Analysis by PERS Shows that SB 822 Leaves Oregon Schools Struggling with High PERS Costs Through 2029

Oregon Business Plan believes the legislature can do better. PERS actuaries predict that school district payroll rates will double between 2009 and 2017 even with SB 822 and its companion provision to skip payments into the system. By 2017-2019 rates above and beyond 2009-2011 levels will cost school districts statewide $1 billion more each biennium, or the equivalent of 4,500 teachers, and will remain at these high levels through 2029.

Oregon PERS actuaries recently released analysis of SB 822, the PERS bill passed by the Senate and up for a vote in the House tomorrow. Their conclusion should give pause to anyone who believes that SB 822 will prevent PERS costs from increasing class sizes, shortening school years, and eliminating key programs like art, music, and PE. 

Table: Increased PERS costs for school districts with SB 822 + rate collar (delayed payment)

School District Base PERS Payroll Rates Source:  Oregon PERS Board**	2009-2011	2011-2013	2013-2015	2015-2017	2017-2019*
Pre-SB 822	14.3%	18.9%	26.1%	28.3%	~30.5%
SB 822			23.6%	25.8%	~28.0%
SB 822 + rate collar (delayed payment)			21.7%	26.1%	~28.3%
Dollar cost to school districts of rates above and beyond 2009-2011 levels with SB 822 + rate collar (delayed payment).	$0M	$271M	$469M	$805M	$1.03B
Cost expressed as “teacher equivalents” with SB 822 + rate collar (delayed payment).		1,474	2,372	3,782	4,487

*PERS predicts that school district rates will remain at or above these levels through 2029.  
**Dollar cost and teacher equivalents were added to original PERS rate analysis

As a quick reminder, SB 822 reduces cost of living adjustments for some PERS retirees and eliminates (for retirees who no longer live in Oregon) a “bonus” payment that PERS retirees get to offset their Oregon income tax liability. Its companion provision is a budget note that directs the PERS board to “collar” or delay payments of $350 million into the PERS system. Together, the reforms and delayed payments save employers (state and local) $810 million this biennium, $200 million of which will benefit school districts.

The analysis by PERS experts shows that under the bill PERS costs for school districts and other public employers will be higher this biennium than last, although the bill does mitigate a significant portion of the increase that would otherwise take place. The real story, however, is how little the bill does to address how much PERS costs have skyrocketed for school districts beginning in the current biennium (2011-2013) and how much they will increase again in 2015-2017 and then in 2017-2019.  PERS predicts that school district PERS rates under SB 822 and the delayed payments will rise to 28.3% of payroll by the 2017-2019 biennium, and will remain at or above that level through 2029. That is up from just over 14% of payroll in 2009.

The backers of SB 822 are betting that high investment returns on the PERS fund will help pay down the PERS liability and prevent employer rates from increasing to such high levels.  Unfortunately, PERS actuaries disagree.  In fact, actuaries are advising the PERS Board that the current 8% assumed earnings rate is too high, and the PERS board is likely to lower it at their next meeting in June. If and when that happens, employer rates will spike even higher.

If all the Legislature does on PERS this biennium is pass SB 822 and let employers skip a payment, Oregon schools will be looking at a decade ahead much like the last: larger classes, shorter school years, and fewer class offerings — even when revenues are increasing.

We believe that the Legislature can do better. There are many additional PERS reforms that are fair and legal and that protect the promise of Oregon’s retirement formula while reducing windfall benefits under Oregon’s bizarre “Money Match” system.  Learn more at www.fixPERSnow.org.