PERS

Time Again for Political Football with the Oregon Kicker

A historically large income tax kicker has tempted Oregon officials to offer up ideas of how to divert and spend some of it on transportation, rural housing, broadband expansion and PERS.

A historically large income tax kicker has tempted Oregon officials to offer up ideas of how to divert and spend some of it on transportation, rural housing, broadband expansion and PERS.

The Oregon income tax kicker has been a political football since its inception in 1980. It has gone from checks in the mail to a tax credit and a cunning way to control the size of government to a potential cash register for an expanding government liability.

Governor Kate Brown initiated the latest play for kicker funds last week with a proposal to keep $500 million of a projected $1.4 billion in personal income tax refunds that Oregonians will receive when they file their tax returns next year. Brown says half of the amount would pay down the PERS unfunded liability, $200 million would pay for rural housing and $29 million would go to expand rural broadband.

Brown’s proposal didn’t contain a lot of specifics, which reflects that it is more of a sales pitch right now than a well-tuned legislative initiative. According to OPB political reporter Dick VanderHart, Brown sounded out her plan with Senate and House Republicans, some of whom would be needed to reach the two-thirds requirement in the Oregon Constitution to divert kicker refunds. Their initial response wasn’t too encouraging – or surprising.

House Speaker Tina Kotek earlier suggested a portion of kicker refund revenue should be retained and pay for various transportation projects. Brown was cool to that idea, indicating any retained money from the kicker should go to hold down PERS costs to public employers.

Brown admitted her proposal is a tough sell. However, she drafted it in a way that most Oregon taxpayers wouldn’t feel the pinch. Under her proposal, kicker refunds would be capped at $1,000 per tax filer, which means Oregonians who declare $55,000 in taxable income wouldn’t see any reduction in their kicker refund. The average kicker refund is estimated at around $338.

The income tax kicker refund is unique to Oregon and was sold originally as a way to hold down government spending in the good times when higher-than-expected revenue poured into state coffers. Here is an explanation of when a kicker refund is triggered and how it is calculated.  https://youtu.be/c439JJmsipM

The income tax kicker refund is unique to Oregon and was sold originally as a way to hold down government spending in the good times when higher-than-expected revenue poured into state coffers. Here is an explanation of when a kicker refund is triggered and how it is calculated. https://youtu.be/c439JJmsipM

Some 331,000 Oregon taxpayers would see their refunds reduced. The biggest rollers in the state may receive kicker refunds as high as $14,000.

The $1.4 billion kicker is a tempting target to spend rather than return. However, rounding up even Democratic votes might be challenging after tough votes to approve a $1 billion per year commercial activities tax to fund the Student Success Act and a PERS measure that included a requirement for public employees to contribute to their own retirement accounts. Tough votes loom on a much-amended cap-and-trade proposal and a potential funding measure to sustain the Oregon Health Plan. Add to that an earlier session vote to divert $108 million of kicker rebate funds to bolster the state General Fund. 

The income tax kicker is unique to Oregon. It was created on a belief that you could capitalize politically on an economist inclination, which some call prudent, to underestimate personal and corporate income tax revenue. The way the kicker law works is that if tax revenue exceeds 2 percent of projections, all the revenue above the projection must be returned to taxpayers based on what they paid in taxes. 

Former Oregon Senate President Gordon Smith recognized the political potential of a kicker based on an economic formula, with no real basis in economics, and sealed it in the Oregon Constitution. To cement the idea into Oregonian lore, Smith insisted kicker refunds be sent to taxpayers in checks they could fondle, sign and deposit.

The kicker underwent some rethinking as school funding suffered, college tuition soared and the public pocketbook went wanting during economic downturns. The corporate income tax kicker was the first political casualty, with its revenue siphoned off to a rainy day fund, which happens to total currently around $3.5 billion.

The personal income tax kicker commands more voter loyalty, so political leaders over the last four decades have been chary to challenge refunds when times are good enough to generate them. That seems to be changing as the collective public memory of the kicker fades.

A confusing explanation of what produced the historically large projected kicker refund doesn’t make it seem all that sacred. A chunk of over-realized revenue results from a business tax break that Brown and the legislature ended. The GOP-backed federal tax cut wasn’t kind to many Oregon taxpayers, which contributed to reduced taxpayer refunds on state income tax returns. A strong economy played a role, too.

 

PERS Bill Moves on Fast Track to Senate and House Floors

Tackling the still-growing Public Employees Retirement System unfunded liability is one of the thorniest political issues facing Oregon lawmakers. What appears to be their best shot this session is headed to the Senate and House floors. The bill is more patchwork than policy reform.

Tackling the still-growing Public Employees Retirement System unfunded liability is one of the thorniest political issues facing Oregon lawmakers. What appears to be their best shot this session is headed to the Senate and House floors. The bill is more patchwork than policy reform.

A PERS bill is moving in the Oregon legislature that is more patchwork than policy reform, but it may constitute all that can pass in the 2019 session. The fast-tracked legislation could reach the House and Senate floors as early as next week.

Senate Bill 1049 is unofficially, but politically tied to the Student Success Act, which generates an additional $1 billion per year to boost education funding and imposes a commercial activities tax on larger corporations. The critical 18th vote provided by Senator Betsy Johnson, D-Scappoose, was conditioned on legislative action this session on what she termed “substantive” reform of the Public Employees Retirement System. Johnson voted for SB 1049 in the Joint Ways and Means Committee.

The core provision in SB 1049 involves extending the minimum payment schedule for the $27 billion unfunded liability for another eight to 10 years, which accounts for the largest savings achieved by the legislation. Detractors called that another example of kicking the can down the road as opposed to actual reform.

“The bill does not meaningfully impact the system’s deficit or move Oregon any closer to solving its underlying pension problem,” writes The Oregonian’s Ted Sickinger, who closely tracks PERS issues.

SB 1049 includes a cost-sharing provision that would redirect a portion of employee pension contributions made to a supplemental savings plan that resembles a 401(k) plan. An amended version of the plan that was voted on left out an earlier provision that would have reduced the interest used to calculate the pension system’s money-match. The bill reverses a PERS decision and would give employees discretion on how to allocate investments in their own accounts.

Lawmakers added a provision to tap future net revenues from sports betting for an employer incentive fund to make lump sum payments to pay down liability. Lawmakers also tossed in a one-time $100 million contribution.

There was no mention of diverting personal income tax kicker rebates to reduce the PERS deficit.

Amendments to create a new tier of public employees who would receive a 401(k) plan in lieu of pension benefits didn’t pass in committee. 

Like most bills dealing with PERS, no one was really happy. Public employee union officials indicated they would explore a court challenge to cost-sharing provisions. Business advocates and some public employers didn’t think the measure went far enough. Legislators fretted over having to vote on the bill, fearing political consequences down the road.

“Not a single lawmaker questioned or expressed any apprehension about further underfunding the pension system and extending the deficit for another decade,” Sickinger reported. “That’s the bill’s main thrust – a strategy that could lead to further destabilization of the pension fund and land the issue back in lawmakers’ laps if investment returns don’t live up to expectations.”

In an even harsher judgment, Sickinger wrote, “Several committee members repeated the myth that greedy Wall Street bankers and the 2008 recession are to blame for PERS problems, rather than misguided and financially self-interested decisions by earlier legislatures and PERS boards that actually created the system’s structural deficit.” 

Governor Brown’s task force failed to coalesce around major proposals to reduce the PERS unfunded liability. Trial balloons on ideas such as raiding SAIF reserve funds didn’t gain any political traction. 

The PERS unfunded liability has continued to grow despite a strong economy and in the face of stock market volatility.

 

Political Poker Game Underway on Taxes, PERS and Cap and Trade

Willamette Week’s Nigel Jaquiss reports there is a high-stakes political poker game underway in Salem and Senator Betsy Johnson, who represents the 18th vote for a Senate supermajority, holds the most important cards. [Photo Credit: Willamette Week]

Willamette Week’s Nigel Jaquiss reports there is a high-stakes political poker game underway in Salem and Senator Betsy Johnson, who represents the 18th vote for a Senate supermajority, holds the most important cards. [Photo Credit: Willamette Week]

A billion-dollar boost for education, a new tax on large businesses and a cap-and-trade scheme may all boil down to how one Oregon senator votes, according to Willamette Week’s Nigel Jaquiss.

“Senator Betsy Johnson (D-Scappoose) holds almost all the cards” in a big-stakes political poker game that could determine the fate of the three highest-profile legislative measures in the 2019 Oregon legislative session, Jaquiss writes this week.

A keen-eyed, long-time legislative observer, Jaquiss says Johnson’s position as the critical 18th Democratic vote in the Senate gives her a lot of leverage. A three-fifths supermajority is required to pass tax-raising measures. Johnson also is one of two Senate co-chairs of the Joint Ways and Means Committee, which okays state spending authority. 

Senator Betsy Johnson, D-Scappoose, may be the key vote that determines the 2019 legislative future for the Student Success Act, PERS funding reforms and cap and trade.

Senator Betsy Johnson, D-Scappoose, may be the key vote that determines the 2019 legislative future for the Student Success Act, PERS funding reforms and cap and trade.

In Jaquiss’ telling, Johnson, whom he describes as a “business-friendly Democrat,” is reluctant to bolster education funding with a commercial activities tax without “significant PERS cost cuts.” This roughly parallels the view of Senate Republicans who staged a walkout this week, denying the Senate a quorum to take floor votes, including the vote on education funding bill. The 12 Senate Republicans feel left out of the final compromise on the tax measure, which has already passed the House, and want to slow it down to allow more time to negotiate an agreement on PERS.

Jaquiss says Johnson also isn’t keen on the Clean Energy Jobs bill that sets up a cap-and-trade system, apparently agreeing with opponents that it will result in higher costs for Oregon consumers. It’s little surprise – and probably not a coincidence – that the state’s leading business advocacy group, Oregon Business & Industry, just gave Johnson its first Jobs Champion Award.

As the crucial Senate floor vote for the Student Success package, Johnson could use her leverage on a PERS deal or to scuttle cap and trade, but probably not both, Jaquiss claims. Her decision may be informed by which option has the strongest political legs. 

In his article, Jaquiss says the other power player in this legislative poker game is House Speaker Tina Kotek, D-Portland. She has a comfortable supermajority in the House (the Student Success Act passed by a 37-23 vote) – and gubernatorial aspirations. Wading into a contentious fight over PERS isn’t on the priority list, but she may not be able to avoid it. Kotek may have to do what it takes to smooth the way for Johnson’s vote on education funding. 

The idea floating around Capitol hallways to deal with the large and growing PERS unfunded liability is to require teachers and possibly all public employees to begin contributing to their own retirement funds. Governor Brown, who is term-limited and under pressure to address PERS funding, could accept that, Jaquiss says, but it would be a tougher draw for Kotek who enjoys high level of trust from Oregon unions. 

Keeping with the poker motif, Jaquiss says Senate Republicans see a delay on the education funding bill as a way to call the bluff of Democrats, forcing backstairs conversations into the open and either gain PERS concessions or a death blow to cap and trade.

Senate Republicans can’t hide out forever, so a deal or no-deal should emerge soon. The Student Success Act is a safe bet to pass. Everything else is 50-50.

 

Student Success Plan, Tax to Pay for It Take Shape

Increased investment in early childhood education is one of the goals of the Student Success Plan that has been rolled out by a joint legislative committee. The rollout also included details on a commercial activities tax that could raise the $2 billion called for in the education plan.

Increased investment in early childhood education is one of the goals of the Student Success Plan that has been rolled out by a joint legislative committee. The rollout also included details on a commercial activities tax that could raise the $2 billion called for in the education plan.

The Joint Committee on School Success rolled out its “Student Success” plan that spells out how $2 billion in new revenue would be invested, where the money would come from and how it won’t be spent.

The leaders of the joint committee, which spent 14 months touring the state and visiting 77 schools, briefed reporters on the major components of their plan. As reported by OPB’s Rob Manning, the spending targets are:

  • $400 million per two-year budget cycle on early childhood priorities, including full funding for Early Childhood Special Education.

  • $600 million per biennium on “statewide investments” such as dropout prevention and supports for students with disabilities.

  • $1 billion per biennium for a “school improvement” fund, described as “non-competitive grants” toward specific goals, such as smaller class sizes, a longer school year and additional health professionals in schools.

The $2 billion they seek would likely come from a commercial activities tax tiered by the size of business earnings. Two options were presented, including one that would allow businesses to deduct labor expenses in exchange for a higher tax rate. Individual income tax rates would be adjusted slightly downward to account for pass-through price increases resulting from the new tax.

Rep. Greg Smith, R-Umatilla, a vice chair of the committee, spoke in favor of the new tax. He speculated other Republicans would join him to boost education funding.

“I think that there are Republicans who want to make strategic investments in education,” Manning quotes Smith as saying. “Once they have the opportunity to see what the revenue package looks like both on the personal income tax side and the commercial activity tax side, I believe there may be votes there.”

Committee leaders politely dismissed the idea that any of the $2 billion would go to higher education, even though Governor Kate Brown has hinted it might. “The goal of this committee’s work has been pre-K to 12 from the start, and that’s because in 1990, when Measure 5 was passed, we had a significant shift in how funding worked,” according to Co-chair Rep. Barbara Smith Warner, D-Portland. 

Committee leaders acknowledged conversations to address the growing unfunded PERS liability, but noted none of the proposed commercial activities tax would go to PERS. 

Many legislative hurdles remain from a briefing to final passage of an ambitious education improvement plan, a new corporate tax and tinkering with personal income tax rates. Those conversations about PERS, which now include former Democratic Governor Ted Kulongoski, cast a long political and fiscal shadow over the plan and new revenue.

Brown has resisted engaging in ways to modify PERS benefits, focusing instead on ways to secure sizable chunks of money to whittle down the unfunded liability, such as the possible sale of SAIF. Kulongoski and former GOP legislator Chris Telfer are the chief sponsors of a pair of initiatives for the 2020 general election ballot that would reduce some public employee retirement benefits and divert some benefits to a 401(k) savings plan.

Tim Nesbitt, a former Oregon AFL-CIO president, says he has received a grant from the Oregon Business Council to form a broad-based coalition in support of the initiatives. Nesbitt said he hopes the prospect of a ballot measure fight will spur action in the 2019 legislative session.

Oregon labor officials have testified the two initiatives would fail to make a dent in the unfunded liability and likely would be declared unconstitutional. They insisted that boosting funding for education shouldn’t be an excuse for cutting benefits for public employees. 

 

Raising $2 Billion Won’t Be a Slam Dunk

Democrats hold all the main levers of power in Salem, including supermajorities in the Oregon House and Senate that could pass tax hikes without any Republican votes. But meeting Governor Brown’s $2 billion revenue challenge won’t be easy and certainly won’t be a slam dunk.

Democrats hold all the main levers of power in Salem, including supermajorities in the Oregon House and Senate that could pass tax hikes without any Republican votes. But meeting Governor Brown’s $2 billion revenue challenge won’t be easy and certainly won’t be a slam dunk.

Democrats hold supermajorities in the House and Senate to pass revenue-raising measures without Republican votes. Business interests may be relegated to the political sidelines. Yet, Governor Brown’s $2 billion revenue challenge in the 2019-2021 biennium seems tenuous.

In her budget message, Brown didn’t specify how she wanted to raise an additional $2 billion in revenue to fund public education. However, she has been very clear she isn’t interested in tying a revenue increase to reduction in PERS benefits, which business interests have advocated. The implication is that legislative Democrats have the votes and can decide on the details.

It may not be that simple. 

For starters, the PERS unfunded liability is likely to be larger. As The Oregonian’s Ted Sickinger reported, PERS investments so far this year have fallen significantly short of the assumed 7.2 percent return rate, which actuaries say could balloon the unfunded liability by as much as $4 billion. 

That won’t affect the current public employer contribution rate, which is already fixed for the next two years and cost an additional $1.1 billion. The PERS actuary predicts even steeper contribution rate increases beginning in 2021. Such a prospect may propel public employers to press harder for legislative solutions.

Jody Wiser of Tax Fairness Oregon has suggested paying down the PERS unfunded liability with a one-time diversion of the personal income tax kicker, pegged at $724 million. Voting to redirect a kicker payment to PERS is not impossible to imagine in a Democratically controlled legislature, but it still wouldn’t be an easy vote. Most of the kicker benefits flow to middle- and upper-income Oregon taxpayers, the people who typically write campaign checks to legislators.

Democrats have a comfortable supermajority in the Oregon House, but a less reliable one in the Oregon Senate. Senator Betsy Johnson, D-Scappoose, isn’t always a sure bet to go along with her 17 other Democratic colleagues on tax issues. As one of the two Senate co-chairs of the Joint Ways and Means Committee, Johnson will be part of the Democratic leadership team, but also hold more political leverage. Johnson is one of those votes you have to earn, not just count on.

Governor Brown touted her $2 billion revenue challenge by saying, “Our current strong economy gives us the best chance in a generation to address persistent, structural challenges so we can achieve our full potential.” Brown’s challenge drew this response from House Minority Leader Carl Wilson, R-Grants Pass, “This is not a challenge to the legislature; it is a challenge to the wallets and pocketbooks of hardworking Oregonians.”

Governor Brown touted her $2 billion revenue challenge by saying, “Our current strong economy gives us the best chance in a generation to address persistent, structural challenges so we can achieve our full potential.” Brown’s challenge drew this response from House Minority Leader Carl Wilson, R-Grants Pass, “This is not a challenge to the legislature; it is a challenge to the wallets and pocketbooks of hardworking Oregonians.”

Perhaps the biggest challenge to the $2 billion revenue challenge is the lack of a specific plan. Democrats pushed in the 2017 session a corporate tax restructuring proposal, but the proposal or something like it wouldn’t generate $2 billion. That means a tax plan would most likely need to affect business and personal income taxpayers.

A business tax hike might be a lighter lift after the congressional GOP tax cut that included several business tax breaks. But the federal legislation contained personal income tax provisions that limit state and local tax deductions, which will mean higher federal taxable income starting in 2018 for a chunk of Oregon taxpayers. Again, not insurmountable, but not necessarily easy.

Designing a tax proposal, especially one as large as $2 billion in Oregon’s context, will be messy. Tax ideas will be floated and dropped. The final product may not be a single tax increase, but a series of tax and fee increases. This revenue-raiser will be in addition to taxes and fees levied to fill the budget gap for Oregon’s Medicaid program.

How the $2 billion will be spent also will be the source of endless debate. A special committee traveled the state during the interim gathering ideas on how to improve public education in Oregon. It came up with a long list – and didn’t include suggestions for higher education.  

The slim 22-member House GOP caucus, with Rep. Carl Wilson, R-Grants Pass, as its new “superminority” leader, expects to be largely spectators on tax legislation this session. However, that doesn’t rule out a role as spoilers who seize every opportunity to take political pot shots at Democratically backed tax proposals – and rising PERS contributions by cities, counties and school districts.

There is always a possibility of a bipartisan revenue package, which might avoid a voter referral that would be costly and delay any revenue increases. Compromising on a $2 billion tax package would pose political risks for both Democrats and Republicans, but also afford potential political benefits.

Republican legislative control in a blue state seems remote, so negotiating for some “victories” as part of a tax package could be viewed by GOP voters as turning lemons into lemonade. Democrats could win accolades for leadership by including some GOP priorities instead of plowing them over in the legislative process.

One thing is sure. Raising $2 billion in the next biennium is not a slam dunk because there will be votes on one or more tax measures to raise that sum, huge debates over where the money should go and a dark shadow cast by PERS.

 

Brown’s Budget Focuses on Education, Human Services

Fresh off her successful re-election, Governor Kate Brown unveils her $23.6 billion General Fund budget that includes a $2 billion revenue challenge to state lawmakers to eliminate structural deficits in public education.

Fresh off her successful re-election, Governor Kate Brown unveils her $23.6 billion General Fund budget that includes a $2 billion revenue challenge to state lawmakers to eliminate structural deficits in public education.

Governor Kate Brown released her 2019-2021 budget recommendations that roll out ideas to shore up state health care funding, continue to invest in affordable housing and pay for initiatives she announced in her re-election campaign.

Proposed budgets are also notable for what they don’t include. Brown’s $23.6 billion budget proposal omits any mention of Public Employees Retirement System (PERS) cost-cutting or investing to restart bi-state conversations about an I-5 Columbia River Bridge replacement.

Her proposed budget did contain a $2 billion revenue challenge to legislators to bolster Oregon’s public education system. The challenge coincided with the rollout of the Coalition for the Common Good, consisting of Oregon public employee unions, a group of long-term care providers and Nike, in support of a major tax package.

“We want to bring a sole focus into revenue reform,” said James Carlson, president of the Oregon Health Care Association. “The reality is we can’t afford to waste another five years chasing a deal that may or may not happen” on cutting government costs.

Major business groups are positioned to resist a major tax overhaul without steps to reduce the $22 million unfunded PERS liability, which poses a drain on local government and school district budgets.

The $2 billion in new revenue would go to extend the school year, decrease class sizes, expand access to preschool and decrease college tuition at public universities. Brown faced sharp criticism in her re-election campaign for Oregon’s low high school graduation rate and failure to provide all of the funding voters authorized to expand career and technical education statewide.

Brown’s budget is heavy on aspiration and revenue projections. It also is very readable, has a reasonable amount of detail and is backed up by economic and revenue analysis. For example, it shows that $19 billion in revenue comes from Oregon personal income taxes, which represents 80 percent of the budget. Corporate income taxes and lottery proceeds contribute 4 and 5 percent, respectively. Roughly 50 percent of Brown’s proposed spending would go to education and 27 percent to human services.

Even though state lawmakers will have around $1 billion more in revenue than the previous biennium, Brown included tax increases in her budget, much of it to plug a funding hole for Medicaid. She proposed raising tobacco taxes by $2 and expanding taxes or assessments on hospitals, insurers and some employers.

In her budget, Brown proposes to shut down the Oregon Department of Energy and allow the state’s Chief Education Office to end. She asks for creation of an Oregon Climate Authority that would administer a “well-designed, market-based program to achieve our state climate emissions reduction goals at the least possible cost, while protecting our manufacturing industry and mitigating impacts on low-income and rural communities, communities of color, and Tribes.” 

Brown devotes substantial funding to her Children’s Agenda, including $285.8 million to provide preschool for an additional 10,000 children, $20 million for housing stability for homeless families, $13.8 million to integrate disorder treatment and behavioral health programs for families and $10 to increase “quality, affordable” child care. Brown wants to ensure 100 percent of Oregon children have health care access and proposes $47.1 million for a comprehensive child welfare system “based on positive human development” and that reduces the need for foster care.

Another campaign promise that showed up on Brown’s budget is incorporating standards from the federal Clean Air and Clean Water acts into state law. She also wants to fund an effort to eliminate a backlog in pending air quality permits.

Brown recommended expanding Oregon’s automatic voter registration system by including other public interactions with state agencies, such as applying for a hunting license, as triggers and sending voters ballots with return envelopes with pre-paid postage. 

After a gubernatorial election that broke state spending records and involved independent expenditures funded with dark money contributions, Brown committed to work on campaign finance reform.

The budget proposal sets aside money for earthquake preparedness, firearm safety, a university program dealing with threat assessment and immigrant defense. Some $5 million is earmarked for funding rural broadband infrastructure and $10 million for remediation of rural brownfields so they can be redeveloped.

Brown titled her budget proposal, “Turning Point: An Agenda for Oregon’s Future.” Here is the opening paragraph of the budget document:

“Oregon is at a turning point. Hundreds of thousands of people have moved here in the past 20 years, and a million more are on their way. We’ve done some good things over the years, but our state is changing, and changing rapidly. With the aging of Oregon’s baby boomer generation, and the impacts of recent dramatic federal tax changes and burgeoning federal deficits exacerbating these changes, one thing is clear: we can no longer do things the way we have in the past. We must grow up as a state, and we need to decide – together – what we want to be over the next 20 years. The challenges of affordability, of educating our kids, of mitigating the effects of climate change, and of maintaining a strong democracy will not get better unless we change our approach.”

She says Oregon must renew faith in democracy, spend money wisely, address affordability, prepare for the future and “finally fix our underfunded education system.”

 

Brown, Democrats Ride Strong Wave of Voter Turnout

Oregon Governor Kate Brown overcame a trail of administrative miscues and an aggressive campaign by challenger Knute Buehler to win re-election to a full four-year term. High voter turnout also swept out three Republican House incumbents and gave Democrats supermajorities in both the House and Senate. [Photo Credit: Steve Dykes, AP]

Oregon Governor Kate Brown overcame a trail of administrative miscues and an aggressive campaign by challenger Knute Buehler to win re-election to a full four-year term. High voter turnout also swept out three Republican House incumbents and gave Democrats supermajorities in both the House and Senate. [Photo Credit: Steve Dykes, AP]

Governor Kate Brown turned back a spirited challenge from Republican Knute Buehler and Democrats earned super-majorities in both the Oregon House and Senate by unseating three sitting House GOP members.

Oregonians rejected ballot measures to end the state’s sanctuary status, ban public funding for abortions and block taxation on groceries. Voters approved a measure to allow local governments to use public money with private developers to build affordable housing. In Washington, voters defeated a carbon tax proposal.

In key local races, Kathryn Harrington won as Washington County Chair and Jo Ann Hardesty glided to victory on the Portland City Commission, becoming the first African-American woman to sit on the commission. Oregon City Mayor Dan Holladay won re-election. A majority of local ballot measures passed. A full list of election results can be found here

The Brown-Buehler contest set campaign spending records in Oregon and may be the spark for campaign finance reform in the 2019 legislative session. Despite running an effective campaign, Buehler’s loss further dented the notion that a moderate Republican could defeat a Democrat in a race for governor in Oregon.

There may not have been a blue wave throughout the nation, but strong turnout by Democratic voters contributed to the defeats of incumbent GOP Reps. Julie Parrish (West Linn), Rich Vial (Sherwood) and Jeff Helfrich (Hood River). House Democrats increased their margin of control to 38-22, up from their 35-25 margin in the previous session. It takes 36 votes to reach a House supermajority required to pass revenue-raising measures.

Democrats managed to flip one seat in the Senate where Jeff Golden prevailed in a seat held last session by GOP Senator Alan DeBoer who didn’t seek re-election. That one seat was enough to give Democrats a Senate supermajority of 18-12.

No changes are anticipated in Democratic leadership. Senate President Peter Courtney easily won re-election to a sixth term and has led the Senate since the 2003 session. Speaker Tina Kotek was elected to the Oregon House in 2006 and became Speaker in the 2013 legislative session.

Brown’s seemingly comfortable 5-point lead over Buehler didn’t necessarily reflect the bruising intensity of the gubernatorial campaign and the closeness of the contest, which drew national attention because the race was unexpectedly tight. The race also attracted gobs of out-of-state money as Brown and Buehler combined to spend a record $30 million.

In her post-election comments, Brown said her priorities in the next legislative session will be campaign finance reform, affordable housing and boosting Oregon’s low high school graduation rate, something Buehler poked at during the campaign. During her campaign, Brown announced a plan to incorporate federal clean air and clean water protections into Oregon law.

Other issues that will demand attention in the upcoming session include how to keep paying for Oregon’s Medicaid program, bolstering community mental health resources and improving child welfare programs.

There will be continuing pressure to address the unfunded liability of the Oregon Public Employees Retirement System and realign the state’s corporate tax system. It is unlikely remnants of the culture wars – immigration, abortion, transgender rights – will rear their heads in the legislature during the next two years.

A well-coordinated campaign apparatus consisting of labor, environment and progressive groups contributed to Brown’s re-election and the defeat of several ballot measures. Congresswoman Nancy Pelosi, expected to return as Speaker of the US House, credited a similar coordinated effort with the discipline and financing to regain control of the House and win governorships across the country, including in Trump country. 

Washington Initiative 1631, dubbed the Green New Deal, lost after large industrial corporations poured $31 million into a campaign to defeat it. If passed, I-1631 would have imposed a new carbon fee to fund conservation projects, renewable energy farms and struggling communities. The measure was endorsed by Governor Jay Inslee who called it “well-balanced, thoughtful policy.”

 

 

PERS: The Defining ‘Hot-Button’ Issue in the Governor’s Race

There have been grand bargains, court judgments, work groups, dire warnings, threats and inflated claims. Now there is a gubernatorial race that might turn on frustration over how to reform the Public Employees Retirement System. [Illustration Credit: Joan McGuire/Oregon Business]

There have been grand bargains, court judgments, work groups, dire warnings, threats and inflated claims. Now there is a gubernatorial race that might turn on frustration over how to reform the Public Employees Retirement System. [Illustration Credit: Joan McGuire/Oregon Business]

Ted Sickinger of The Oregonian has written a series of revealing articles about the Public Employees Retirement System (PERS), which his latest story calls the “defining issue” of the 2018 Oregon gubernatorial race.

Ted Sickinger is a long-time member of The Oregonian’s investigative team who has written extensively about the Oregon Public Employees Retirement Fund, from its arcane actuarial realities to the political firestorms it has ignited.  https://muckrack.com/ted-sickinger/articles .

Ted Sickinger is a long-time member of The Oregonian’s investigative team who has written extensively about the Oregon Public Employees Retirement Fund, from its arcane actuarial realities to the political firestorms it has ignited. https://muckrack.com/ted-sickinger/articles.

“Perhaps few issues more starkly delineate the views of Kate Brown and Knute Buehler in this fall’s gubernatorial election than Oregon’s public pension system,” Sickinger wrote. 

“Though PERS has been a hot-button issue in the state for decades, the political pressure may never have been higher,” he continued. “Schools, municipalities and government agencies are panicking as their required PERS contributions spiral to historic highs to help dig the system out of its $22 billion unfunded liability. There is no rescue in sight, and contribution rates are slated to jump again in July, pulling another $550 million a year out of public budgets statewide.”

Republican challenger Buehler has used the issue as a political club to criticize Governor Brown’s leadership. Brown has searched for ways to buy down the unfunded PERS liability and insists she won’t punish hardworking public employees. 

As Sickinger describes it, Buehler has promoted a set of PERS reforms closely paralleling those backed by Oregon’s business community. Brown dismisses Buehler’s “threats and bluster” and says she will concentrate on “actual solutions that solve the problem.” 

In reality, the window of possible changes isn’t very wide. “There is a limited menu of changes to the pension system considered economically meaningful and legally viable in light of past decisions by the Oregonian Supreme Court,” Sickinger says. “None would erase the pension deficit, though it is possible to make cost reductions that would help [public] employers.”

Sickinger walks through ideas on the table – public employee cost-sharing, which Oregon public employees already do, a $100,000 salary cap to limit large pension payouts and a transition to a 401(k) plan. 

Sickinger’s article touches on incentives and investments, including Brown-backed legislation to entice public employers to make an extra contribution to PERS and have the contributions matched by 25 cents on the dollar. Buehler calls the idea “political theater” with minimal impact on the unfunded liability.

Brown touts professional changes in the state treasurer’s office to achieve a higher rate of return. Buehler dismisses this, claiming the Oregon PERS portfolio has been one of the best performing funds in the nation.

Regardless of your politics or gubernatorial preference, Sickinger’s reporting on a major state issue is informative and cast illumination on claims, counter-claims and outright inaccuracies. 

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For starters, there were 145,963 Oregon PERS retirees through December 2017 – 127,687 of whom are considered Tier 1, the group with the most court-tested retirement benefits. Another 67,840 Oregon public employees are eligible to retire – 22,300 of whom are in Tier 1.

For the rest of the story, read Sickinger’s story, including a YouTube video on how Oregon got $22 billion in the hole.

 

How Oregon Might Look with a GOP Governor

Polls show the Oregon gubernatorial race is close enough heading into the November 6 election to wonder what a Republican governor in reliably blue-state Oregon would look like. (Photo Credit: E.J. Harris/East Oregonian)

Polls show the Oregon gubernatorial race is close enough heading into the November 6 election to wonder what a Republican governor in reliably blue-state Oregon would look like. (Photo Credit: E.J. Harris/East Oregonian)

Polls show the Oregon gubernatorial race is tighter than expected, at least by Democrats, and suggests it’s possible a Republican could capture the governor’s chair for the first time since 1978.

Buehler’s challenge to incumbent Governor Kate Brown is serious enough to ask what Oregon politics would look like if the state had a Republican governor while Democrats retained control of the Oregon House and Senate. Here are some thoughts:

Oregon Land Board

The three-member board that oversees state lands, from forests to submersible lands, would have two votes sympathetic to commercial interests – Governor Buehler and GOP Secretary of State Dennis Richardson. Some of Buehler’s biggest campaign contributors have come from leaders in the forest products industry, which could tip decisions in a different direction, such as the previously proposed sale of the Elliott State Forest.

Raising taxes and PERS

On the campaign trail, Buehler says he will block any tax increases until the legislature enacts cost-saving reforms to the Public Employees Retirement System. This has been a stand-off waiting to happen. Business interests – and more quietly school boards – would welcome this kind of pressure to force a compromise that reduces the unfunded PERS liability. A task force named by Brown spent months searching for ways to cut into the deficit and came away with a scant list of possibilities. Buehler may not fare any better, but he might bring fresh energy to the challenge.

State agency management

A Buehler victory would mean wholesale changes at the top of state agencies. Buehler has called out management lapses under Brown and he wouldn’t miss the chance to replace Brown appointees, especially since many Republicans may line up at his door seeking those jobs. 

Health care and human services

Under Democrats, Oregon carved out a niche in health care and long-term care delivery. These innovations have long enough roots that can’t be ripped out, but Buehler, who is a doctor, would covet the chance to put his own mark on Oregon’s health care system. He would likely face strong legislative opposition to Trump-like limitations on Medicaid and he might choose instead to focus on shoring up or even reinventing the state’s embattled child welfare system.

Homelessness

A politically opportune opening for Buehler would be combating the homelessness issue by significantly increasing community-based mental health resources, promoting innovative approaches to substance abuse and expanding options for victims of domestic abuse. In campaign ads, he has promised some “tough love,” which presumably means a coordinated effort to end camping in parks and on streets by providing more temporary shelters and affordable housing connected with services. Homelessness has emerged as a raw-nerve issue that has some urban Democrats weighing a vote against the incumbent they have supported in the past.

Redistricting

The quiet issue in the corner of this election is congressional and legislative redistricting, which will occur after the 2020 Census. GOP control of the governorship and secretary of state could give Republicans a bigger grip on how maps are redrawn. That could be especially significant if Oregon earns a sixth congressional district, which would be carved out of existing districts held by Democrats and potentially make one or more seats competitive in the 2022 election. Redistricting could also make a few House and Senate districts more competitive, making Democratic legislative control less a fait accompli. 

Legislative process
A Republican governor and Democratic legislative leaders could be like mixing oil and water. However, there has been a history in Oregon of bipartisan collaboration between moderate Republicans and Democrats. That is more likely if Buehler sticks to his moderate positioning and isn’t tempted to channel Trump policies on deregulation and tax policy. In fact, a Republican governor could be the galvanizing factor that breaks some logjams on policy issues in Salem by requiring bipartisan compromises.

Political Style
Brown has admitted she has a reserved, personable style that may not resonate with everyone, especially in the shadow of more flamboyant politicians, even though it has produced significant successes such as a higher minimum wage, major transportation funding package and a clean air initiative.

Buehler’s political persona isn’t over the top, but he has campaigned as a problem-solver willing to butt heads in Salem to get things done. His projection of himself as an action figure contrasts with the quieter approach of Brown and might be a better match for the political moment of this election, even if it results in inevitable public confrontations with Democratic legislative leaders in 2019.

 

Short 2018 Session May Have Less Drama

No single issue is likely to dominate the Oregon 2018 legislative session that begins Monday, but lawmakers will still be busy with issues ranging from reconnecting to the federal tax code to gun restrictions. And there will be some political jockeying in advance of the Oregon primary in May and general election this fall.

No single issue is likely to dominate the Oregon 2018 legislative session that begins Monday, but lawmakers will still be busy with issues ranging from reconnecting to the federal tax code to gun restrictions. And there will be some political jockeying in advance of the Oregon primary in May and general election this fall.

Voter approval of Measure 101 and Senate Democratic cold water on cap-and-invest legislation may remove much of the anticipated drama at the 2018 Oregon legislative session, which convenes Monday. Of course, any legislative session during an election year can have outsized political tensions.

Without a focus on patching a big budget hole or trying to thread the needle for a compromise on cap-and-invest provisions, there isn’t an apparent single issue that will dominate the session with an adjournment deadline of March 11.

One of the sleeper bills likely to draw attention is legislation to connect Oregon’s personal and corporate income tax system with federal tax changes enacted by Congress late last year. Oregon lawmakers have tended to favor connecting Oregon’s tax provisions with their federal counterparts for the ease of taxpayer filing. But there may be other considerations this time around, including how the new federal limitation on state and local tax deductions will affect Oregon taxpayers.

The Oregon business community wants to see substantial progress on reducing the unfunded liability of the Public Employees Retirement System, but that appears unlikely in the short 2018 session and during an election year. Governor Brown will ask lawmakers to create an Employer Incentive Fund to provide matching money for public employers that accelerate their contributions to PERS. The pressure to act also was relieved by the Oregon State Treasury’s announcement that the PERS fund posted a 15.3 percent gain in 2017, which is good news, but not enough to stem rising costs.

Other priorities for Brown in the short session include a measure to encourage construction industry startups in rural areas that can access low-rate loans from Business Oregon to build affordable housing. Licensing requirements also would be relaxed and grants would be available to defray the costs of apprentices.

Brown wants all licensed opioid prescribers in Oregon to register with a Prescription Drug Monitoring Program to generate information about opioid use and identify illegal prescribers. Her proposal also would provide for mentors in emergency departments to counsel people who have overdosed.

Another Brown priority is to create a reverse auction for state procurement as a way to squeeze more value and less cost for state expenditures. Her concept is to generate more competition among state vendors who benefit from the $8 billion Brown says state agencies spend every biennium. 

The governor is seeking a bill to prohibit people convicted of domestic violence or stalking from purchasing firearms. Oregon lawmakers approved legislation last year to empower courts to order the confiscation of guns owned by people deemed at risk of suicide or hurting others.

Passage of Measure 101, which secures funding for Oregon’s Medicaid program through this biennium, prompted Rep. Mitch Greenlick, D-Portland, to propose a constitutional amendment that declares health care is a right of every Oregonian. He has attracted 40 cosponsors for his referral that would appear on November 2018 general election ballot.

Likely GOP gubernatorial frontrunner Knute Buehler, R-Bend, is pushing legislation to force coordinated care organizations to repay up to $74 million in Medicaid overpayments and address transparency and management issues by the Oregon Health Authority. Buehler has called for bipartisan action, but his measure will invariably have a vapor trail of politics following it.

Some familiar legislative faces will be missing. Long-time Senate Minority Leader Ted Ferrioli and Senator Richard Devlin, the Democrat’s budget guru, have moved on to appointed posts on the Northwest Power Council. Cliff Bentz, who has served in the Oregon House since the 2009 session, assumed Ferrioli’s seat and Senator Jackie Winters was chosen to succeed Ferrioli as minority leader. Rob Wagner, a Lake Oswego School Board member, was appointed to fill Devlin’s seat.

PERS Task Force Ideas Fall Short of Brown’s Goal

The task force appointed by Governor Brown will submit its suggestions soon to shrink the Oregon PERS unfunded liability, but during the time the task force met the liability hole grew bigger.  Photo Credit: The Oregonian

The task force appointed by Governor Brown will submit its suggestions soon to shrink the Oregon PERS unfunded liability, but during the time the task force met the liability hole grew bigger.

Photo Credit: The Oregonian

The task force named last May by Governor Brown to identify ways to slice the unfunded liability of PERS will soon submit its ideas, but don’t expect them to be easy to implement or add up to the $5 billion goal Brown set.

One of the most promising concepts floated by the task force emerged at its last meeting and doesn’t have anything to do with selling surplus state property or imposing fees here and there. That idea involves an incentive structure to the 900 or so PERS employers to increase their contributions to pay down the unfunded liability.

None of the ideas coming from the task force could be described as a slam dunk.

  • Imposing an additional tax on PERS retirees receiving more than $60,000 annually in benefits (likely to face an uphill court battle);
  • Increasing permit and fee prices (likely politically feasible, but the amount of money it raises would be minimal); and
  • Transferring some of the $1.6 billion surplus in the State Accident Insurance Fund (a possibility, but it is unclear how much of the surplus could be transferred without adversely affecting SAIF).

Complicating the exercise, the PERS board in July lowered the assumed rate of return on investments, which had the effect of increasing the unfunded liability by another $2.4 billion to almost $25 billion. Business interests pushing for PERS reforms said the investment rate change “unmasked the severity of the problem.” PERS employers, which include school districts, will be expected to pay an additional $900 million over the next two years.

As reported by The Oregonian’s Ted Sickinger, Brown’s 7-member task force, which has met four times, looked under state seat cushions for spare change to shrink the PERS unfunded liability without directly addressing PERS benefits. The search included selling surplus properties, privatizing state agencies and putting a surcharge on liquor sales. None of those ideas gained much traction in task force deliberations.

In the absence of a silver bullet idea, task force members privately said the sum total of their ideas might only reach around $1 billion, far short of Brown’s goal. Even $1 billion may be difficult to achieve since the task force is submitting suggestions, not recommendations by its November 1 deadline. The suggested incentive to PERS employers to increase contributions to qualify for some sort of state matching funds may wind up attracting the most interest, though it would require lawmakers to scratch together the state revenue to provide matching funds.

There is little doubt the PERS unfunded liability will be a major issue in the 2018 gubernatorial election. GOP frontrunner Knute Buehler regularly criticizes Brown for her failure to offer ideas on how to address the PERS liability and put state budgeting on a sustainable basis.

Majority legislative Democrats, supported by Brown, appear poised to push cap-and-invest legislation in the short 2018 session that begins in February, which could generate an additional $1.4 billion in state revenue. Legislative Counsel has opined that the cap-and-invest measure is not a tax and therefore doesn’t require of a three-fifths majority to pass in the House and Senate.

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Zack Reeves is a state affairs associate who represents CFM clients in the Oregon legislature. He began working as a legislative staffer in 2011 and has developed a wide range of contacts and experience on a broad spectrum of legislation. Before politics, Zack worked as a reporter and copy editor.

More Fuel for Oregon Revenue Debate

Oregon public schools received a substantial boost in revenue this year, but not enough to avoid teacher cutbacks and larger class sizes in the shadow of rising pension payments, which will add more fuel to the already raging debate over raising corporate taxes and changing the Public Employees Retirement System.

Oregon public schools received a substantial boost in revenue this year, but not enough to avoid teacher cutbacks and larger class sizes in the shadow of rising pension payments, which will add more fuel to the already raging debate over raising corporate taxes and changing the Public Employees Retirement System.

Oregon public schools are receiving more state funding, but a significant chunk of the increase is going to pay for teacher pensions, not teachers in classrooms. The situation will add fuel to both sides of the debate over the need for additional tax revenue.

School advocates will say it is proof more revenue is needed to cover the costs of public education. Business leaders will say it underscores the need to make changes in the Public Employees Retirement System.

The Oregonians’ Gordon Friedman filed a story indicating Oregon’s public schools will receive $400 million more than in previous years. But the bump is not enough, school officials contend, to avoid teacher layoffs, larger class sizes and program cutbacks.

Friedman provides specific examples:

  • Portland Public Schools will receive a $29 million funding boost, but $18 million of that increase will go for pensions and higher salaries. The district will employ 55 fewer teachers in its 77 schools this fall.
  • Salem-Keizer School District will get $31 million more, but its pension costs will rise by $10 million, resulting in 67 teaching positions being axed.
  • Beaverton School District will see a $21 million increase, but its pension cost will balloon by $14 million. Its budget-balancing challenge is aggravated by the opening of a new high schools. The District has elected to trim library staff, professional development and classroom supplies.

School officials expect more of the same in the next school year, even though the legislatively approved $8.2 billion K-12 budget a represents an 11 percent increase over the previous biennium. Legislative fiscal analysts predicted the $8.2 billion budget, which included an estimate of pension costs rising by 45 percent, should have been adequate. School officials disagreed and said $8.4 billion was needed to maintain the status quo in their local district budgets.

Specific numbers aside, the specter of a larger budget for K-12 schools and continuing teacher and programmatic cutbacks is the stuff that will further animate the debate over corporate taxation and PERS spending reductions. You get the flavor of the debate by how school advocates refer to corporate tax reform and business groups demand PERS reform.

There isn’t going to be any respite from having that debate continue before the Oregon legislature convenes for a short session early next year. There are two huge drivers of the conversation:

  • The Oregon Education Association is pushing an initiative to raise corporate taxation – a so-called Measure 97 light. The teacher union was forced to withdraw its initial ballot measure because of a constitutional question, but it has pledged to refile a corrected version. If it qualifies for the ballot, Oregon voters would decide its fate in the November 2018 general election.
  • Rep. Julie Parrish, R-West Linn, is pursuing a referral of the legislatively approved Medicaid funding package, which she calls a sales tax on health care. Because of controversial legislation approved in the 2017 session, voters would decide on whether to toss the tax package in a special election next January, just before lawmakers return to Salem.

The OEA-backed initiative will cause combatants to return to their political trenches and prepare for another expensive campaign. The prospect of a Medicaid tax referral has already splintered the business community, especially in the health care sector.

There have been calls for a legislative special session this fall to work out a compromise. Some school officials say the school funding issue is serious enough to act now, not wait until 2019. Newly declared GOP gubernatorial candidate Knute Buehler urged a special session to ”improve” the state’s Medicaid program, most likely in the form of ensuring that ineligible enrollees are removed.

The stakes are obviously high. If voters strike down the Medicaid tax package, lawmakers will once again face a massive budget hole. The net effect would be to turn the K-12 school budget-corporate tax debate into a three-way slugfest.

Hope isn’t high for a grand bargain to resolve this festering issue. The operating assumption of the moment is that a work group needs to be formed, statewide listening sessions held and compromises considered on corporate tax changes – a model that worked to produce a major transportation funding package that won legislative approval and won’t face a referral, as previous measures have. This process wouldn’t fully unfold until the 2019 legislative session – and after the 2018 general election and potentially a vote on the OEA tax initiative.

Without leaderships and a clear focus on an alternative, Oregonians can expect a lot of shoving and pushing – and apparently more teacher layoffs.

Gritty Issues Teed up for 2018 Election

Hot button issues such as PERS, Medicaid, immigration and taxes are already heating up long before the 2018 Oregon election starts in earnest and are sure to bring into focus questions over who can provide the political leadership to address these issues.

Hot button issues such as PERS, Medicaid, immigration and taxes are already heating up long before the 2018 Oregon election starts in earnest and are sure to bring into focus questions over who can provide the political leadership to address these issues.

The 2018 election is more than a year away, but the issues that will animate campaigns are getting exposure now. As Republicans challenge monolithic Democratic control of the lever of powers in Oregon, the issues center on PERS, Medicaid and immigration. And more will follow.
 
In a news release Monday, the Senate Republican office deplored a “time bomb” decision by the PERS board that had the effect of inflating the unfunded liability of the public employee pension program to $52 million. With breathless prose, the release said, “Taxpayer-funded pension systems are combustible by nature, but Oregon’s ticking time bomb known as PERS is one of the brink of exploding.” Legislative Republicans pushed for steps to corral PERS funding but were unsuccessful.
 
The Oregonian added fuel to the Medicaid debate by reporting over the weekend that more than 37,000 Oregonians were extended health care benefits under the program even though they exceeded the earnings threshold – at a cost to the state of $191 million. The Oregon Health Authority reportedly has another 30,000 enrollees to check, so the number of ineligible Medicaid recipients could grower higher. A bipartisan majority agreed to a tax package in the 2017 session to sustain the core and expanded Medicaid program. Rep. Julie Parrish, R-West Linn, is pursuing a referral of the Medicaid tax package.
 
The potentially most explosive issue could be the call by Republican senators for Governor Brown to veto legislation declaring “sanctuary state” status. Their call follows violent attacks by Sergio Jose Martinez, including a sexual assault on a 65-year-old woman, who has been deported 20 times. Efforts by the Trump administration to step up deportation of undocumented immigrants has sparked public demonstrations both for and against the action.
 
The PERS and Medicaid issues have been stoked by Oregonian reporting. The PERS unfunded liability and sanctuary state issues have been fanned by Jonathan Lockwood on behalf of Oregon Senate Republicans. The Medicaid story’s fuse was lit by Secretary of State Dennis Richardson, who is the leading GOP gubernatorial candidate, largely due to his higher name familiarity.
 
Gubernatorial campaigns serve as referenda on how the state is doing and its most vexing issues. But few campaigns are so issue-centric before the front-running candidates have a chance to chisel out the political debate fault lines.
 
Brown is expected to seek re-election, but there is no consensus GOP challenger and the threat of a third-party bid can’t be ruled out. Political leadership is sure to be a major issue in the campaign. Republicans and even some Democrats will charge that Brown ducked out on leading toward a solution to the state’s $1.6 billion budget deficit. Brown can claim her leadership helped to push through a major transportation package that included funding for public transportation.
 
Oregon has become a reliably blue state, where Democratic statewide victories are pretty much a sure bet. That probably won’t change, but foul winds are blowing. Brown hasn’t alienated many core Democratic constituencies, but she hasn’t necessarily wowed all of them either.
 
Pointing to growing PERS liabilities, ballooning Medicaid costs and an immigrant bad boy may make headlines but aren’t the same as alternative solutions. This also could be a year where the politics of blame isn’t a big winner. But it is undeniable that gritty policy issues will consume oxygen in the 2018 campaign regardless who runs.
 
One final issue likely to emerge is whether to pursue revenue reform next year, despite Democratic leaders indicating it should wait until the 2019 session. Brown, Senate President Peter Courtney and Speaker Tina Kotek released statements arguing that reform wasn't possible until 2019, but a union-backed 2018 initiative similar to Measure 97 may spark interest in trying to head off another divisive and expensive battle at the ballot box. 
 
The question is who will take the lead and convene a working group. Senator Mark Hass, D-Beaverton, attempted compromise legislation in 2017 and may do so again. Brown could build off her transportation win and try to do the same on revenue reform. Brown's new Chief of Staff Nik Blosser showed an aptitude for such negotiations in 2017 and may be the person to do it again next year. A Republican candidate may jump into the fray with a plan and a strategy. The political risks are palpable, but the intensity of the issues may make the risk worth it.

Threatened Medicaid Referral Creates Capitol Shivers

 A serious threat by Rep. Julie Parrish, R-West Linn, to refer legislation to raise funds to sustain Oregon’s Medicaid program from an increase a hospital tax and a new tax on health insurers has sent shivers down the spines of legislative leaders and created shudders for other interest groups that could be targets to patch Oregon’s budget hole.

 A serious threat by Rep. Julie Parrish, R-West Linn, to refer legislation to raise funds to sustain Oregon’s Medicaid program from an increase a hospital tax and a new tax on health insurers has sent shivers down the spines of legislative leaders and created shudders for other interest groups that could be targets to patch Oregon’s budget hole.

A big part of Oregon’s budget fix approved this session could spring a leak if Rep. Julie Parrish, R-West Linn, successfully refers the legislation that increases a hospital provider tax and adds a tax on insurers to sustain funding for Oregon’s Medicaid program.

Parrish followed through on her threat by filing a referendum petition with the Oregon secretary of state this week. She will have 90 days to gather less than 59,000 signatures of registered Oregon voters to refer the Medicaid funding package to the ballot. Parrish reportedly has monied backing to support the referral drive.

The threat by Parrish of a referral of Medicaid legislation has created what could fairly be called a panic in the state Capitol because it could undo the only major step lawmakers took this session to address a projected $1.4 billion budget deficit. The uncertainty caused by a referral would add to anxiety caused by congressional consideration of an Obamacare replacement that would reduce Medicaid funding sharply over the next decade.

Parrish says her goal is not to gut Medicaid, but “hold it accountable.” She wants to apply voter pressure to ensure Oregonians receiving Medicaid benefits are actually eligible and to address state mismanagement such as expensive IT failures. Parrish calls the hospital provider and insurer taxes amount to a sales tax on health care services and private health insurance, which are simply passed along to consumers. Coordinated Care Organizations also would face a tax in this legislation. A broad coalition of health care providers, insurers and CCOs supported the revenue-raising to maintain Oregon’s expanded Medicaid coverage. Parrish claims there were three other bills introduced this session that would have reduced the Medicaid funding gap without taxing hospitals and health insurers.

If a possible referral isn’t contentious enough, Democratic legislative leaders may have sparked an even wider partisan wildfire over a bill that would schedule a referral vote next January 23 and allow lawmakers to write the referral ballot title, which is sometimes all voters ever read about a measure.

Democrats defended the earlier vote as a way to prevent a deeper budget hole. If Oregonians rejected the Medicaid tax measure in a January special election, then lawmakers would have time to find an alternative during the 2018 short legislative session. Republicans charged Democrats with ambushing Oregon’s referral process and trying to suppress voting by scheduling a special election on a date with an anticipated lower voter turnout.

Parrish isn’t alone in threatening a referral. In fact, she finds herself a strange bedfellow with an entity she rarely agrees with – SEIU 503.  The largest union in the state made headlines earlier in session when it held a rally on the steps of the Capitol and threatened to refer any transportation package bill unless lawmakers secured new revenue for schools and other vital services. 

She and some Democrats also have threatened to refer the $5.2 billion transportation funding package. The threat from Democrats differs from Parrish. They want to hold the transportation bill, which has fairly broad bipartisan support, hostage to try to force legislative action this session on a corporate tax measure. After the transportation package passed out of committee Saturday evening, 16 House Democrats sent a letter to Speaker Tina Kotek urging her to “re-focus on the all-important task of identifying addition revenue.”  The implied threat hanging over the letter doesn’t go as far as SEIU’s saber-rattling, but it does raise concerns among stakeholders as we enter the final days of session.

Democratic leaders, including Governor Brown, threw in the towel on a corporate tax bill a week or so ago after it became clear there wasn’t consensus on a replacement for the current corporate income tax – and not enough votes to pass anything in the Senate. Nothing would be done to change the corporate tax, they said, until the 2019 legislative session.

The Oregon legislature is expected to wrap up remaining budgets and head home before its constitutionally mandated July 10 adjournment deadline, unlike at least four other states – Washington, Illinois, Maine New Jersey. It took three special sessions before Washington lawmakers reached a budget deal. New Jersey’s budget stalemate resulted in a partial government shutdown, but a solution was suddenly found after social media exploded with pictures of Governor Chris Christie lounging on an empty beach that was closed to the public because of the shutdown. Illinois has been in budget gridlock for three consecutive years.

Referral of the Medicaid funding package could bring Oregon back to the brink of a deep budget hole and put more pressure on legislative leaders to look at other tax hikes. Some education advocates are already urging lawmakers to resume work on a corporate tax measure earlier than the 2019 session, and perhaps as early as a special session later this year. If the Medicaid referral is successful, pressure would grow to look at cuts, not just in Medicaid, but also in the Public Employees Retirement Fund.

As noted in a previous Oregon Insider, adjournment can’t come soon enough, but even when it does it will seem more like an intermission than the end of the play. The animating issues of the 2017 session – the budget hole, Medicaid spending, corporate taxation and transportation funding – may still be anything but resolved.

Adjournment May Seem Like Only an Intermission

The Oregon legislature is on track to adjourn by July 10, but adjournment this time around may seem more like an intermission as corporation taxation, PERS, Medicaid, education funding and political leadership remain as hot griddle issues that won’t wait until the next election or next legislative session.

The Oregon legislature is on track to adjourn by July 10, but adjournment this time around may seem more like an intermission as corporation taxation, PERS, Medicaid, education funding and political leadership remain as hot griddle issues that won’t wait until the next election or next legislative session.

Oregon lawmakers appear on the road to adjournment by July 10, but with an air that the journey is just beginning, not ending on big issues such as taxes, transportation and long-term cost containment.
 
Last week, Governor Brown, Senate President Peter Courtney and House Speaker Tina Kotek hoisted the white flag on an attempt this session to revise Oregon’s corporation taxation and raise additional revenue. They said corporate tax changes would have to wait until the 2019 session. However, public employee unions want to move up the schedule. They are already airing TV ads saying “big corporations” should pay their fair share of the tax burden in Oregon, which appears to be a bombing run to soften the ground for another revenue-raising ballot measure.
 
The Senate and House approved an $8.2 billion K-12 funding bill, which Republicans and Democrats said was not enough, even though it represents 11 percent increase over the current biennium. Republicans blamed Democrats for trying to ram through a tax hike without cost containment. Democrats blamed Republicans for refusing to budge on revenue, even though it meant serious budget cuts. Education advocates are furious and may push state leaders to do something before the 2018 general election or the 2019 legislative session.
 
The Oregonian published an editorial lambasting the lack of leadership in Salem, pointing a particular finger at Brown, who faces another re-election battle next year, with GOP candidates already salivating at the chance to unseat her. More than one Capitol wag suggested that Beaverton Democratic Senator Mark Hass showed more leadership on a corporate tax compromise and a more substantial cost containment proposal that included the Public Employees Retirement System. Hass and others have pointed to a growing fiscal crisis in Illinois that is faltering under the weight of huge underfunding of its public employee retirement fund.
 
There is still time for lawmakers to act on a transportation funding package, which was a bipartisan priority before the session started. However, its fate continued to hang in the balance, despite an announcement by Brown that a deal has been struck. Key players are still working hard to tie down final details, which could surface today.
 
But the major hiccup is an 11th-hour threat by Rep. Julie Parrish, R-West Linn, to refer the transportation package and Medicaid tax measure to voters. Democratic leaders scrambled to write legislative language in Senate Bill 229 that would allow legislators to write ballot titles for the referrals and schedule them for a vote at a special election January 23.
 
While the legislature cleared a tax increase on hospitals and a new tax on health insurers to patch the state’s Medicaid budget hole for the next two years, stomachs are still churning while Congress considers health insurance legislation that, in versions so far, make drastic cuts in federal support for the program vital to low-income Oregonians, children and the elderly housed in nursing homes. Whatever Congress does, it probably won’t have much of an effect on the 2017-2019 biennium, but its shadow will cast a pall over the program moving forward into subsequent biennia. Voter approval of a referral of the tax increases would turn the shadow into a serious rain cloud.
 
In fact, the issue of health care could be at the center of policy and political debates for the foreseeable future. Congressional Republicans seem hell-bent on reining in a fast-growing entitlement program and lowering insurance premiums, even at the expense of reducing what’s covered in health insurance policies. Democrats are defending the Affordable Care Act, while conceding it could use some repairs to remain viable. Meanwhile. Voices such as Providence St. Joseph Health CEO Rod Hochman deplore GOP legislation that slashes federal support for Medicaid when states have little financial ability to pick up the slack. Hochman said he and others in the health care industry hoped federal legislation would address some of the issues making health care delivery unaffordable for many Americans, including households with health insurance.
 
The interim – the time between legislative adjournment and the next session – is usually fairly quiet, with a few hearings, some work groups and early stirring for ballot measures. The looming interim may be anything but quiet and may make it seem like adjournment was just an intermission before the final acts.

Oregon Lawmakers Face Pivotal Week on Big Issues

Veteran Oregon lawmaker Peter Courtney says this is the week the legislature must fish or cut bait on major decisions to avoid slipping into a special session to find a way to dig out of a $1.4 billion budget hole.

Veteran Oregon lawmaker Peter Courtney says this is the week the legislature must fish or cut bait on major decisions to avoid slipping into a special session to find a way to dig out of a $1.4 billion budget hole.

This is the pivotal week, according to Senate President Peter Courtney, that will determine whether Oregon lawmakers will spend more time this summer or fall in Salem in special session.

The keys to watch for this week, Courtney tells Jeff Mapes of OPB in an interview today, will be House votes on the K-12 education budget and an extension of the health care provider tax to pay for rising Medicaid costs. Courtney said if those two measures move this week, the legislature has a chance to adjourn by or before July 10, its constitutionally required deadline to approve a balanced budget and go home.

In his interview with Mapes, Courtney sounded less than optimistic about prospects for a $900 million corporate income tax increase and expressed concern that back-room haggling over tolling on Interstate 5 and 205 and potential compromises on low-carbon fuel standards could bog down progress on a transportation funding package.

Governor Brown said much the same thing last week to the Salem Statesman Journal. It’s time, she claimed, "to stop bare-knuckles politicking and move major bills including a hospital tax, a transportation package and a cost containment initiative.”

Brown's list omitted a revenue package, even though she and other Democratic leaders are rooting to pass such a package – if they can find at least one Republican in both the House and Senate to vote for it. So far that has proven elusive. The governor said she has met with nearly every lawmaker and walked away with, “I honestly don’t know whether the votes are there are this point in time.”

“We’re so close to a real, comprehensive solution this session – one that has been influenced by years of advocacy from all sides of Oregon’s political spectrum, including business and labor leaders, Republicans and Democrats,” she said." It’s time to get the work done.”

Predictions and pep talks may not offset the political barriers to progress toward a balanced budget. Republicans want deeper cuts in what they call “cost drivers” that push spending unsustainably beyond state revenues, even in good economic times. Democrats believe corporations aren’t paying their fair share to support state spending, and many think the existing corporate income tax has too many loopholes that allow big corporations to evade state taxation.

Lawmakers are debating today the latest iteration of tax legislation, which includes a corporate activities tax that would go into effect in 2019 and a "bridge proposal” of higher corporate tax rates between now and then. Democratic leadership on the House may try to move the bill despite an unknown vote count in the Senate.

The provider tax this session has faced ambivalence or opposition from portions of the health care community, including the trade group representing hospitals and health care systems. In the 2015 session, the health care industry came to Salem with full agreement a provider tax extension was among the earliest major bills to win bipartisan legislative approval. Now approval of a provider tax has become a political buoy indicating whether the 2017 legislature can avoid a special session.

The K-12 education budget, because it is the largest state agency budget, reflects a healthy increase over the current biennium, but not enough to satisfy K-12 education advocates or avoid teacher layoffs and the prospect of a ballot measure to impose a constitutional funding requirement similar to what is in the Washington Constitution. Failure to find a way to meet that constitutional funding standard has put the Washington legislature on the brink of a third special session this year.

Despite bipartisan support for a transportation package, there still doesn’t appear to be complete agreement. There always is a natural tension between urban and rural areas over allocating new revenues. Based on Courtney’s comments, there also is tension within the Portland-area legislative delegation about tolling on major interstate highways. And remember this is tolling without a new I-5 Columbia River Bridge.

End-of-session pressure often produces dramatic resolutions to seemingly irreconcilable positions. If Courtney, the longest serving legislator in the Capitol, is right, this week will determine whether there is enough pressure to break political blockades that can lead to timely adjournment.

Oregon’s Pending Political Divorce

Measure 97, which would raise taxes on corporations with more than $25 million in annual sales in Oregon, faces an uncertain future in the general election. However, it does seem certain that it's causing a political divorce in Oregon that will fuel polarization and make compromise harder to find.

Measure 97, which would raise taxes on corporations with more than $25 million in annual sales in Oregon, faces an uncertain future in the general election. However, it does seem certain that it's causing a political divorce in Oregon that will fuel polarization and make compromise harder to find.

Oregon voters can expect political rhetoric to escalate over Measure 97, the initiative to impose a gross receipts tax on corporations with large sales in the state, as the November 8 general election approaches.

However, the more intriguing question may be what will or should happen after the election, regardless of whether Measure 97 passes or fails? Chances are whatever happens will feel like a divorce. Andrew Bulkily, writing for Oregon Business, summed up the situation as going from “gridlock to civil war."

No one disputes that the stakes are huge. Oregon officials estimate Measure 97 will generate $3 billion per year in new state tax revenue. Proponents say most of that tax will be shouldered by large out-of-state corporations that currently don’t pay their fair share of the tax burden in Oregon. Opponents insist that the tax measure will result in higher consumer prices.

Emily Powell, the third generation owner of Powell’s Books, says higher taxes resulting from the passage of Measure 97 could drive the iconic Portland-based independent bookstore out of business. Powell says profit margins in the book business are too small and competition is too stiff to allow the store to raise its prices.

Measure 97 revenues have been touted by supporters, including Governor Kate Brown, as a badly needed and long overdue revenue make-up for K-12 school funding, health care and senior services. Opponents argue that the initiative can’t guarantee how legislators will spend the added tax money and that a big chunk of it will go to cover huge Public Employees Retirement System shortfalls.

There are people on both sides of the initiative who wish a compromise could have been reached to avoid a ballot measure mash-up that could be the most expensive political campaign in state history. Proponents and opponents have each raised double-digit millions of dollars to trade televised jabs this fall. Measure 97 backers weren’t in the mood to compromise, feeling that 2016 could be a moment to push through a major tax change on the ballot.

Which brings us to what happens after the election. If Measure 97 passes, the state’s available discretionary revenue will sharply expand. That would probably erase the projected $1.3 billion state biennial budget hole, but it wouldn’t necessarily determine how the balance of money would be spent. You could expect fierce arguments among interest groups over how much should go to K-12 schools versus investments in health care and senior services – and in higher education. You also could expect some high-profile business response, such as a business like Powell’s Books shuttering.

If Measure 97 fails, the state budget hole will loom even larger, potentially threatening cuts to K-12 and higher education funding and threatening Medicaid expansion. Perhaps worse, many in the business community may refuse to enter into discussions about how to meet that budget shortfall, PERS underfunding or tax reform because of the fractious fight they had to wage to defeat Measure 97. Oregon lawmakers may see hearing rooms full of angry faces unwilling to sit together in work groups to explore solutions.

It’s likely that the political zombie of a state sales tax would re-emerge. The sales tax has been the default idea for how to reduce the volatility of Oregon’s existing income-tax-heavy revenue system. However, sales taxes face their own haunting challenges, such as Internet sales. In Oregon, the appetite for a sales tax by voters has the same taste notes as brussels sprout ice cream.

If Measure 97 passes and Brown wins election, it will give her an effective mandate to guide how the new tax revenue should be allocated. However, it could dampen enthusiasm for climbing the steep hill to craft, pass and avoid a referral on a major transportation funding measure.

If Brown wins, but Measure 97 fails, Brown will have the challenge of trying to patch together a balanced budget, with limited credibility to court business support for alternative tax-generating options.

Brown’s position also would be weakened because she must run for election again in 2018 for a full four-year term. As secretary of state, Brown succeeded John Kitzhaber as governor after he resigned in 2015 and is running this year to fill out the final two years of the former governor’s four-year term.

This is a fairly grim picture. Sort of like a family portrait after a divorce.

Over time, views will soften, the more contentious personalities will be pushed aside and a dialogue can resume. But as the 2016 presidential election has revealed, strong political undercurrents can be unleashed, deepening polarization and crippling efforts to find common ground – or even a table where everyone can sit around to talk.

A Crack in Public Pension Wall Emerges in California

Many Oregon political leaders believe reforms are needed to public employee pensions to trim costs and plug a swelling unfunded liability, but few think reforms can pass a court test. Now a crack may be emerging in that impenetrable legal wall.

Many Oregon political leaders believe reforms are needed to public employee pensions to trim costs and plug a swelling unfunded liability, but few think reforms can pass a court test. Now a crack may be emerging in that impenetrable legal wall.

A state appellate court ruling in California will be studied carefully for its implications on whether public employee pension benefits are immutable or can be modified.

While unlikely to generate any immediate political response, the court ruling, if upheld on further appeal, could entice state lawmakers in California and elsewhere to explore public employee pension changes in the face of ballooning unfunded liabilities. Oregon’s Public Employees Retirement System unfunded liability has swelled to $21 billion.

The need to allocate more money for state and local public employee pensions has been one of the hardest fought issues in state legislatures around the country. Pension bills that have passed, including in Oregon, have mostly been struck down by courts as unconstitutional.

The Sacramento Bee reported the unanimous ruling by a California state appellate court says there is no absolute bar to modifying public employee pensions. The vested right to a pension “is only to a reasonable pension, not an immutable entitlement to the most optimal formula of calculating the pension,” the court ruling said. “The Legislature may, prior to the employee’s retirement, alter the formula, thereby reducing the anticipated pensions…so long as the …modifications do not deprive the employee of a reasonable pension.”

The effective prohibition of any change to an existing public employee pension provision, called the California Rule, stems from a series of court decisions beating back efforts to trim benefits and reduce costs. You could say there is an Oregon Rule, too.

Oregon’s latest attempt at what legislators called public pension reform was largely thrown out by the state Supreme Court. That’s what makes the new ruling in California intriguing. Does it reflect a crack in the California Rule? If so, how wide is the crack? And, most important, will the crack stand up when appealed to the California Supreme Court?

The genesis of the crack began in the judicial bankruptcy proceedings for the City of Stockton. Federal Judge Christopher Klein said "pension benefits could be reduced  in a bankruptcy action because bankruptcy is nothing by the impairment of contracts,” according to the Sacramento Bee’s reporting.

California’s Public Employees Retirement System (CalPERS) argued reducing state employee pensions couldn’t be ordered by a federal judge. Klein rejected CalPERS’ claim. However, Stockton never tested Klein’s opinion and emerged from bankruptcy without touching public employee pensions.

The appellate court opinion involved Marin County’s implementation of one of the public employee pension reforms included in the 2012 pension reform legislation enacted by the California Assembly and signed into law by Governor Jerry Brown. The provision that Marin County adopted prohibits using unused sick leave to “spike” pension benefit calculations.

There is a long road ahead before anyone will know whether the crack in the California Rule is real and just what it might permit in terms of modified pension benefits. That’s little consolation to lawmakers who will face budget holes and rising pension costs when they return to their state capitals early next year. But it does give them something to watch that could open a new conversation down the line.

PERS Costs To Deal a Heavy Blow to Oregonians

Senate Minority Leader Ted Ferrioli, R-John Day, left, says he and a handful of other lawmakers have proposals in mind to address the climbing cost of unfunded liabilities in Oregon's public employee pension system.  (Denis C. Theriault/The Oreognian/OregonLive)

Senate Minority Leader Ted Ferrioli, R-John Day, left, says he and a handful of other lawmakers have proposals in mind to address the climbing cost of unfunded liabilities in Oregon's public employee pension system. (Denis C. Theriault/The Oreognian/OregonLive)

Oregon’s public worker pension system is in the news again, and this time it’s going to cost us all quite a bit more money.

Lost amid the national hullaballoo over the presidential campaign, we learned that the cost of Oregon’s Public Employee Retirement System (PERS) will climb an extra $885 million in the next biennium. That increase will elevate Oregon’s sum of unfunded liabilities to $22 billion for the next year, leaving lawmakers in an overwhelming bind: Find new revenue to fill the gap or start scaling back public services.

Unfunded PERS liabilities rose to $18 billion last year, and projections from four months ago placed the figure closer to $21 billion. They’ve increased again, largely from a combination of declining pension investment returns, a 2015 Oregon Supreme Court decision restricting pension benefit reductions and the simple fact that pensioners are living longer.

The full gravity of the update began to sink in last Friday when actuaries released new financial projections to the PERS Board.

The situation begs all kinds of big questions: Why isn’t this dilemma a central topic in statewide campaigns this election season? And will political leaders once again try to find PERS reforms in the next session or have they just given up in light of Oregon Supreme Court rulings? 

The biggest problem, though, is that state leaders don’t seem to know how to stop this giant snowball from bounding down the mountain. A spokesman for Governor Kate Brown told The Oregonian editorial board that despite casting a wide net for reforms, state leaders so far have found no solutions that would survive a court challenge. Furthermore, Oregonians cannot afford another year of failed PERS reform attempts, the spokesman said.

“There's no end in sight,” The Oregonian editorial board wrote Tuesday in response to the news. “Contributions by employers – they are required to cover the difference between PERS investment earnings and benefit promises – are expected to go up by 4 percent of payroll in 2017, 2019 and 2021. That puts the employer contribution to the system at $4.5 billion for the 2021-23 biennium, more than twice what it is now, reported Ted Sickinger of The Oregonian/OregonLive.”

With the latest projections, school districts are taking the biggest hit, facing an anticipated $335 million increase in PERS costs. Meanwhile, public agencies will have to carve out $260 million of their own funding to cover the shortfall in PERS payments. Ultimately, the pain will trickle down more directly to taxpayers.

“Oregonians, along with the children they send to school, rightfully expect tax and employer dollars to bear fruit, not burden, and throwing money into an expanding fire is useless,” The Oregonian editorial board wrote. “Unless lawmakers prepare to act in the next legislative session, PERS threatens to undermine the capacity of the state to meet its basic obligations. Fewer school teachers, larger class sizes and the diminution of other critical government services loom.”

Potential revenue for the shortage is quietly tied up with the IP 28/Measure 97 effort to generate a cash influx for Oregon. But of course, the fate of those measures remains up in the air.

Senate Minority Leader Ted Ferrioli, R-John Day, said he and a handful of lawmakers have a list of reform proposals in mind, but Democratic leaders need to be prepared to make difficult cuts. 

“If you want PERS to remain solid, and we do, then you have to trim expectations,” Ferrioli told the editorial board. “We're not messing with anybody's retirement. We need to be prospective about this, look ahead. We can use the court's decision as a template. All it will take is a modicum of interest from the House speaker, the Senate president and the governor."

Unfortunately, no matter where you stand on the issue, the one thing everyone can agree on is that the problem seems to have reached a point where it can no longer go ignored.

Justin Runquist is CFM’s communications counsel. He is a former reporter for The Oregonian, The Columbian and The Spokesman-Review. Away from the office, he’s a baseball fanatic with foolhardy hopes that the Mariners will go to the World Series someday. You can reach Justin at justinr@cfmpdx.com and you can follow him on Twitter at @_JustinRunquist

 

With PERS Benefits Off the Table, Time to Reduce Costs

Oregon's gamble on trimming public retiree benefits failed and it now faces a $13.75 billion Public Employee Retirement System deficit, with few ideas on the table of what to do next. Photo by The Oregonian. 

Oregon's gamble on trimming public retiree benefits failed and it now faces a $13.75 billion Public Employee Retirement System deficit, with few ideas on the table of what to do next. Photo by The Oregonian. 

A lot of hand-wringing, but not much action has followed the Oregon Supreme Court's decision invalidating many of the Public Employee Retirement System changes aimed at reducing the state's unfunded liability.

Public employee union officials are clucking, "We told you so." Legislators are conceding there is little more that could be done to trim retiree benefits. And state and local public agencies are bracing for a round of stiff PERS contribution rate hikes in 2017.

If you can't touch retiree benefits, all that's left is reducing costs associated with PERS. And lo and behold, the legislature is sitting on a bill that backers say could save $2.7 billion over the next 20 years in expenses to manage public retirement investments.Under Senate Bill 134, an Oregon Investment Department would be formed as an independent agency, much like SAIF Corporation. The department would be overseen by the Oregon Investment Council and responsibility to administer public retirement funds would fall to a professional investment manager, not the state treasurer. The treasurer would be the vice chair of the Council.

Even though this set-up would require hiring more staff members to manage a portfolio and assess risk, it would enable Oregon to free itself from the higher-priced consultants it pays for now. One benchmarking analyst said Oregon is a “high-cost fund compared to its peers, in large part because of Treasury's heavy reliance on outsourcing.” This is where the projected savings comes into play.

Cost-cutting has the drawback of not appearing to reduce the unfunded liability, but the advantage of reducing the outflow of cash to manage public retirement funds, while "in-sourcing" investment management duties.

Republican lawmakers may fret about hiring more state workers, but they may see increased local employment as a better alternative than sending big sums to Wall Street investment management firms.

The legislation, introduced by Treasurer Ted Wheeler, nearly passed in the short 2014 legislative session. The Oregon Investment Council expected it to fly through the 2015 session. But it hasn't.

Senate President Peter Courtney has sat on the legislation this session out of fear of creating another "Cover Oregon" calamity. But that was before the Oregon Supreme Court ruling on so-called PERS reforms. Now the legislature is staring at a financial tsunami far worse than Cover Oregon.

Wheeler's uncertain political status may be another contributing factor. Deemed constitutionally unable to run for another term as state treasurer, Wheeler appears to be considering his options. Many of those options could involve other elected officials – in the governor's office and in key legislative leadership positions. These potential opponents may not feel a need to give Wheeler a perceived "political victory."

While Courtney's reluctance and other elected officials' wariness are part of the normal political process, the PERS problem may force everyone to rise above "normal."

At a minimum, giving the Oregon Investment Department and the savings it might generate a second look could form the basis of a broad coalition business-labor coalition willing to find ways to nibble away at the problem without threatening retiree benefits. It seems like a much better use of time than hand-wringing.

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