Sustainable Budget Turns on Significant PERS Reforms

Oregon may never get its revenues and spending in sustainable alignment until it figures out how to manage the cost of the Public Employees Retirement System.

Oregon may never get its revenues and spending in sustainable alignment until it figures out how to manage the cost of the Public Employees Retirement System.

Oregonians cannot possibly pay enough in taxes to keep their state and local governments afloat.

Government costs are rising far faster than government revenues. Even if massive state tax increases were enacted, such as the one envisioned in Measure 97 that voters defeated last month, government spending eventually would outpace the added revenue.

One reason is that the Oregon Health Plan (OHP) will get less money from the federal government, so the state either has to pay for that insurance coverage itself or lop thousands of low-income Oregonians off the plan. That difficult choice is further complicated by not knowing how far President-elect Donald Trump will go in slashing Medicaid, which funds OHP, as he goes about undoing Obamacare.

But the greater, systemic issue is the still-uncontrolled cost of Oregon’s government pension program, PERS. Governors, legislators and voters have made significant reforms to the Public Employees Retirement System since the 1990s, but many were overturned by the Oregon Supreme Court.

PERS costs are projected to grow more than three times faster than state revenues during the next several budget cycles. Those PERS liabilities will keep growing regardless of how the Oregon economy does. And when the economy falters, that means lower income tax collections to run state government and schools … and to pay the expanding PERS bill.

No matter what anyone claims, that trend is financially unsustainable for Oregon. The state must get its expenses and its revenues in line with each other.

As one longtime government-watcher said, “The unfunded liability eats at every level of government and it reflects promises made by legislators past that haunt legislators in the present – and in the future, unless a solution is reached and sustained.”

There are reasonable, legal ways of slowing that trend without going overboard. Meanwhile, business leaders appear open to accepting some tax increases in return for those PERS reforms. That is a compromise that the state’s political leaders should embrace … and lead.

In the proposed 2017-19 state budget that Governor Kate Brown released Thursday, she calls for maintaining the current Oregon Health Plan, while adding an estimated 13,000 to 15,000 children, so that every eligible child would have health care.

But Brown’s budget keeps the status quo for PERS, paying those soaring costs and not resolving them. That drew a strong response from the Oregon Business Association, which pledged to examine “the unsustainable cost drivers in the budget.”

As governor after governor has learned, it’s the legislature that actually writes the state budget. Brown’s political strength as governor will be reflected in how much of her proposal the 2017 legislature keeps intact.

Meanwhile, the political mood for resolving Oregon’s budget dilemma is not good.  The fight over Measure 97 – backed by public-employee unions and opposed by business – left deep scars. But civil discussions – testing leaders’ ability to set aside election-year animosities – need to happen before the Legislature convenes early next year.

The 14th Oregon Leadership Summit on Monday offers a hopeful start. More than 1,000 public- and private-sector leaders from throughout the state will gather in Portland. They will talk about how to strengthen the economy. They will discuss ideas for increasing government revenue – nothing is off the table, although a traditional sales tax is unlikely and a reprise of Measure 97 would be unacceptable. And they will look at how to control government costs.

Then comes the even harder part. Oregon’s political leaders, starting with Governor Brown, must take the initiative. It is their responsibility to ensure that Oregon gets control of its expenses, including PERS.

It makes no sense that state revenues will increase by more than $1 billion during 2015-17, yet the state faces a $1.7 billion shortfall unless programs are reduced and/or taxes are raised.

Dick Hughes, a freelance journalist specializing in Oregon government and rural/urban issues, has 40 years’ experience as an Oregon journalist and was the longtime editorial page editor, writing coach and Sunday columnist for Statesman Journal Media in Salem. Contact him at TheHughesisms@Gmail.com or Twitter@DickHughes.