I’m posting this for my own notes, since faculty union bargaining starts in less than 12 months.
Bill Gary is the Harrang, Long, Gary and Rudnick attorney who, along with Sharon Rudnick, represented the State’s side in the Moro case in the Oregon Supreme Court, over Kitzhaber’s attempt to roll back PERS benefits. Gary does a great job explaining just how badly they lost this case: “With respect to benefits that have already been earned, the court has ruled that you can’t touch them.”
Greg Hartman was the attorney for the state employees and unions, who won Moro. Hartman does a great job explaining how the Moro decision means that current employees at state agencies – and UO – will now be paid lower wages, because of the need to pay the PERS bill for retired workers such as Mike Bellotti.
Of course taxpayers will also take a hit, as will those who depend on state services.
Video here, links to the committee’s agenda and documents here. For more on PERS read the always cantankerous Mr. Fearless, here.
Corporations have bankruptcy protections and sovereign nations can just decide not to make good (albeit not without cost). Are there any options open to the State of Oregon besides defunding the future to pay off the past?
I don’t think so. The Oregon supreme court has ruled that past pension promises essentially constitute contracts. Hartman can explain that.
A lot of people in the public think that the State of Oregon should just “declare bankruptcy.” That is very unlikely to happen. In the first place, Oregon is not remotely close to being bankrupt. Second, bankruptcy is not a place you want to go, unless you absolutely have no choice. Most importantly, there is no provision for State bankruptcy in federal law. Furthermore, the Constitution is pretty clear that this is not allowable, and the Supreme Court seems to have backed this up in past rulings. (I am not lawyer, however, so you should take this with a grain of salt.) My understanding is that Oregon PERS is an obligation of the State of Oregon. So even if PERS was bankrupting UO (which is not the case), UO would not have the option to walk away from its PERS obligations by declaring bankruptcy. (Again, not a place you want to go.)
I don’t see much chance that the federal government would try to change the bankruptcy provisions (or lack thereof) in federal and constitutional law.
While I acknowledge that bankruptcy is “not a place you want to go,” I would contend that the damage caused to the state by honoring these contractual obligations would potentially outweigh the negative effects. If your state has no transportation infrastructure, public safety, or public health funding and your workforce is illiterate are you actually better off than if you had reneged on this contract?
However you are likely correct that due to federal and constitutional law, the state can’t renege on this contract. At least until things become untenable enough for younger generations. I’m no great student of history, but it is my understanding that having large numbers of poor, unemployed young people is not great for societal stability.
The dilemma of “defunding the future to pay off the past” is well stated.
I will make up some ball park numbers, but it would be wonderful for someone to do a real analysis. The average full professor made 85% of the AAU average (probably less) for full professors during the Tier 1 years. If the person started at the U of O and made “expected” progress in terms of promotion they might serve 18 years as a full professor. If they had made the AAU and put that extra 15% into TIAA Cref annually or some other investment that is safe and had a solid return, they would have a nice nest egg from that retirement fund. Then they would have had less from PERS, if it had had been more conservatively structured so that it paid for itself. Together this would likely have supplied a nice resource for retirement. Some finance person should sit down with a pencil (well excel) and see what being underpaid meant to that generation of Tier 1 faculty. I really am no economist!)
The state is paying off the past. It seems that the courts think it is contractual. Just as the Tier 1 generation cannot renegotiate their earlier contracts from say 1970 to 2000 to pick up the extra pay they missed out on (plus the investment interest and growth).
It is a mess; that is, in large part due to not paying as you go along.
UOM — it is really quite misleading, not to say dishonest, to say that the problem is due to Bellotti. Whatever one thinks of his pension — I think he probably just took the deal that was offered him, just like I did; maybe he really was just a selfish SOB; a lot of people think all UO faculty are — its cost — which may actually be covered by the athletic department when all the accounting is done, if it ever can be — is a miniscule fraction of the problem.
Specifically, Oregon PERS has an unfunded liability very roughly of $20 billion. Bellotti’s pension, even if it continued for 40 more years, would only be about 0.1% of that.
Sorry, I meant to write “Bellotti and others of his ilk”.
What do yu think about stopping the rush to get to fully funded, or even converting PERS to a pay as you go plan? I haven’t done the math, but the $70B they’ve got should cover Tier 1-2, and after that it’s all easy unless the state’s population crashes.
My back-of-the-envelope from what I’ve seen in the Oregonian seems to imply that the top 5% of PERS payouts make up only about 15% of the liability. While this 5% are getting generous-to-outrageous payouts, the other 95% are getting pretty modest retirements on 85% of the liability. So I’m not even sure that it’s Bellotti & co. who got the state in too deep, as satisfying as it is to hate on them. Has anyone else run the numbers?
Don’t quit you day job: http://www.oregon.gov/pers/docs/general_information/pers_by_the_numbers.pdf
Thanks for the official. Page 6 seems to say that the top 6% of retirees are getting 18% of the benefits (“liability” was the wrong word).
What job do you think I should be quitting?
I have pointed out in prior posts that Oregons retirement costs as a percent of state budget are middling or lower compared to other states. Of course other states may be in as much trouble as Oregon, but we are certainly not an outlier, as our brain trust of legislators would have the public believe.
OK, that’s more like it.
Re the “pay as you go plan” or “extended payment plan”: I kind of like it, at least up to a point. PERS is in NO danger of not being able to cover its annual payments to retirees. In fact, the $70B stash often GROWS in years when the unfunded liability goes up.
So, instead of trashing public services to increase PERS costs each of the next several biennia — just chill out, and hope the markets finally start acting better than they have since, basically, 2000. Not a sure thing, I grant.
Even if the markets don’t cooperate — the extended payment plan would protect current services at the expense of taxpayers starting maybe 20 years from now, who will be paying off the PERS liability maybe 20 years after most of the Tier 1 people have gone to their reward. (A lot of Oregonians would say we deserve worse than eternal damnation, but let’s not go there).
I think Oregonians are paying enough for PERS. The extended payment plan might saddle a future generation with payments for people who are already gone. It’s kind of letting your credit card bill linger on, with interest. But that might be better than savaging current and future public services.
Can the legislature pass a special tax at a very high rate on PERS benefits accrued by employees above X threshold for those employees above Y final three year income?
If not, why not?
If so, why not?
I’m not your RA. How about you do the research and tell us why not.
Thought throwing out questions to your readers constituted such an effort. See now that that I was wrong.
I cannot express how relieved I am to learn you are not my RA, though.
In 1992, the Oregon Supreme Court decided that taxing PERS benefits violated the PERS contract. They allowed taxation to equalize treatment of federal pensions, but ruled that extra money be given back to PERS members to make up for the damage.
This led to the latest attempt at reform by not sending this extra money to PERS members who were no longer being taxed by Oregon, but even this was rejected.
So, as a way to reduce PERS payouts to current members, it is probably a no go. It might be possible to start a tax on new public employees future payouts, but even then it would go against the “equitable treatment” of pensions that seemed to be a concern the first time around. (I am not a lawyer, so am just speculating, though).
If Oregon had a more robust economy and more economic growth the worst of the problems might be alleviated through higher revenues [not necessarily a higher tax rate].
Relative to recent periods growth has been strong in Oregon, and yet here we are. This is an under-investment problem as we are all held hostage by admitted tax cheat Bill Sizemore’s taxation coup. Besides, wishes get you nothing and are not a solution to the problem.