Taxes and Raids: Gov. Brown’s Only PERS “Solutions”
Gov. Brown appointed a special task force to fix PERS. Their only solution? Raise taxes and raid school district and local government rainy day funds.
Gov. Brown’s PERS task force considers reserve raids and tax and fee increases.
Oregon could buy down its $22 billion public pension deficit by further commercializing its state-run liquor system, raiding a variety of big public reserve funds or imposing new surcharges of up to 10 percent on all state-issued permits, licenses and registrations.
Those are some of the ideas that Gov. Kate Brown’s special task force on reducing pension costs has been vetting this summer. The advisory task force, made up of seven private- and public-sector executives, is charged with drafting a plan to lop $5 billion off the Oregon Public Employees Retirement System’s $24.5 billion unfunded liability without touching government workers’ retirement benefits.
At their second public meeting in Portland on Monday, task force members reported on a wide range of options they’ve been looking into, many of them likely to be controversial and difficult to implement.
Their concepts include consolidating Oregon’s four smaller public universities and 17 community colleges, eliminating “enterprise zone” property tax breaks or creating a new tax surcharge on liquor sales. In each case, the savings or additional tax revenue would flow to PERS.
“I know some of these things are very sensitive,” said Don Blair, a former Nike chief financial officer. “I think that’s unavoidable.”
The task force provided only vague estimates Monday of how much extra money each embryonic idea might generate.
Members also stressed that every Oregon school district, local government and university should take a greater stake in paying down its own individual pension unfunded liability. Agencies could do so by selling off excess property, consolidating operations or raising local taxes or fees, they argued. And the state could incentivize such actions by providing matching funds or other sweeteners.
That would mean avoiding “a top-down mandate” from the state, Blair said.
Big changes to the Oregon Liquor Control Commission and SAIF, the state workers’ compensation agency, are among the task force’s most developed ideas so far.
Blair said the state could change OLCC rules and practices so that it generates more than the current $287 million it now does annually for state and local governments.
“The way (liquor) is purchased, priced and distributed is not necessarily the way a commercial operation” would do it, Blair said.
For example, Oregon now has one liquor store per 15,000 people — far below the national average. The state could rapidly expand the number of stores in operation. It also could switch to a centralized purchasing system, so stores aren’t all ordering their own products individually through the OLCC. And the OLCC could be allowed to market or promote the liquor it sells.
While the task force initially discussed fully privatizing OLCC, Blair said that selling the agency before its full commercial potential is realized would mean “you wouldn’t get the best price.”
But task force member Charles Wilhoite of Willamette Management Associates said that a more aggressive approach at the OLCC might raise moral questions about the state promoting alcohol consumption.
Greater commercialization “will necessarily result in more drinking,” he said.
The task force also is floating a new state tax of between 1 percent and 10 percent on liquor sales with the proceeds — between $10 million and $50 million — dedicated to PERS. It might recommend lifting the current ban on cities and counties passing their own alcohol taxes as well.
For SAIF, the task force is eyeing the workers’ compensation agency’s large reserve fund — the long-term difference between what employers have paid in and the claims that have been made. At the end of 2016, the fund contained $1.6 billion.
That money now is invested, and some of it goes back to employers as “dividends.” But the task force could recommend transferring a big portion of the reserve — between $500 million and $1 billion — directly to PERS. The move could result in higher worker compensation premiums or lower “dividend” payouts for businesses.
If the state of Oregon agreed to become a financial backstop for SAIF’s liabilities, meanwhile, an even bigger chunk of the reserves could potentially be transferred to PERS without running afoul of insurance regulations.
The task force also is looking at state government’s two big reserve funds — the Rainy Day and Education Stability funds — that currently contain more than a combined $1 billion. Between $100 million and $500 million of that could be used for a PERS downpayment.
Traditionally, however, those funds have been left untouched in good times, so the state can tap them to temper budget cuts during downturns.
Maintaining big reserves helps with the state’s bond rating as well. But Oregon’s PERS unfunded liability presents a different type of threat to that bond rating, task force member and former state agency head Cory Streisinger pointed out.
“None of our choices are free from downsides,” she said.
Gov. Brown has set Nov. 1 as the deadline for the group’s final report. She hopes to take some of their recommendations to the state Legislature in 2018.