Sep 21, 2006

Ron Saxton's Right: More PERS Reform Needed

I believe Ron Saxton is on the right track with respect to PERS reform.

Why does a decreased rate of even the new 2007-09 PERS estimate of 14% of worker salary matter for the general fund budget of the City of Troutdale and other government bodies? It's all about continually shrinking gaps between limited property tax revenues and increased expenses such as PERS.

The Oregon Constitution limits the amount of property value subject to taxation. The value limit is called maximum assessed value (MAV), which is allowed to increase each year by no more than 3 percent. There are exceptions to this limit, however. The addition of a new structure, major improvement of an existing structure, and subdivision or partition of the property are examples of exceptions that would increase MAV by more than 3 percent.

The Oregon Constitution also sets limits on the amount of property taxes that can be collected from each property tax account. These limits are often called the "Measure 5 limits."

To figure these limits, taxes are divided into categories described in the constitution. The categories are: education, general government, and non-limited, which is usually general obligation bonds. The limits are $5 per $1,000 of real market value (RMV) for education taxes and $10 per $1,000 of RMV for general government taxes.

In Troutdale's case, when you combine PERS costs, union contract mandated annual employee cost of living raises of 2.5 to 5% per year, contractually required longevity raises for some employees, and rising health insurance costs, you're talking about an expense line that goes up with no ceiling in sight. This scenario is similar for most cities and school districts in Oregon.

Compare these rising expenses to the revenue side of maximum assessed value increases of 3%, and you have a recipe for mathematically guaranteed insolvency within a matter of years.

I don't want anyone to get the wrong idea. Government workers in Troutdale and elsewhere deserve salaries and a pension plan that's fair and equitable to everyone. However, current AFSCME contract COLA increases combined with high PERS contribution rates will eventually become unsustainable. It gives me no pleasure to write this, but the numbers don't lie.

Troutdale's general fund reserve has been shrinking for years. The only revenue source keeping us above water has been building permit revenues, which will eventually become minimal when we reach buildout. Even now Troutdale could be faced with employee layoffs in the near future if building permit revenues decrease, or if PERS or health insurance costs skyrocket again.

Finally, add in Troutdale's cost increases over the next several years for fire protection charged by the City of Gresham.

It's not a pretty picture. But additional PERS reform is definitely needed. Troutdale isn't alone. This bleak financial picture is shared by most other cities in Oregon.

Finally, I have a dog in this fight. I have a Tier 1 PERS account from a previous job. 8% guaranteed interest. So when I say additional PERS reform is needed, I'm biting my own hand. But PERS isn't sustainable forever. The numbers don't lie.

1 comment:

John Eyler said...

The PERS issue is huge and I'm really glad you're on board with the idea of reforming it.