Focus on the state's fiscal foundation
The 2018 legislative session, which begins Feb. 5, is right around the corner.
With a constitutional deadline for the session to end on March 11, there is a short window of opportunity to get things accomplished. The most important piece of business left undone in the last legislative session is addressing the unsustainable state budget. Without a solid fiscal foundation, it will always be a struggle to achieve the outcomes Oregonians want, especially investments in our education system that make a meaningful impact in the classroom where it matters most for kids.
Last session, Oregon faced a $1.4 billion budget deficit, despite record revenues pouring into state coffers. In fact, state revenues have increased about 40 percent since 2011. The deficit is because state spending, specifically as it relates to the Public Employee Retirement System (PERS) and health care costs, has grown even faster than revenue. Though the legislature was able to balance the budget, as required by law, it did not take actions that would meaningfully — and legally — contain the costs of these unsustainable growth areas in the state budget.
Addressing this issue must be the priority of the state's elected leaders.
Consider that, even with an 11 percent increase in K-12 education funding this biennium, some school districts were still faced with the difficult decision to cut teachers. This occurred at a time when the state is above the national average in per student spending, yet still underperforms in graduation rates, class sizes and length of school year. How is that serving our students?
Following the end of the 2017 session, the unfunded PERS liability grew from $21 billion to $25 billion. Updated PERS figures show that public employers, including schools districts, local governments and state agencies, will need to contribute an extra $1.4 billion in the 2019-2021 biennium and an additional billion dollars on top of that the next budget cycle. This means billions of dollars won't make it into classrooms or to services for those who need them most.
To put this in perspective, consider the finding in the Oregon Business Plan: In 2010, PERS costs equated to $500 per Oregon household. By 2015, that number had risen to $1,000, and by 2021, it will reach $2,000.
Unless we address these unsustainable costs, we will not be able to make the kinds of investments we need in order to ensure a quality education for our kids and provide critical social services, like health care, police and fire. The need for additional investments is evident in Portland, whether its additional resources to address the homeless crisis, increased mental health and addiction services or ensuring sufficient public safety officers to so everyone feels safe in our community.
The need for additional services is also evident in our schools. No one should be satisfied that Oregon has the third-worst high school graduation rate in the nation, not to mention some of the largest classes, especially at a time when the state is putting billions more into the its K-12 system. Should we be investing more in our education system? Yes, but it makes no sense to put more money into the system only to get the same results. We must address these cost challenges.
The Portland Business Alliance, where I serve as chair, recently released a report on behalf of the Value of Jobs coalition entitled Automation and the Future of Work. The report makes it clear that we need to start making investments in our education system now to ensure the workforce of tomorrow is prepared. Educational attainment has long been an indicator for workforce participation and economic opportunity. In a future that is increasingly automated, this is even more the case. Importantly, this is not some distant view of the future; it is happening now.
The legislature has held hearings on PERS and Governor Brown created a task force to look at ways to reduce the unfunded PERS liability. That's good, but it's critical that we move beyond talking about the problem to taking action now. As the PERS board chair, John Thomas, was quoted as saying, "This is not going to go away."
Enacting solutions to the escalating cost of PERS — and other unsustainable costs — will not be easy. So often doing the right thing is not the easy thing. But it is necessary. The state's elected leaders have shown they can deal with tough, complex topics as evidenced by the recent passage of a state transportation package. It's critical to begin the work now to contain the unsustainable costs that are putting cracks in the state's fiscal foundation.