P.E.R.S. AND OREGON'S DEVELOPING SCHOOL CRISES
SCHOOL BOARD MEMBER BLOWS WHISTLE ON P.E.R.S.
By William J. Bonville
July 25, 2002
On 12 of August 2002, the Public Employee Retirement System (PERS) Board will consider updating the mortality tables used to calculate public employee retirement benefits. The system, as will be explained, is a classic example of the road to Hell being paved with good intentions. In this instance it will be educational Hell for a generation of Oregon children, and financial Hell for Oregon taxpayers --- all because we wanted our public employees to have a decent retirement program. Stupidity, lethargy and a dash of greed have turned it into a fiscal nightmare.
Since the PERS Board is controlled by people who benefit from the system, do not expect this or any other Board action to produce significant taxpayer relief. Taxpayers must, under current law and union agreements, ante up an unfunded retirement system liability recently estimated at $8.5 billion. It must be funded by taxpayers during the next several decades so that government employees can be guaranteed well-funded retirements that will generally be denied to ordinary non-governmental folks who must foot the bill.
PERS is now managed as a beggar-your-neighbor retirement system. The Cascade Policy Institute analysis conducted a year ago, when the unfunded liability of PERS was $1.5 billion less than today, calculated that the annual cost to every individual Oregonian over the next forty years would be $400. For a couple with three children that is a theoretical family burden of $2000 each and every year. But don’t worry. It won’t come directly out of your pocket. It will come out of the general fund of each governmental agency that your taxes support. That is what will turn our school systems into educational Hell.
Back in April, before the latest melt down of Wall Street and the carnage it worked on the PERS investment portfolio, the PERS Executive Director estimated that “the average increase in PERS employer rates....due to recent poor investment returns is between 3.75 and 4.25 percent.” After the market’s recent plunge downward, it is likely to be more like five percent. If stocks retreat further to historic P/E levels, the necessary increase could be six percent or more.
The Three Rivers School District Board in Josephine County, of which I am a member, now adds a burden of 21 percent on our personnel wage costs to pay for PERS benefits. That is, for every $100 we spend on salaries, we send $21 more to fund PERS. According to the PERS Board estimate, the burden soon will be about 25 percent, probably more. Given a personnel wage budget of $21,000,000 in this district, we may expect annually to send at least $5,250,000 to PERS out of our general fund, over $1,000,000 more, than at present. The actual burden no doubt will be something greater since PERS investments continue to collapse.
Since the courts will not step in and declare PERS rules and its guarantee of eight percent per annum earnings to be unreasonable and essentially untenable in the current investment climate, and since the state government won’t have the income to fund all of the government agencies involved in PERS with the projected increases needed to cover the unfunded liability the PERS Board anticipates, and since our local district has exhausted our reserve operating funds, and since nearly ninety percent of our budgeted expenditures are personnel related, then the district will be forced into a reduction in staff that can only be described as catastrophic. This school district, and probably every other public school district in the state, will be reduced to a shambles. The probability of being able to recover in the foreseeable future would be nil. For kids and teachers it will be educational Hell.
My advice to every parent in the state of Oregon is to think very seriously about enrolling your children in a private or parochial school, or preparing to home school your children. We in the public school domain soon will not be able to provide your children with a sound education, given the circumstances proscribed by the PERS Board, the Oregon Department of Education with its wasteful implementation of the 21st Century Schools Act, and a Governor and Legislature who play politics as usual. Talk about fiddling while Rome burned.
All that will be true if the parties involved in this budgetary fiasco continue on with business as usual. The governor’s or legislature’s counsel, although themselves benefitting from the PERS system, might work out a statutory solution that, under current or a proposed legislation, could rein in the excesses of PERS and make it affordable in a recessionary business climate. The PERS Board itself might take an enlightened approach to its rules and regulations and modify them so as to assist in reducing the burden on its participating agencies instead of crippling them.
None the less, if all that fails to materialize, there is still one potential savior for the system: the employee unions. By happy coincidence, the six percent employee contribution to the PERS system, now (by bargaining agreement) paid for by employers such as my own school district, would probably suffice to cover the unfunded liability of the PERS system, if it were to be once again paid by the employees, as originally was the case.
What could be more fair? The folks who benefit from the system would pay for the unfunded liability of their own retirement program, instead of dumping it on the taxpayers as they have up to now. Better than that, they would save their own jobs, and certainly would escape the consequence of unending chaos in their working environment. Of course, if they don’t really care about their children and ours...... Well, there will be educational Hell to pay.
© 2002 William J. Bonville - All Rights Reserved
William J. “Bill” Bonville is a long-time member of the Board of Directors of Three Rivers School District in Josephine County, Oregon, where he has resided for more than twenty years after retiring from the aerospace industry as a manager of technical training and documentation. He may be contacted at firstname.lastname@example.org or through his web page, at http://home.cdsnet.net/~bonville/