Oregon’s top business officials are pushing lawmakers to put $2 billion into the state’s schools to help its expanding pension deficit.
The state’s $76.7 billion public retirement system, Oregon PERS, at 73% funded, is in better shape than many other states’ public-worker plans. But it is still suffering a $22.3 billion shortfall, according to the fund’s most recent update.
That shortfall is expected to balloon to $26 billion should the fund finish the year with its current 1.5% return on investments, according to the Oregonian, a local news outlet, which hosts monthly PERS-related Q&A segments.
The pension system’s current annual rate of return is 7.2%.
The newly reelected governor, Kate Brown, a Democrat, has issued a budget proposal for policymakers to find the $2 billion in funding for the state’s educational facilities.
At Monday’s annual Oregon Leadership Summit, the state’s business community proposed creating a rainy day fund for the education system, funded by personal income tax money in excess of initial revenue estimates. Now that money is refunded to taxpayers, but the business group called for channeling it into the rainy day fund instead. An expected $724 million is expected to be refunded.
The money however, would only go toward the retirement system, according to Tim Nesbitt, a consultant for the Oregon Business Council, who was chief of staff to former Gov. Ted Kulongoski, a Democrat.
A debate has sparked several ideas on how to bolster Oregon’s pension system. One is moving members into a 401(k)-style plan. This is tricky for several reasons. One is that the state’s Supreme Court dissolved previous PERS measures in 2015 while also ruling that existing benefits were untouchable. Another is that Oregon has the only public defined benefit plan in the country without an employee contribution requirement.
At the summit, Nesbitt said that lack of reform would give the retirement system “dibs on all new revenue” as about 12% of schools and other public employers payroll goes toward the plan’s pension costs. Unchecked, he said the payroll coverage could eventually go above 30%.
He said the changes could slash between $5 billion and $6 billion of the Oregon PERS’s pension liabilities and relieve some of the burdens schools and other employers are facing.
Also discussed was a new value-added tax for companies. Being touted as the “Business Activity Tax,” business would be taxed based on their total revenues minus materials purchased from other businesses.
Nesbitt said that although simultaneous tax and pension reform “may be more than twice as hard,” he said this is where the Beaver state currently lies.
The state legislature has not decided what sort of tax changes it will settle on. Senate President Peter Courtney, a Democrat, is looking at either a value-added tax, similar to what is being proposed in the Oregon Business Plan, or a gross receipts tax.
State Rep. Julia Fahey, a Democrat, said she is not sure if the $2 billion education sum is “enough to meet all the needs that exist.”
Fellow Rep. Carl Wilson, a Republican, also didn’t agree with that figure, but said the rural community would argue that it’s too high of a risk.
“Our constituents may be a long way from Portland, but they understand some things,” Wilson said. “They know how big $2 billion is. If that comes in the form of another tax, that certainly is going to grab the attention of red Oregon.”