The Oregon Supreme Court decision that the legislature exceeded its powers in the 2013 special session in cutting back PERS benefits.
All of this illustrates that the incremental fixes former Governor Kitzhaber and the legislature passed in 2013 were at best temporary fixes which the Oregon Supreme Court has thrown a monkey wrench into - or so it appeard. Kitahaber's failure to address major tax reform now comes home to roost just as Oregon's economy was gaining momentum. Now everything is turned on its head. Maybe, maybe not!
The Puzzle Palace view after a trip to Salem:
The impact of the PERS decision in the Puzzle Palace is that the current session won't be affected at all. It's full steam ahead toward June 15th. How this is possible is beyond me. Conventional wisdom in the Puzzle Palace and media is that the looming revenue loses from this decision will take affect in 2017-19 and 2019-21. I personally feel this "head in the sand" approach is very risky over the long term - but the "politics" of it makes sense. No one wants to tackle tax reform now. It would be a "fools errand."
Deconstructing the PERS ticking time bomb by the numbers:
Oregon's 2013-15 general fund is $16.8 billion. It's driven mainly by personal, income taxes (94%) not corporate income taxes (6%). The PERS decision will remove @ $4 billion out of this revenue stream by returning COLA benefits to retired PERS employees. That will mean less money for the drivers in the general fund - K-12 education, social services and higher education. The PERS board not the legislature will be in the cat bird seat in how soon the COLA payments are paid up.
The legislature saved $400 million for the current 2013-15 budget and a projected $500 million for 2015-17. Now that's gone! If the legislature takes no action to cut COLAs this session, this will lose us $870 million over the next two years. On top of this PERS liabilities exceed assets by $14 billion. This is the job of the PERS board to fix - its track record has not been good being biased toward public employee unions. This puts Oregon in a risky situation for the next two decades.
The tip of the PERS iceberg is the impact next year on schools and local governments which have to figure out how to pay back PERS benefits to retirees who lost 1% from their COLA and now will get it back. Where does that money come from (?) - clearly not the state nor schools or other local entities. So anticipate gradual service cuts from 2015 to 2021. As this "time bomb" matures, like Measure 5 did we'll find out the damage when it's too late after the perps are long gone!
For now public employees who retired are protected but their replacements get reduced pensions. We've created a two class system of public employees at all levels - state and local government. This is not unlike the privileged position that our traded sector (Intel, Nike et al) gets as opposed to small business, farmers and workers in those industries. This will only increase the urban/rural divide and the economic divide between workers of privilege and those working for a minimum wage.
The legacy of Kitzhaber's folly:
Kitzhaber's kicking the can of tax reform will be a very bitter harvest. It's time to address the fundamental problem - Measure 5, 47 & 50, the personal kicker and taxpayer money going to the traded sector in the form of SIPS and enterprise zones. In the meantime, school class sizes will balloon, teachers will be laid off, programs will be cut and another generation of Oregon children will pay the price of what happens when the residents of Mahonia Hall and the Puzzle Palace prefer smoke and mirrors to reality.
It's time for an "all hands on deck approach" - Governor Brown having a conversation with Oregonians about how we got into this mess - starting with Measure 5 in '91. Then talking about real tax reform beyond getting rid of the "kicker" - moving to a progressive tax system, getting corporate Oregon off the "dole" - aka SIPS etc., crafting a non-regressive sales tax and taking a careful look at all tax credits - to determine which serve the public and which serve only private interests.
It's time for Oregonian's to have a reality check! No matter how one does the numbers - the PERS decision puts Oregon between a budgetary and political rock and a hard place. But those in charge of the 30 second "clock" in the Puzzle Palace aren't ready for that conversation - too risky in an upcoming election year. So we'll just muddle through while looking the other way. Kicking the can has become a tradition...