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Saturday, March 30, 2013

Beast of Burden

Just when you thought things couldn't get much worse, the Oregon Legislature has decided to fast track a PERS bill that will make retirees the beasts of burden to carry the load for funding public schools.  From the beginning, this has been set out as a contest between two conflicting contracts - the PERS contract, and the so-called contract with schools to provide a quality education for our students.  So now, the issue comes down to robbing retirees to pay for "the children".  Not only is this just wrong, wrong, wrong, what lesson does it teach the children.  Leaving aside the question of whether ANY children will benefit from the legislative action, there is the larger question of the lesson that "keeping your word", "honoring a contract", "promises must be kept"  teaches our current-day students in this environment of "they SHALL pay".  I wonder if the Legislature even notices the irony of "its for the children" when weighed against "a small break in the retiree COLA contract".  I guess trust is not a commodity they teach in school today and the students of today need not worry about their future concepts of right and wrong.  The Legislature has just told them that "breaking a contract" is OK if it is "for the children".

My last post outlined part of the terror to be visited on retirees as soon as July 1, 2013, in the form of a reduced COLA (1.5%) in 2013, followed by a graduated COLA based on income level that will be implemented in July of 2014.  I'll spare you the details again since they were in my last post.  But this fiscal sleight of hand takes roughly $45 million in lost COLAs to current retirees and through the magic of compounding, actuarially apply a Betty Crocker recipe, and turning up with a $400 million reduction in PERS employer contribution rates.  This money, or at least the money retained by the schools, will be redeployed to do things "for the children".  Several groups are strongly favoring reductions in retiree COLA (even if not the current proposal), but nothing in the current bill will actually help the situation on the ground.  The public schools have always been a vast wasteland of unnecessary spending, although none of the unnecessary spending has ever been at the classroom level.  So, when I testified before the joint House and Senate Rules committee on Wednesday, I asked exactly how the Legislature planned to insure that every penny of the money stolen from retirees will end up in the classroom where the children live.  How does the Legislature plan to monitor expenditures of this $400 million to insure that my granddaughter's classroom sees every single dime of money that you've taken from her grandpa's retirement fund.  I am a cynical person.  I spent my entire career in education, although higher education instead of K-12.  I remain close to the scene at my former employer.  I get weekly emails telling me the latest goings on.  So while teaching positions are frozen, tuition continues to rise, faculty continue to be paid well-below comparator institutions, the University can find enough money to hire a new "Vice President for Customer Service".  I confess to being flabbergasted by this appointment.  Who are PSU's customers?  What will the VP for Customer Service do?  Assuming that the students are the customers, will the school then adopt the retail adage that the "customer is always right"?  This kind of fungibility of funds in education is what worries me greatly about this latest attempt to steal money from people who have already worked their entire career, have spent 10-12-14 hour days trying to help the good citizens of Oregon and who now not only get to be regularly trashed in all the local media, their own employers conspire against both actives and retirees to take more money so that we can all enjoy the benefits of a "Vice President for Customer Service".

If that isn't enough, the bill currently floating through the legislature at warp speed also includes a provision to end a practice that has been in effect since 1995.  This is a very complicated issue, and on the surface it appears that it should be a slam dunk reduction.  But like all things involved with PERS, there is a long history, a very complicated history that involves multiple cases before the Oregon Supreme Court, changes in the IRS provision nearly immediately after Oregon addressed the problem, and a lot of people who have no idea that their current benefit contains a fractional adjustment to the gross benefit that is the result of Oregon being forced to tax PERS benefits after a US Supreme Court case in 1988.  The problem isn't the solution to the matter - PERS members who live outside Oregon no longer have to pay Oregon income tax on their PERS benefits, although they did until 1996, the real problem is that PERS has never been entirely clear about what the benefit "bump" was for.  Consequently, if you ask the typical retiree living in another state, someone who moved there to be closer to family, to be nearer better medical care, or to help out other family members, few, if any of them, even know that their benefit is in jeopardy.  So SB 822, the latest piece of legislative flypaper catches all retirees with the COLA change, and it affects 19,000 retirees living away from Oregon who receive approximately $55 million in extra benefits every two years as a result of a legal case that occurred early in their working careers.  

Your can write the legislators involved - Senator Richard Devlin and Representative Peter Buckley - or you can write to the Governor to argue that these cuts are ill-advised, possibly illegal, and will wreak havoc on retirees if they pass and won't benefit the schools (or at least a few overpaid administrators) either.  You can also indicate that you think that there is not a small amount of irony in teaching our children that breaking promises is OK if you are the beneficiaries of the broken promises.  Unfortunately, I doubt that our students will see any of the money from this latest raid on the PERS fund.  I'm willing to take bets that less than 20% of $400 million reaches the classroom, while the remainder goes to support the bloated and corrupt bureaucracy of the public schools.

The other piece of delicious irony in SB 822 is that our opposition in the Oregon School Boards Association (OSBA) represented by loudmouth Jim Green from Salem and sleazy and unctuous Bill Gary from Eugene are deeply concerned about the unfunded actuarial liability (UAL).  Their concern would touch me if any of the savings from retirees actually did anything to reduce the UAL.  But, as good representatives of the OSBA they would be remiss if they actually helped reduce that nagging concern, especially if they have to choose between "the children" and the "UAL".  So, the schools get $400 million worth of play money to enjoy as they wish - because there is not any oversight on how they spend it - while the UAL lingers at $14 billion dollars and MIGHT be $11 billion after the schools have ravaged through 10 biennia of $400 million + in savings taken directly from retirees and future retirees.

Oh, and did I mention that this bill also asks the PERS Board to push about half of the employers' required payments down the road until 2015-17.  So, the net effect of all this fiscal chicanery is to generate $400 million in phantom dollars for the schools to spend on executive boondoggles, new offices, maybe one or two new computers, and a new administrative lounge or two, while the employers of all PERS employees get to defer about $400 more million dollars in payments that should be due now, today.

The sad fact in all of this is that while we are Beast of Burden for the 13-15 biennium, I have no expectation that anything will change between now and the next big legislative session in Feburary 2015.  I expect that the money will be squandered, that PERS will be in no better shape, and the rapists will be coming for more contributions from retirees, but will have gathered all the low-hanging fruit out there.  Good luck.  I hope they are in training now, because the next time they try to take money from us, we will be better organized and prepared to walk these clowns out to the end of tiny branches and watch them fall like rocks.

Have a nice Easter.  


Unknown said...

Marc, as you see things, do we have any realistic chance of defeating SB 822 and it's clones? What actions do you think will do the most good? Thanks for you clear arguments on these issues.

mrfearless47 said...

I doubt it. The savings from SB 822 are already baked into the budget, so opponents of SB 822 have to come up with an alternate source for nearly $825 million per biennium to help "the children". I am not opposed to any help for the public schools, but this proposal and others like it have the cynical characteristic of collecting money from retirees, transferring that money to the schools, and them the money can just fall down a black hole. I think that instead of fighting SB 822, which I view as a fait accompli, we push back extremely hard to impose strict accountability that requires a massive amount of paperwork and approvals to spend the money for ANY purpose that can't be shown to flow directly into the classroom. OSBA, Stand For Childrenare all blowing smoke. They want this money with no strings attached so they can spend it however they want rather than on how it is genuinely needed. I think the legislature should tie these organizations I. Knots trying to meet compliance requirements. Make the requirements so severe that the only way the money can be spent without hassle is on new teachers, textbooks, classroom computers, teachers assistants. Any other expenditure rshould require approval of kitz, Obama, and Pope Francis.

mpguy said...

I'm not willing to give up anything to provide more money for schools, no matter WHERE it goes. We had an agreement. The state needs to live up to it. How it got into this mess isn't any of my concern.

There should be a lawsuit or two coming with regards to the COLA provision under which those of us who have retired made that decision.

I have little faith in the Oregon courts, especially the Oregon Supreme Court. However, we will see how all of this falls out after it hits the courts.

In the meantime, if I were a Democrat voting for this, I'd be very careful come next election cycle. There may a whole bunch of people who voted for some of these Reps and Sens in the past whose votes will be conspicuously absent when their names next appear on a ballot.

mrfearless47 said...

The courts may decide in our favor; I'm not holding my breath waiting. As for the Dems voting for this, what options do you have in 2014? Are you going to sit on your hands in the election or vote for an R. Remember that the entire republican caucus supports SB 754, which is by leaps and bounds far more punitive than SB 822. The Dems are not stupid. They know they can't avoid litigation, so they have picked the least offensive way to stab their lifelong constituency in the back, hoping that the choice in 2014 will be so awful that no sane union or labor democrat would choose an anti-everything "R" over an incumbent "d" who voted for a semi ad bill.

Do you really believe the electorate would shot itself in the foot by pointing the gun down through the top of the head? I didn't think so.

mpguy said...

There are little things called "primaries." The Democrat we ultimately vote for in the general election doesn't have to be the one serving now.

mrfearless47 said...

Of course. But how do you persuade someone to run in a primary against seasoned incumbent. For example, who would you recruit to run against Sen. Richard Devlin when he hasn't had any opposition in his last four runs for the Senate. Do you want to try to unseat someone in power like Devlin to send a message to others that you are unhappy or because you want leadership in the senate?

Rivrdog said...

Marc, I believe that it's a mistake to single out Federal retirees as an "enemy". I draw pensions from both the Federal Treasury and PERS, and so oes Jim Dixon, who was part of the chain of lawsuits which finally achieved some sort of tax equity for Federal retirees vs. PERS retirees.

All retirees, Federal, State and private, are vulnerable, especially those with infirmities which preclude re-employment. Ageism works to prevent re-employment for the hale and hearty retirees.

If the Federal retirees were added voices we could rely on in our coming battles, we'd be more assured of victory.

M&S said...

The history of no tax on PERS benefit and the 6% pickup shows what fools unions and employees were back then to not just go for more money and to not get fancy with the indirect ways to increase income. It is coming back to bite us now. PS I am not retired yet and struggle with allowing 822 to go into effect and then I go up to the Supremes as member of the group "non-retirees" OR retire now and go up as the sub-group Retirees. Wish my crystal ball would tell me the odds the Supremes will hold that 2%COLA became contract day of retirement, vs 2%Cola can be watered down to skim milk for both sub groups. May not matter 822 moving so fast that Guv Emergency signing could be in late APril and prevent a May 1 retire date to be back of old Cola contract. IGJEUP

mrfearless47 said...

George: I don't believe that I called out Federal retirees as the enemy. I understand the intent of the Davis v Michigan case and I also understand its importance in the history of tax law. I don't believe I suggested that THEY were at fault for anything; just merely pawns in an endless array of litigation surrounding the US and the Oregon tax code trying to secure fair and equitable treatment for all. Beyond that, I have no animus with any federal retiree. I know many of them and count a fair number as close friends. If I've advertantly or inadvertantly blamed or demonized them in my posts, please accept my apology. It was not my intent.

mrfearless47 said...

@M&S. I *think* that if you wanted to retiree effective April 1, you might still be able to if you file your papers early next week. If nothing has changed from when I retired, you can forego purchasing your waiting time and take the benefit as it stands without purchases. I was able to backdate my retirement by a month (from November 1 to October 1 on October 8) by withdrawing my purchase of waiting time. It didn't make a huge difference, but for me it mattered for other reasons. If you want to be sure you are out before the effective date of the COLA provision, regardless of how it might play out in court, that could be a useful strategy.

Rod said...

Hi Marc,

Is SB 822 worded in such a way that if it is passed, then it will only affect those who retire after its passage or is it going to affect everyone, even those that are already retired--or is this still in question?

Also, I have developed a spreadsheet that shows the affect the cola changes will have on a person’s retirement income from PERS. If everyone now working saw the affect, there would probably be a flood of people retiring if they can get out before the bill is passed. I would be happy to send it to you, but I need an email address.



mrfearless47 said...

SB 822 is intended to affect everyone, regardless of when they retire. There is no incentive to retire earlier than is otherwise desire able. There would be no savings if hust affected those retiring after passage. This bill is designing to avoid a crushing.

If you want to send the spreadsheet use the address associated with the blog. Are you ok with me posting it on the discussion group for members to use in figuring out the impact?

Feldesmanm At gmail dot com

Unknown said...

The theft of our 'promised' PERS COLAs is charging through the Oregon Legislature with the force of a stampede. The Joint Ways and Means subcommittee hearing and work session is Wed April 3rd at 4:30 PM and it will apparently be moved on to the full Joint Ways and Means committee because they have scheduled it for a hearing on Fri, April 5th at 9 AM. This avalanche is moving so fast, I am surprised that we don't already have the date that our oh-so-Democratic Governor will sign this bill into law with it's emergency clause in tact! I am so tempted to throw in several vulgar words. Clearly PERS members have been messed with and have no say or recourse -- except to take it to court and pay for both sides of the litigation! Ouch!