Friday, May 26, 2017

PERS misery: The Oregon Legislature looks at taxes.

Legislators have a problem.  Taxpayers have a problem.   Some problems are so big they have to be ignored.

This blog looks closely at political messages.   This one is no exception.  The message on PERS is silence and deferral.  The truth is too terrible.  We have a big, big bill to pay.    

PERS--the Public Employee Retirement System--is based on a set of promises contracted between state and local governments and their employees.   I have been writing about it but I have an advantage over candidates, officeholders, or media outlets that need to be careful about alienating their audiences.  I have nothing to lose.

The situation can be summarized this way:

   Governments promised retirement benefits to employees.

   The benefit rates seemed plausible and affordable at the time of the promises, paid for in large part by assumed investment growth, not taxpayer or employee payments.

   It turns out that the operation of the retirement formulas meant that many retirees have very high benefits compared to the money actually deposited to pay those benefits and it became way, way more expensive than predicted.

   The Constitution says that governments cannot take away property from citizens without just compensation, and a contracted-for retirement benefit is "property," just like real estate.

   The easy solution (great investment results that earn so much money that the payments can be made from investment earnings, not taxes) hasn't worked out.   

   Taxes have to make up the difference.

Click Here: Portland Oregonian article
There it is--the simple, awful, truth.   Taxpayers are going to have to pay up because earnings simply won't do it.

The Portland Oregonian returned to the subject: PERS experts debate the appropriate assumed rate of return.  The contributions required by taxpayers to top up the difference between the rate of return guaranteed by the PERS system and the actual rate of return could equal 45% of payroll--and that assumes a 7% return on investments at a time when the actual assured rate of return is 2% in Treasury bonds.   It could be way, way worse than those "assumed" returns and even those demand expensive top-ups by governments.  Taxpayers are on the hook.

Local TV station KTVL had a three part series describing the problem.  It was titled Paying for the Past.   I was interviewed in all three parts of the series.

Click Here: Part Two           Click Here: Part Three

I have learned--writing as a citizen observer--what candidates and officeholders know all too well.  PERS participants simply do not want to hear that the taxpayers have a problem.   A deal is a deal.  We earned those benefits, they say.  Even if one agrees with them on the debt owed, when one brings up the subject of a realistic return on investments it is understood to be an attack on employees, not as an objective description of potential investment results.  Investment results assumptions are a political position.  The PERS burden is too hot to handle as a topic.
Facebook comment on my KTVL Interviews

Second, I have learned that taxpayers simply do not want to hear it, hear that their tax money goes to pay for work long past, paid to people long retired, rather than to current services.  People don't like to pay for current services, but they really hate paying for past services.

The subject is a perfect storm of misery:  It is a big and important, but it is difficult for both Democratic and Republican officeholders to talk clearly and openly about it.   Democrats do not want to offend public employees and Republicans don't like taxes.

But we need a tax plan that raises new revenue, somehow.

The Oregon legislature examines a replacement of the Oregon corporate income tax.    We need new tax revenue because Oregon has a problem, PERS underfunding, but no one wants to talk about that problem because it makes everyone look bad.

Officeholders can put their faith in magic: implausible investment results.  The alternative is to do nothing and put it off until better, more courageous, officeholders will do the job they failed to do. Magic might happen.

More plausible, though, is that the public is reminded by both the media and the officeholders that we have a bill to pay.  It gives context to new taxes to replace the corporate income tax.  Waiting and dithering and holding out for some imagined perfection of painless taxation is the politically safe thing to do.   

But it isn't responsible and the office-holders know it.   

1 comment:

Rick Millward said...

"Past performance is not indicative of future results"...

Pensions are deferred compensation. Companies and institutions have an obligation to deliver on the contract. Accounting tricks aren't going to cut it. The state will need to completely restructure the program or eliminate it, go to court and settle with retirees. Once that process is started all the parties will face reality and move on. Taxpayers, you and I, will suffer but hopefully a lesson will be learned.

In my view this was all avoidable, and now the time is coming to confront the reality that business centric politics leads to social calamity. Stagnant wages and handouts to corporations mask an ongoing recession where the next crash will come from defaults on consumer credit, as people increasingly use debt to stay ahead.

As a new resident I'm glad to be in a Progressive leaning state, but Oregon needs to get off the fence and choose between Regressive policies that only benefit a few and those that truly promote economic justice and sustainable growth.