numbers.  It’s about people and their retirements.  But the costs of funding the system are unsustainable and lawmakers took a balanced approach, mitigating the impact of the reforms on low-income retirees, and raising new revenue.

Government employee unions have challenged SB 822 in court and have promised to challenge the additional reforms passed on Wednesday.  The legal process will likely take 18-24 months.  If the PERS reforms are overturned, the impact on schools, local governments and state services would be catastrophic.