Democrats face PERS debate

Oregon's Democrats are riding high these days. After sharing power with Republicans in an evenly divided House of Representatives since 2010, the party picked up four seats in November to retake control of the lower chamber while hanging on to its slim majority in the Senate. Democrats hold all statewide elected offices.

But the Democrats dare not allow themselves to become complacent. The state faces a daunting financial challenge that threatens the government services Democrats love to champion, including public schools.

We speak of the Public Employee Retirement System, the pension program for state, county and city workers and school employees. The financial collapse of 2008 hit the pension system hard, because pension benefits are invested in stocks and other market instruments. PERS faces a $16 billion deficit — a shortfall that is already costing public employers an extra $1.1 billion this biennium and is expected to jump an additional $450 million next July and cost even more money in 2015.

That's money that can't be spent on teachers, police officers and social services.

Gov. John Kitzhaber is determined to address the PERS problem in the 2013 legislative session. Lawmakers say they are prepared to do that, but there are no easy answers, and none that don't involve some pain for public employees.

Public employee unions are gearing up to defend one of their members' primary benefits, and that means putting pressure on majority Democrats, many of whom they helped elect. Democrats must be prepared to resist that pressure enough to begin returning PERS to a sound financial footing.

That will be easier said than done. Pension benefits are a contractual obligation of the state. How those benefits are determined, and who contributes to them, can be adjusted, but any changes must be done without running afoul of the courts, which have declared some parts of the system untouchable. Some of the potential changes also must be negotiated with workers at the bargaining table.

The most likely adjustment is to end the practice of compensating some state retirees for taxes they don't actually pay. After federal retirees sued the state because their pensions were taxed but state pensions weren't, the Legislature gave state retirees a supplemental benefit to offset the taxes they had to start paying. About 15 percent of PERS retirees — 17,000 — don't live in Oregon and don't pay state taxes, but get the supplemental benefit anyway. Ending that would save $380 million.

Other potential changes include limiting cost-of-living adjustments in pension benefits and requiring workers to contribute to their own retirement accounts — contributions their employers now pay. The so-called "pickup" by employers was negotiated in 1979 in place of pay increases the state couldn't afford at the time. Most public employees get this benefit, and the unions will forcefully resist efforts to reduce or eliminate it without offsetting pay increases.

Public employee unions have every right to defend their members' pay and benefits. It's their job. And public employees have every right to pension benefits they have earned. This is not and should not be about demonizing public employees.

The unions argue that workers are not to blame for the pension system's problems and should not have to fix it themselves. That's a strong argument, but holding workers harmless means asking taxpayers to cover all of the deficit. That's not likely to happen.

The answer lies somewhere in the middle — workers will have to share at least some of the pain — and that means majority Democrats in Salem will have to stand up to their union supporters.

Oregon voters preferred the message delivered by Democrats — that government provides a vital function in good times and bad — over the GOP's smaller-governent-is-better-government mantra. But outside of union advocates, there are few in this state who would argue that the message called for placing public employees ahead of the services they provide.

With the power of both chambers and the governor's office, Democrats have an opportunity to make headway on the PERS issue. If they fail to do so, that opportunity could turn into a heavy weight around the party's neck.

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