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Wednesday, June 29, 2011

Dimming of the Day

Sine die will probably be pronounced sometime tomorrow towards the end of the day. At this moment, only two PERS bills survived the grueling process that is the Legislature. HB 2113 was a PERS housekeeping measure that reconciled some inconsistencies in the language of the OPSRP and the rest of the Chapter 238a. The other bill to pass was HB 2456B. This was (and remains) a very controversial bill. In its original form, it would have taken away the income tax subsidy received by every Tier 1 retiree who served in some capacity prior to October 1991, provided they lived outside of Oregon now. Under the threat of legal action, the Legislature chose to accept the amended bill proposed by OPRI that would affect only those individuals who retire on or after 1/1/2012. While this is a vast improvement over the punitive original version, HB 2456B doesn't reason save any money and will be used simply to illustrate to constituents that the Legislature, faced with 20+ bills to scale back PERS benefits, acted responsibly to only pass those bills that had a reasonable chance of surviving a court challenge.

So, what does HB 2456B do. First, it applies ONLY to members who have worked for a PERS employer longer than 22 years. It has no impact on members who began their PERS employment after October 1991. Those members were no eligible for the income tax subsidy anyway. Members who have 22 years or more of service, or who served in a PERS position prior to October 1991, will be affected by this bill ONLY if they plan to live outside Oregon. If you have more than 22 years of service, live in Oregon, and have no plans to move, the bill doesn't affect you at all.

Out of the 70,000 or so members eligible to retire now or before January 1, 2012 there are probably only a few thousand that meet the requirements to be hit by the bill. Most, will have short stints prior to October 1991 and most will lost, at most, 2% or slightly more, of their final benefit.

The calculus of this bill is bizarre. PERS estimates that it will cost approximately $600,000 to reprogram all their systems to pick out retirees ineligible for the income tax subsidy, while the Department of Revenue estimates another $100,000 to provide the information PERS needs to verify its information. PERS estimates that they will recover approximately $10,000 to $15,000 per month of unpaid income tax subsidies. This means that during the first biennium the cost of implementing HB 2456B will be approximately $700,000, which will be offset by approximately $300,000 in revenue from not paying the benefit to ineligible retirees. Thus, after two years, the state will be in the hole $400,000. In subsequent years, the state will continue to recover approximately $300,000 per biennium; this leaves 2013-15 at minus $100,000 net. So four years after this bill has been in force, the state will not have even broken even. Finally sometime in 2015-17, the state will reach the crossover point and savings will exceed costs.

This is one of those bills that leaves you scratching your head and saying: "...and this benefits the state and taxpayers, how?".

Although I am not optimistic, I continue to hope that Dr. No will apply his veto pen to this ridiculous bill. This bill offers no benefits to anyone, and simply ends up being a mean-spirited attempt to punish "someone" for the supposed (but non-existent) PERS "fiasco". Note to taxpayers: there is no PERS fiasco. Oregon PERS is one of the best run public employee pension systems in the US. End of story. If left alone, it will right itself as it has done in the past 8 years. Leave it alone.


















































































































































4 comments:

Andrew said...

While I acknowledge the inanity of 2456, the upside is that the current out-of-state retirees - who represent the vast majority of persons who would have been affected by the original bill, and many of whom would have taken a severe hit (up to a 9% loss in benefits) - can now sleep much better. Had the present bill not passed, this issue would just keep coming back to haunt those retirees, with their livelihoods left subject to the vicissitudes of the political winds and the supreme court. It may yet come back, but it seems much less likely now.

Larry said...
This comment has been removed by the author.
LH said...

So, now that HB 2456 has been passed and is on to the governor’s desk for signing, how do we calculate the potential impacts if we retire after 12/01/2011 and move out of state?

mrfearless47 said...

The formula is straightforward;
Time worked before October 1991/total time worked x 9.89%.


Hope this helps