Contribution rates set to rise amid talk of legislative reform

For local governments throughout Oregon, the story is often the same year after year: Revenues are not rising fast enough to keep up with the growing expenses of providing critical services.

Aside from usual factors like inflation and property tax limitations, there are other causes of the constant cash crunches.

One of them is the contributions that municipal entities are required to make to the state’s Public Employees Retirement System.

And those have the ability to significantly impact local budgets.

The Estacada School District recently entered into agreements with the unions representing its employees, in which furlough days became necessary to help fill an unanticipated $800,000 mid-year budgetary shortfall.

Included in the district’s overall operating costs is the bill for PERS.

Donna Cancio has worked as the business manager for the district for just over a decade. In that time, she’s seen the contribution rate rise and fall, but mostly rise.

“The bottom line is that the rates have increased dramatically,” Cancio said. “It’s pretty much been a steady increase and a more dramatic increase over the last four years.”

As of July 1, 2007, the employer contribution rate for Tier I and Tier II was 7.88 percent. Another tier was created by the Legislature in 2003 as part of reform efforts, and is called the Oregon Public Service Retirement Plan. That contribution rate was 10.15 percent for the 2007-09 biennium.

Those rates dropped during 2009-11 biennium, Cancio said, down to 3.56 percent for Tier I and Tier II and 4.08 percent for those under the reformed plan. They then went up to 11.71 and 10.2 percent for 2011-13.

“They’ve been telling us that PERS is going up,” Cancio said. “Unfortunately, PERS is one of those things that we have no control over as a district. We have to participate.”

Unless changes are made, the district’s contribution rate is set to be 18.22 percent for Tier I and Tier II and 16.22 percent for OPSRP.

“The rate for employers in Estacada increased 8 percent,” Cancio said. “That will cost the district anywhere from $500,000 to $700,000.”

PERS contribution costs also are being felt by the city of Estacada. According to figures provided by Finance Director Denise Carey, the city paid more than $84,000 in 2008-09. Its OPSRP rate was 10 percent and the Tier I and Tier II rate was 9.67 from July 1, 2009 to June 30, 2011. That amounted to a total cost of $72,911 in 2009-10 and $76,602 in 2010-11.

From July 1, 2011, to June 30 of this year, the city’s OPSRP rate is 12.23 percent, and its Tier I and Tier II rate is 13.32 percent. As a result, the city paid $101,609 for the 2011-12 budget year. Caret adds that “we have not been notified” what those rates will be after June 30.

“Every employee that is full-time and works a certain number of hours is covered under PERS,” City Manager Bill Elliott said. “It’s an expense of the city that’s there. There’s nothing we can do about it.”

Many overarching issues are associated with PERS. Much of it stems from political promises made decades ago by legislators who are no longer in office and can’t be held immediately accountable for the long-term costs.

The United States also has an aging population, with more members of the Baby Boomer generation becoming eligible for retirement literally every day.

Past legislative changes to PERS have been successfully challenged in court, limiting the actions that lawmakers can take.

That isn’t going to stop some legislators from trying to solve the problem, though.

In a Jan. 14 press release, Oregon House Republican leader Mike McLane, R-Powell Butte, pledged to make PERS reform a top priority.

“Oregonians are expecting us to pass significant, long-term PERS reforms to restore school days and protect other services,” McLane said. “With taxpayers facing a $16 billion unfunded liability, we must reform PERS before addressing other issues that affect our budget and tax system.”

Any PERS reform bills proposed during the 2013 legislative session are likely to end up coming before the House Business and Labor Committee. Rep. Bill Kennemer, R-Oregon City, who represents Estacada, will serve as vice-chairman for that body.

“The governor’s budget says that the impact of the rollup on PERS to schools across the state will be $350 million,” Kennemer said. “But the call for PERS reform has been difficult to achieve.”

Gov. John Kitzhaber has proposed legislation limiting PERS cost of living adjustments over $24,000 per year, Kennemer said, and eliminating the addition of a 9 percent benefit to cover Oregon taxes going to recipients who now live outside of the state.

“It will be a tough vote for some folks,” Kennemer said. “But it will probably stand a very good chance of passing. Those two measures will solve $300 million of that $350 million revenue deficit.”

But for the number crunchers at the Estacada School District, those changes can’t come soon enough.

“We can’t choose participation or to not participate,” Cancio said. “Those things are mandated at the state level. It’s not any different for any other school district.”

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