An open letter to the Oregonian and Ted Sickinger about PERS

Marc Abrams

Dear Mr. Sickinger:

As a public employee, I’ve been fascinated with the huge amount of attention the Oregonian has paid to our pension plan over the past several months. It seems that nearly every other Sunday, there is a first page, above-the-fold article authored by you on the need to “reform” PERS. “Reform” appears to be synonymous with reducing benefits and not with “how can we stabilize the system with everyone’s needs in mind?” By way of example, you have repeatedly referred to eliminating the 6% pickup as “reform.” Please, let us call it what it is: a pay cut, a compensation reduction.

Indeed, almost nowhere in your articles do I see anything but list after list of ways in which PERS can be stabilized, almost all of which amount to hits on the overall compensation of public employees. Seven of the eight fixes you have proposed in Monday and Tuesday’s papers are of that type. The eighth involves extending the repayment.

Not one of your proposals involves asking taxpayer – and every public employee is also a taxpayer sharing that burden – to shoulder any of the cost of the gap. Not one of your proposals recognizes that 68% of the problem is the debt incurred to the benefit of already-retired individuals. Not to cause a schism between past and present public employees, but I would appreciate it if you told me why current employees have any more obligation to Tier I retirees than do taxpayers as a whole? And how much of the remaining 32% is attributable to Tier I, which ended almost two decades ago? My understanding is that all but 4 or 5% falls into that category. What you have not mentioned – what the City Club report conceded – is that Tier II is 96% funded and OPSERP (which the State dared not call Tier III) is 100% funded. The obligation to every public employee who has entered the system since the early 1990s is almost entirely dealt with. PERS is the eighth best funded state employee retirement system in the nation. The City Club report obscured that when it deliberately did not disaggregate Tier I and Tier II in its analysis, creating the impression things were still far more problematic than they actually are.

Another matter you barely mention is that the “deficit” on which you base this analysis is a snapshot in time. As recently as four years ago, before the current economic downturn, the $16 billion deficit of which you now speak was less than $1 billion. And, with continued improvement in the economy, we can expect the current deficit to shrink considerably. Between 2001 and 2007, the gap between obligations and needs kept closing. It can happen again. Certainly improving economics should be accounted for.

Now let’s talk about those employees whose benefits you propose cutting in various ways. I haven’t seen many – if any – talked to in your articles. You have stuck to the antiseptic numbers, so your readers won’t see there are people behind those figures. The people working now – largely Tier II and OPSERP – will never retire with the “luxurious” pensions your newspaper continues to describe. The average is $24,000 or so. Even with social security, this is not going to put state workers into beachfront condos and Jaguars on the taxpayer dime. It would be nice if your newspaper, if it is making any effort at balanced reporting, sent you to talk to union members and union representatives. But I haven’t seen that story yet. I hope I will.

Your articles, the Oregonian’s editorials and even our governor have talked about eliminating the 6% pick up as a key “reform.” Again, let’s at least be honest and call it a pay cut. Let’s also remember the history. It was a proposal in 1979 in lieu of raises in a period when inflation was running, 10, 11, 12% per year. It was fairly bargained and fairly related to the cost of workers. It was a concession by the unions.

Workers have bargained for a pension of specified value. Although deferred compensation, they’ve already worked for it their entire careers. They are entitled to it. You can’t hire a painter for $10,000 to paint your house then, when he’s up on the ladder 90% done yell up to him “I’ve decided only to pay you $5000.” That is what most of your “reforms” amount to.

The workers you now suggest should take this cut have taken four years of furloughs, seen pay frozen as often as not over the last decade, and earn considerably less in Oregon than their private sector counterparts in most job areas. There comes a point where government will not be able to attract the qualified workers it needs. Apparently, capitalist theory – that one gets what one pays for – applies only until one goes to work for the government, then is suspended, according to the Oregonian.

None of this is to deny there is a problem. But I do suggest that you, the Oregonian and the City Club have overstated it. And I do suggest that you have failed to provide the whole picture. Talk to the workers. Use fair language instead of calling every hit to those workers a “reform.” And then let’s have a conversation with all participants at the table. I ask that the Oregonian bear its obligation as a paper of record in this State to present all views on this important subject.

Comments

      • (Show?)

        Some things are set in stone, per the Supreme Court. Other things, including things that could help with the disproportionate problem presented by Tier 1 employees, should happen right now, for that very reason. If the rallying cry is "it's not fair that Tier 1 doesn't have to pay," that's a straw man, because in the most important respects Tier 1 cannot legally be made to make up for their share of the deficit. Right?

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          No, it is not a "straw man." The question I have posed is who SHOULD pay. My contention is that it is not the Tier II and OPSERP folks. They have no greater moral or legal obligation than any other taxpayers. My other contention is that much of this "crisis" is a temporary moment in time, and as the economy recovers, much of what is being proposed would not be needed.

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            Marc - Oregonians have voted 3 times in the last 2 years to increase taxes to do little more than maintain the existing level of services.

            Meanwhile, the added costs from PERS means that local government including school districts are facing a $900 million shortfall in this calendar year.

            What is your solution to this "short-term problem" other than to keep asking taxpayers for more revenue?

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              Sal--

              First of all, I'd say we view government holistically, and that includes whether we are doing precisely what we most need with our dollars and, if we are, we are fairly compensating the people who deliver those services. you can't separate those. And I think I have described some of the answer. Much of the "crisis" is, I believe, resovable by a better economy. Four years ago, the problem was 1/18th what it is now. I would ask you: how many cuts are enough for these workers? And why is it fair to hold current workers rather than all taxpayers accountable for debts accumulated on behalf of all taxpayers?

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                Marc - oregon voters have been stepping up. I am one of them, having organized public events in support of measures 66 & 67 and working to build support within our local business community and other community leaders.

                Now I am asking (again), what is your solution to this "short-term problem" other than to keep asking taxpayers for more revenue?

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                      Sal, you're right: It does nothing to address the "shortfall".

                      Perhaps I wasn't as precise as I should have been. I'm arguing that the calculations used to determine how much money should be set aside in the short term to satisfy long-term obligations may be off.

                      Again, I'm not an actuary, but some of Sickinger's reporting seems to suggest that the short-term calculations are too aggressive.

                      This may be a smaller version of the USPS problem, where they're required to have cash-on-hand all the funds to satisfy all long-term pension obligations, even though some of those payments won't come due for 40 years.

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            While I agree there are a lot of angles to this, the argument that this is a short term problem doesn't persuade me.

            A child is in grade school for a "short term", but those few years with dwindling resources and crowded classrooms have an impact that lasts a lifetime.

            A person in hospice care or nursing care is there for a "short term" but cutbacks in care because of the resources directed to PERS has a profound impact on the quality of that persons last few months of life.

            So, I'd say there have to be a short term and long term solutions. And you shouldn't diminish the real and profound impact on current vulnerable beneficiaries by saying that the huge increases in PERS is only a short term problem and therefore we don't need to do anything about it.

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                Your assumption is true only of the economy recovers sufficiently to make up the difference. And, without a doubt there will be lean years if no changes are made and as I pointed out, the effect that has on school kids, seniors, and at risk populations disturbs me.

                The Marcs' proposal seems to be very similar to the Republican economics plans. Lets cross our fingers and hope a more vigorous conomy makes up the need for more revenues. And, lets cut fraud waste and abuse in public spending.

                There are simply no easy or painless solutions here. Hoping we grow out of the problem is sticking our heads in the sand. I don't have the perfect solution, but I do believe that doing nothing is the worst solution.

  • (Show?)

    One correction. I used the example of a contractor performing all the work and then the contractee claiming he paid you too much. That actually isn't what is happening. It would be better to say that an analogy is the same fencebuilder who bids a job at 10,000, everyone agrees, the job is done and the $10,000 is supposed to be paid on a contract. Then years later, the contractee comes back and says, geez, I'm having some financial problems and I can't afford to continue paying you what I'm paying. I want to reduce my payments to you. Can I come back and take back part of the fence I built? I know this is what happens in bankruptcies sometimes. But there are no provisions in Oregon for municipal bankruptcies and the constitution doesn't permit a state bankruptcy. PERS is a far cry from bankrupt. They are in far better shape than Social Security and there is no way that changes to Social Security would affect any existing beneficiary.

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    While I do not know enough on this to disagree with all the points you make you do not come to grips with the reality facing PERS employees at both state and local governments. Given the revenues the state has, the growth in the PERS payments means that there are fewer dollars left to pay for current staff. The result is employees, primarily teachers, will be laid off or forced into even worse working conditions. Before you say, just raise taxes, tell me how you get that approved by the citizens in today's environment. You seem to have eliminate all of the policy options.

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      I would add that if the 6% pick up was included as salary, subsequent steps and COLAs would be increased. And payroll taxes would be again increased. So, besides the initial savings of payroll taxes, it's snow balled over the years. I would be willing to forgo the 6% pick up, if the state would go back and index the pay rates and give me my back pay...

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    I would appreciate it if you told me why current employees have any more obligation to Tier I retirees than do taxpayers as a whole?

    How about because to balance a budget current employees pay the price for PERS no matter what. Either the cost is absorbed through reductions in deferred compensation via reform, or it's cut from current compensation via layoffs. Either way current employees get the shaft, but PERS reform spreads that cost and saves jobs vs. layoffs in which the total impact is born by a few. Layoffs are not only unfair, but they destabilize government services as people either fill the gap with private services or learn to do without.

    With respect to a tax increase or economic growth, why should those be any more likely to materialize next year than they were this year?

      • (Show?)

        To the ethical question, all residents pay for tier 1 through taxes and absorbing the cost of reduced service. And public employees of two or five year's standing, aren't they the ones most likely to lose their jobs now when operating budgets are cut? I'll reiterate: current employees pay disproportionately whether we reform PERS or not. Even those not laid off are left to face larger responsibilities with diminished resources. The situation is unfair with or without PERS reform.

        A better question is, will PERS reform improve the situation? To answer that I'd point at the 2003 reforms. Most of the arguments you make now could have been made then. Do you think the 2003 reforms were a bad thing? If not, why is it a bad thing now?

  • (Show?)

    Most agree that teaching is the most important job, not to mention it's incredibly difficult. My wife has been teaching here in Oregon for about 7 years. She taught for about 3 years back east before coming to OR. She is a great teacher. Her 2012 AGI barely cracked 46K including teaching summer school. It's not surprising that about half of teachers leave the profession within the first five years. Do we really want more cuts? Is it smart to continue to shortchange the foundation of civilized society?

    "The school is the last expenditure upon which America should be willing to economize." -FDR

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    Mr. Abrams,

    Thanks for sending me a copy of what you planned to post. Your letter here contains a number of misstatements and oversights. The most glaring is that you refer to these concepts as “your proposals.” Let’s be clear: None of these reforms, modifications or fixes is being proposed or endorsed by The Oregonian’s news pages, and I have no say in what appears on the paper’s Editorial page. I have tried to provide readers with the financial, legal and political implications of the most commonly discussed proposals to address this very real problem. Each is drawn from a list of 20 concepts that are currently being analyzed by PERS staff and the pension fund’s actuary. They will apparently be ready for PERS Nov. 30 board meeting, though it’s important to note that neither PERS nor the actuary is endorsing these particular fixes either. They are putting information out to inform the debate. We are doing the same for the general public, as we feel the issue transcends any committee meeting or lobbying effort in Salem.

    I recognize this is a sensitive issue. We’re talking about folks retirement security, and I try to represent that sentiment in each of the stories I write, while avoiding the outright polemic that comes from both sides of this debate. In each case, we indicate how it would affect members benefits and/or pay. Contrary to what you’ve written, for instance, I did refer to a pickup reduction as “a pay cut.” That’s how it’s commonly perceived, though of course it’s not a reduction in take home pay. Members would also lose investment earnings, and in some cases, see lower pension benefits, which I noted. I also said, as I do as a matter of course, that it was originally granted in lieu of a wage increase, and that it was mutually advantageous at the time. I didn’t say that wages have subsequently been renegotiated every two years, while the pickup has become mostly a fixed piece of the equation.

    We mentioned in several instances that retirees comprise 60 percent of the liability (not 68 percent, as you cited, the other 8 percent being inactives). That’s the main reason the COLA reduction is seen as equitable. It’s the only fix that has retirees sharing the burden, and it goes where the real money is. And clearly, as you suggest, there is a generational equity issue at play. I imagine it’s a point of some stress among your members in OPSRP.

    Not sure where you’re getting your numbers, but Tier 2 is 73 percent funded, not 96 percent funded, as you state. And OPSRP is 85 percent funded, not 100 percent funded.

    We state the overall funded ratio as 73 percent because that's what the actuary uses to set base contribution rates. If it makes you more comfortable to count the $6 billion in pension obligation bond proceeds deposited in side accounts, fine. But that’s not the number used to set rates, and you should also count the associated debt, which is off PERS' balance sheet.

    (continued below)

    • (Show?)

      Ted. The COLA reduction may be seen as equitable to some, but the question is whether it is legal. It certainly is (in my opinion) part of the decision-making process and part of the Notice of Entitlement I received when I retired in 2002. The question of legality was partly addressed by the Strunk court, and it would take a stretch of the imagination to read their decision as any endorsement of a reduction to or elimination of the COLA as a means of cost-savings. Finally, two states already have tried cutting retiree COLAs - Washington and Colorado. And both states have run into legal difficulty. In Washington the legislative decision has already been thrown out at the Circuit Court level, but its final legal status is unknown. In Colorado, the Supreme Court there remanded back to the Circuit Court its verdict upholding the Legislative cut to the COLA for Colorado PERA members. Both cases are more complicated than Oregon's because there have been more changes, mostly positive, to the COLA statutes in CO and WA. In Oregon, the statutes on the COLA have been enshrined in statute since 1971, before most state employees had the right to collective bargaining, and has remained untouched since. Only in 2003 was there any effort to touch the COLA and the Oregon Supreme Court stomped out that effort relatively quickly.

      So, while it may be true that cutting the COLA is "equitable", "fair (to whom?", etc, the plain fact is that it is part of the PERS contract and I strongly believe that the OSC will not permit the change proposed.

    • (Show?)

      Ted, thanks for coming by and engaging in the conversation. It's so rare to hear directly from an Oregonian reporter here where we're talking about your work. Thank you.

    • (Show?)

      Mr. Sickinger, With due respect, the story your editors ran last Sunday as straight news ought really have been run at least as an "analysis" (that's how the NYTimes handles this kind of piece) if not an op-ed. It contained a huge amount of editorializing.

      It's artfully done, using passive, undefined phrases like "meaningful change" (to whom, in what terms?) and "a building consensus" (Among whom? Aren't you actually reporting a lack of consensus, some kind of space between Tina Kotek and what you evidently hope from John Kitzhaber? So whose consensus is it in which you include yourself, that excludes Kotek, never mind the unions, as relevant parties to deciding a way forward?)

      Actually I wouldn't mind this, if it were identified as an analysis, in which you were putting more of your own understanding developed from your reporting, and clearly identified the problem you are trying to address along with acknowledging the other frames that exist without going into them. We can benefit from journalists as thinkers offering judgments.

      But that role should be taken on openly, and you and your editors should not pretend that a judgment piece is straight reporting. It isn't, and your story wasn't.

  • (Show?)

    (continued)

    When you do, you end up with an even larger deficit, as the outstanding bonds exceed the balance of the side accounts. The side accounts do provide a rate offset, but the debt service is a significant retirement cost that doesn’t show up in PERS rates. In many cases, the POB bets have delivered a net benefit for employers. In others, they’re underwater and wished they’d never borrowed the money.

    As you said, we are looking at this deficit at one point in time. But here we sit, having experienced excellent average returns for the past three years, and the fund still has a $16 billion deficit. Could another stock market boom help out? Sure. That’s what I said in the paper. But unless returns are significantly above 8 percent, the state is simply treading water. Another downturn would make the deficit worse. And the Oregon Investment Council’s consultants are telling them that returns are likely to be lower than 8 percent.

    PERS doubled required employer contributions in 2011. Rates are going up 45 percent in July. And there is a likelihood of rate increases in 2015. I’d call that taxpayer participation, watching services disappear to pay this escalating cost. Employees – particularly younger ones with the lowest PERS benefits – are participating too, watching jobs, work days and other benefits disappear in order to cover these obligations.

    The governor has raised the issue of revenue reform – more taxes – but he told me that it won’t fly this session because voters and businesses won’t buy off until the state has made an effort to deal with the expense side of the equation.

    You suggest workers have bargained for “a pension of specified value.” If that were the case, there would be no debate. They have bargained for the right to have their pensions calculated in certain ways. The question is which parts of that deal are legal promises forever, and which are negotiable? The other question is what’s fair?

    Opinions, as you know, vary widely. But the facts don't.

    Ted Sickinger

    • (Show?)

      Dear Mr. Sickinger:

      Thank you for taking the time to respond.

      I used the phrase “your proposals” because I considered this (and so labeled in in Blue Oregon) as a letter to both you and the Oregonian. That was, I therefore suggest, accurate in the aggregate even though they were not yours personally. While you may not have a say in what appears on the editorial pages, the leadership of the newspaper has a say in what appears there and in what you are assigned. I wager virtually everyone I know on both sides of the political aisle have concluded that news stories are coordinated with editorials to advance management’s agenda. While this is not unusual in editorializing about spot news, the Oregonian’s assignment of a considerable portion of your duties to a specific topic that then is editorialized about with such frequency raises questions about ethics, not yours, indeed, but those of management.

      I accept your statement that what you’ve shown comes from the PERS list. That still begs the question. If we are looking at everything, that includes matters beyond those the PERS board can consider. That includes increase in revenue and cuts to areas of government in which there could be savings. We must look at the cost of government holistically. Your articles don’t consider these options nor do they obtain union suggestions. In avoiding “the outright polemic,” I suggest you have underrepresented a major voice in the discussion.

      The 68% figure comes from the Vice Chair of PERS, as quoted by you in your Sunday article. If there is an inaccuracy in that figure, it comes from that article. As to my other numbers, they come from a combination of the City Club report and other briefings I have received. I will revise them if they are not spot on. But the fact remains that this is the 8th best funded retirement plan among the states, and that a reviving economy very well could –likely will – close much of this gap, which is, as evidenced by the Sunday Oregonian Graphic, 17/18ths created during the current downturn.

      Importantly, you have not answered a critical question: why should current employees, not taxpayers, bear a burden that is 68% retirees and inactives? Who will run government programs when compensation makes a government career financially unthinkable? Top law graduates, which the Department of Justice routinely hires, start at downtown firms at $110,000. DOJ pays $62,000 and change. These lawyers have $130-150,000 in loans they have to repay regardless of their income. Without quality health care and a defined benefit retirement plan, recruiting is unsuccessful, and we can lose untold millions from inability to compete in the courtroom. That is simply one of dozens of such impacts across state government. It is, admittedly, intangible and harder to quantify than that numbers you use. But it, too, is a fact, not an opinion.

      It would be nice if a future article would focus on those kinds of issues.

      • (Show?)

        I'd argue we'd be remiss if we didn't cover this significant policy issue, which is playing out around the country.

        The 68 percent figure includes inactives, not just retirees. That's how it was represented in my story.

        The whole ranking thing is a red herring. We have a much smaller payroll to pay down this deficit, thus the exorbitant rates. Oregon's funded ratio "ranking" would look considerably different if Pew or the Milliman study you're referring to took the pension obligation bonds into account. Only two other states have this kind of exposure to POBs, California and Illinois. That's not great company to keep.

        I'll be covering any union proposals that surface. I spoke with a bunch of folks at AFSCME, SEIU, OEA, Firefighters. Nobody's offered anything yet.

        And of course you're right, the pension system is an important recruiting and retention tool.

        Thanks for the input. You know where to reach me. I'll sign off now.

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    Ending the 6% PERS "Pickup" is the worst possible approach. It is the most tax-efficient component of public employees' pay, being exempt from current taxation like an IRA.

    I don't know exactly how much we spend in government employee salaries, but it's probably north of $10 billion a year. Six percent of that figure is $600 million, which would become current taxable income and create a federal income tax liability of about $150 million. Losing those funds would cost the state's economy about $300 million after applying a 2:1 multiplier for circulating money in local economies.

    There are only three ways of closing the gap: raising more revenue, cutting programs (and jobs), and cutting pay (possibly including the "pickup"). Cutting pay will make the government less competitive for quality workers, less efficient and productive.

    Of the three options, raising revenue is the least harmful to the economy because the money would go right back into circulation.

  • (Show?)

    As I understand this issue, some public employers continue to make the PERS liability worse by giving raises to their Tier 1 (their oldest) employees. I wrote of Portland Public Schools, for example (here):

    “It’s a complicated problem, but, as I understand the issues, Portland Public Schools needs to stop making its problem worse. Last year the PPS-Portland Association of Teachers contract added an additional step increase (2%, I think) for its Tier 1 teachers (and others), thus increasing the PERS liabilities for PPS and others in the PERS system. Another contract will be negotiated in 2013. PPS should not again increase its and other’s PERS obligations.”

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    One major reason why I quit working for the State: constant attacks on PERS from all angles and a consistent pay freeze over the last decade. A general sense of lawmakers lacking creative thinking which lends itself to one suspecting they will attack the easy target.

    Of note, my PERS after 10 years untouched held $10,000. Not much to write home about.

    I feel for the people still fighting for the vulnerable and difficult populations most PERS reformers would rather not even look at.

  • (Show?)

    I have read and re-read this a number of times over the past several days, and I believe you, Marc, are trying to get the reader to understand the context of the problem and think of other, creative solutions. However, one sentence keeps jumping out at me. "Not to cause a schism between past and present public employees, but I would appreciate it if you told me why current employees have any more obligation to Tier I retirees than do taxpayers as a whole?" As a 30+ year employee, I recognize there have been many who came before me, that did not benefit one iota, but fought to improve wages, benefits and working conditions I benefit from. In this case, many invested a lot of time and resources - individuals and groups - to litigate unlawful changes to PERS. If they hadn't done it, T2 and T3 and what may come after, would be vulnerable. The last leg session we kept hearing they couldn't come up with anything that would survive a court challenge. That is testement to that. So, I am GRATEFUL for the individual T1 employees and coalition groups who fought to protect ALL our rights and I have no objection to trying to find a balanced way to protect ALL of us in the long run.

  • (Show?)

    For the sake of full disclosure I am a 10 year tier 1 P PERS Retiree.

    Ms. Woolsey correctly stated "State proposed the 6% "pickup", so they could reduce their payroll taxes & avoid paying the 9% COLA we were due." It is playing games with history to suggest the 6% PERS pick up is a PERS expense when in reality it is a payroll expense using an employee's pretax income as a retirement contribution. This negotiated form of compensation is permissive under the collective bargaining law. Therefore, the suggestion that it be removed outside of the area of collective bargaining flies in the face of what bargaining means.

    However, I do have a question. The employee contribution of 6% is deposited monthly into the fund I assume. The employer was to have contribute 6% as well until the law was changed in 2003. Where and when were the employer contributions deposited?

    Another question: What is to become of the residual when the fund is no longer paying benefits? How much is that residual estimated to be? After all, it is the employee's money.

  • (Show?)

    To make my post brief, let me comment only on the points where I agree with Marc.

    Workers have in fact earned their accrued benefits. The root of our PERS problem comes, ultimately, from employers wanting to make promises without paying for them.

    The long term health of PERS will come from growth -- growth in the economy, and growth in public employee productivity.

    One crucial reform that would truly be a reform is this: to end the practice of paying public employees with empty promises. Public workers should be paid up front, and never again with promises of future dollars that are never found.

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