Heartbreak Warfare (long)

It is a rare occurrence when I find myself agreeing with The Oregonian in an editorial. Last Sunday they came out *against* Ballot Measures 66 and 67. As someone who has supported nearly every tax increase ballot measure and opposed every tax limitation measure, my view of M66 and M67 will surprise many.

I am categorically opposed to the measures introduced by the Legislature and which we will vote on anytime between now and January 26, 2010. My opposition is not to the principle of tax increases, but as an objection to the methods and ways the Legislature sneaked in all sorts of nasty things into these "reforms" and increases. They did not even consider alternatives and any legislator who tries to convince me otherwise is dissembling.

I don't doubt that the schools need more money, that higher education, and human services need more money. But, the Legislature chose two groups to single out for PERMANENT tax increases and did so in the most perverse of ways.

First, let's discuss M66. This is advertised as a simple increase of 1.8% in the marginal tax rate of personal income taxes on singles who earn more than $125,000 per year and joint filers who earn more than $250,000 per year. What isn't made clear is that this is only part of the story. Not stated is the fact that (1) the tax increase is permanent; (2) the tax increase is retroactive to January 1, 2009; (3) the marginal rate rises to 11% on incomes over $500,000; (4) M66 phases out the deduction of federal income taxes paid from $5600 to $4000 on incomes up to $290,000, and then to $0 on incomes above that. All tolled, instead of raising the marginal rate from 9% to 10.8% or 11%, the effective marginal rate rises to close to 12.5% or 13% in most cases. This is an outrage. This is enough to drive many individuals who contribute large sums of money to the Oregon Treasury to consider moving out of Oregon. Who will pay the 54% of taxes individuals or couples in those income brackets currently pay when many decide to pick up and move across the river to Washington and base their employment out of WA. Most people in those income brackets are pretty mobile. We certainly are.

To me, it is outrageous to expect that those 1% of taxpayers pick up an additional 5% of the state's revenue, while the rest of the taxpayers get by scott free (or so they think).

Measure 67 is a slightly different story. I am not opposed to raising the minimum tax for business from $10 to $150. While it is significant in percentage terms, it is not significant in dollar terms. But the Legislature wasn't content to leave the tax alone. Instead, they changed the basis of the tax as well. It used to be that the $10 was the minimum tax a business paid regardless of its profits or losses. However, the new minimum tax is now based on gross receipts before expenses are deducted. So a small business whose sales are, say, $60,000 will pay taxes on that amount rather than paying taxes on the NET sales after expenses. A business with $60,000 gross receipts and a net profit of $2000 will be paying about 30x as much in taxes as before. I can't think of a more regressive form of taxation. Instead of encouraging small business to work harder to up their gross receipts, this measure punishes them for succeeding regardless of the expenses needed to up gross receipts.

Since I have made it a practice to try, whenever possible, to patronize small business (my dry cleaners, my local independent service station, my local hardware store, my barber, etc), this will result in them having to pass on the tax increase in the form of raising prices. This, in turn, may drive me back to the big box stores I try to avoid. And the big box stores won't even be fazed by this change in the tax structure.

So, while the Legislature had dozens of different opportunities to come to grips with Oregon's terrible tax structure, its moronic "kicker" law, and the prospect of a "temporary" tax increase, they managed to choose the most offensive forms of tax increases imaginable. Instead of providing measures to increase tax fairness, to spread the burden equally (or semi-equally) across the various tax brackets, they chose a path designed to antagonize the two groups of people who contribute more in raw dollars to Oregon's treasury than anyone else, and to do it in a blatantly dishonest and disingenuous way. Read the ballot titles and then read the tax measures themselves. Ask yourself just how much information isn't being shared in the ballot title.

Don't let the cries of "woe is me" and "the sky will fall" fool you. The Oregon Legislature's special session will not convene until AFTER the results of this election are in. They will have time to come up with a set of alternatives to these tax measures in ample time to prevent the sky from falling. They're telling you that this will leave a $700 million hole in the budget, but they fail to tell you how big the 2010 "kicker" will be. It isn't that there isn't enough money; it's that the Legislature doesn't want to try to spend it. I call BS and urge people to think very carefully before voting on these measures.

The "rich" and "business" are two convenient "whipping people" for those who like to engage in "class warfare". However, the "rich" won't all be paying these taxes. The ordinary citizen of Oregon will end up paying these taxes in the form of higher prices and diminished services. In addition, both businesses and individuals/couples that are mobile will simply pick up and cross the river as soon as possible. I know that we will.

Oregon no longer owns the patent on "psychic income". I don't feel richer because I live in Oregon. It used to be that Oregon sold itself as the land of milk and honey. Now, I'm afraid, Oregon's reputation is simply the land of a cowardly government that uses emotional blackmail to try to get citizens to do the dirty work that the Legislature and Governor refuse to do. It is always easy to vote for taxes that affect someone else. But believe me, these taxes will come back to haunt everyone if they pass.

I know this entry will piss off many of my friends and colleagues still working in the public sector. I'm sorry that you feel that way. But just remember that there is no such thing as a free lunch.

Note: added 1/12/10. For those of you who may want to take advantage of the special deal to convert traditional IRAs to a Roth IRA, expect the conversion to come under the M66 effects. Just another bite from retirement savings. Major bummer.

Same Song and Dance

Welcome to 2010, two years ahead of the apocalyse according to the Mayan calendar. But not to worry. We have our own version of apocalyptic worry to deal with.

Another story of PERS' worrisome behavior is worth repeating. I've received several emails from people who retired on December 1, 2009. Recall that this was the last retirement date before PERS rolled out the new mortality tables on January 1, 2010. The new tables change the methodology used to compute the mortality factors and these methods reduce benefits slightly across the board. In any case, these readers planned their retirements around the implementation of the new tables. In at least two cases that I'm aware of, potential retirees submitted their paperwork in plenty of time to meet the December 1 deadline. In both cases, the members received notification after December 1 that there were issues with their lengths of service. In both cases there had been brief breaks-in-service in the past that had just been discovered at the time of the retirement audit. In both cases, members were under 55 and were going out under the 30 year provision. In both cases, their lengths of service were reduced by several months, putting one right on the cusp of not being able to retire.

There is a moral to this story. About two years before planning to retire, YOU should do an audit of your years of service. If you've worked for only one PERS employer, this is easy to do. You need only check with the personnel office to find out whether there are any breaks recorded in your personnel file. If you've worked for multiple PERS employers, then you need to do this for all of them. It is a pain, but is absolutely necessary if you are planning to take a 30 year-and-out retirement and are under 55 years of age. Even if you are a Money Match retiree, you MUST be 55 if you don't have 30 years. This is especially a woman's issue if you've taken time out for child birth etc. Prior to FMLA, these leaves may have been recorded as breaks-in-service and you may not even be aware. A good time to perform this audit would be following receipt of your annual benefit statement in May about two years before retirement.

If you depend on PERS to notify you in a timely manner about deficiencies or discrepancies in your service time, you could find yourself in a situation where you've already given up your job on the expectation that you have sufficient time to meet retirement requirements. That would be a terrible, if not catastrophic, error about which you can do little.

So, make this your New Year's resolution to audit that service time to make sure there are no surprises waiting for you at the end. Otherwise, it will be the same old song and dance at PERS, with you sitting on the sidelines without a partner.

Happy New Year.

Heartaches By the Number(s)

I've been keeping score over the past year of the number of inquiries I've received, or of questions I've seen posted at various newsgroups concerning the accuracy of PERS' retirement estimates. The typical story goes like this: "I've been getting estimates for some time so I'm familiar with what they used to look like. The current version is almost impossible to interpret, much less replicate. I don't understand how PERS arrives at current account balance and why by my own calculations PERS' numbers are almost always lower than expected. Now they assume that the 6 month buyback is part of the account balance with the employee always purchasing waiting time. They used to make everything easy to understand; now the estimates are completely opaque."

Alas this story is so familiar that I've tried to replicate PERS' numbers on numerous occasions. I can come close, but never reach the elusive amount that PERS gets. The errors are beyond rounding and suggest a systematic bias of some sort. What is frustrating about this is that PERS speaks with a forked-tongue about such estimates. On the one hand, they are the only solid evidence one gets upon which to make a retirement decision (that and the semi-useless online calculator). Yet PERS absolutely, positively declaims the accuracy of these estimates, leaving potential retirees helplessly frustrated. On the other hand, PERS offers no other way to help a member get a fixed amount that can lead to a confident decision to retire. This led to the calumny known as the Kay Bell case, in which a member sued PERS (and won) because she tried repeatedly to point out errors in the estimates and PERS kept telling her not to worry about them. So she didn't, untill PERS billed her for the very errors after she retired.

The Legislature tried to "right" some of this uncertainty with SB 897 in the past legislative session. This bill would have made PERS take "ownership" of the estimate process and require it to place its money behind its estimates. The bill passed 58-0 in the Legislature, and was then vetoed by Governor Ted (the coward) Kulongoski. Perhaps we can work towards a reversal of the veto in next month's special session. In the meantime, members close to retirement seeking to get an estimate for their final retirement benefit probably get better odds of accuracy at one of Oregon's casinos. There is absolutely no way that pre-retirees should have to live with the kind of uncertainty that PERS produces. You can't get a reliable retirement benefit estimate, you can't depend on the estimate or hold PERS accountable for errors, and if there are errors, it becomes your fault and your bill. It is like the old coin flip joke: Heads PERS wins; Tails you lose.

Gypsies In The Palace

I guess my rhetorical concern yesterday about OPRI's lobbyist helped prompt one reader to remind about this. OPRI's use of lobbyists with few or no ethical constraints on who they represent has been going on for awhile. I'm not a purist by any means, but I have little use for lobbyists like these. C'mon OPRI. Do you not have an ounce of self-respect that you throw yourselves under the bus with slime like these.

Radio Nowhere

I have been in lengthy back channel discussions with a very bright and analytical future PERS retiree about the Option 0 benefit. I confess to having been taken aback by the fact that the algorithm for Option 0 is poorly described and documented. I am unable to duplicate PERS' calculations of it and my correspondent has spent much time with PERS people and they too have been unable to replicate their own calculations. This is very scary for if PERS cannot replicate its own calculations in its own estimates, how then is a member expected to have any confidence in choosing Option 0. It is true that few members select Option 0 as a retirement option, but it is there, in statute, as an option and there is absolutely no excuse for PERS' inability to replicate the calculations they provide in their estimates. Whether Mercer - the PERS actuaries - is immaterial. If the agency can't duplicate its own results, then how can any of us be confident that in selecting Option 0, we are safe from the potential of an "error" along with a "bill" coming down the road when PERS finally sorts all this out. Advice to PERS - you better get this figured out real soon now or you'll be expecting a phone call from your friendly neighborhood PERS advocate or coalition member.

On an unrelated topic, is anyone else besides me a bit concerned about having Mark Nelson and his PAC Counsel office representing OPRI as their lobbyist, while also representing the folks opposed to Ballot Measures 66 and 67? Since the failure of 66 and 67 will affect PERS members and, perhaps, retirees, the conflict of interest is obvious to me. I find that all the groups Nelson represents - the tobacco groups, the business groups, and a host of others - to be among the more repugnant aspects of our society. I can't for the life of me figure out why OPRI has to team up with this ugly lobbying group, which would sell its own mother to make a buck. They don't seem to think there is anything wrong with a conflict of interest so long as the dollars keep rolling in. The answer, no doubt, will be that Nelson's group "gets the job done", but surely there are lobbyists who aren't quite as two-faced as Nelson. I make no secret of my opposition to Measure 66, but I am strongly in favor of Measure 67. In opposing Measure 66, I am not throwing my hat into the ring with Nelson's group. Their opposition is the typical opposition to liberal "tax and spend", whereas my personal opposition in on the principle of how the Legislature chose to implement the Measure. But I am deeply concerned that OPRI and Nelson are joined at the hip, while Nelson's firm has the job of defeating tax measures that would benefit PERS active members and future retirees. This simply makes no sense. If you are concerned about this, you should express your displeasure to OPRI. I've certainly rethought my donation to OPRI's lobbying efforts. I don't want a dime of my money to end up in Nelson's pocket.

Strange Days

One of the more surprising and unusual proposals to show up at yesterday's Board meeting emerged out of a meeting of Stakeholders with the Legislative Advisory Committee (LAC). Astonishingly, one idea is to end the IAP for Tier 1 and Tier 2 members and repatriate the money into the respective Tiers. This has no bearing whatsoever on ideas floating to eliminate the 6% pickup or end the 6% mandate. The issue created by the IAP - an unanticipated consequence one might say - is that employee money is no longer going into the PERS Fund and does not contribute to the financial health (or illness) of the system. Somehow the employers seem to feel (it was suggested by an employer) that if the IAP money from Tier 1 and Tier 2 members were to be drawn back in to the PERB fund, the system's health might improve. Of course, the actuaries haven't weighed in on this and the PERS Board isn't likely to request such a study from their operating budget. But to have this floated scarcely 5 years after the IAP began shows just how many bad ideas emerged out of the 2003 Legislature. We live in strange times.

Battle Studies

To my surprise, the PERB meeting today was pretty low key. That isn't to say that there weren't moments where it looked like howitzers would be drawn. But on the whole there were far fewer fireworks than expected.

Not surprisingly, the new actuarial equivalency factors were adopted without any discussion. The actual tables are not public to the best of my knowledge, but they will be shortly. All we have are the adjustment factors from the previous study and the impression that the factors will again be slightly less generous than before both because of better survival rates and because Mercer changed the calculation methodology. The expected impact is about 2% lower benefits at retirement, which can be offset by delaying retirement by a few months. Of course, your mileage may vary once the factors are public.

On the topic expected to cause the most fireworks, few actually occurred. The actuary went over various options and their impact. No matter how you slice it, employer rates will be going up for 2011-13, but the steepness of their increase remains an unanswered question, subject to a variety of factors. After the actuary finished his presentation, stakeholders were permitted to comment. The only stakeholder there who surprised me a bit was the public employee's best friend, Bob Tiernan, the chair of the Oregon Republican Party. Tiernan was not there to speak for or against the employer rate hike, but to remind everyone that PERS was back on his radar and said that his party would be looking at this as part of the next campaign (Legislative and Gubernatorial no doubt). For those of you unfamiliar with Bob Tiernan, recall that he was in the Legislature the early 1990's and was the sponsor of Ballot Measure 8 (1994) which would have removed both the rate guarantee and the mandatory employee contribution and the pick-up. When those were tossed by the Oregon Supreme Court, Tiernan was responsible for the Tier 2 program, which stripped the guarantee from new members.

For the employees, Pat West of OPRI and the Firefighters, and Greg Hartman spoke to the dual need of the Board's responsibility to members and to employers. Neither was willing to take any stand on what the PERB ought to do before any proposals were on the table - maybe at the January 2010 meeting.

Steve Manton from the City of Portland gave his employer's view of the potential rate increases, neither appealing for mercy, but asking that the Board take into consideration everything.

Finally, Phil Keisling gave an impassioned plea for the Board to engage in a longer-term discussion of the of the future of PERS in the current environment. He remonstrated the Board for looking at 2008 in isolation as though it were a "black swan" event, rather than considering the 5 year run of 15%+ returns as "golden geese". He surmised that the probability of the 5 year 15% run was about the same as the single year 2008 and that the Board (and the actuaries) ought to be considering both when they start all their modeling. Keisling was arguing that the Board should not make this decision in a compressed time frame in a reactionary sense, but should take as much time as is reasonable to plan. There is no direction for the employer rates to go except up and the Board, while certainly being the fiscal stewards they were, had the responsibility to deliver the bad news to the employers even if the employers did want to hear it.

The Board responded in turn to each of these comments and basically challenged that their job was to administer the system, not to make law. They had no authority to do some of the things being floated about, and felt that they should not be held hostage to the entire fiscal situation in Oregon. They had no authority to call on the Legislature for some sort of forum on the fiscal scenarios being played out. The general consensus among the Board was that they had not intended for the double-rate collar to be so black and white as to place once employer whose funding was at 79.8% with a 3% higher increase than an employer with an 80.3% funded rate. They seemed to be telegraphing that the rate collar would be maintained, but with some more graduated rates between the two cliffs.

At this point I had to leave the meeting and I didn't hear the final 15 minutes, although I doubt anything of significance was mentioned.

It is clear that the Board is suddenly growing troubled by the responsibility it faces and the consequences of their actions on public finance in Oregon. No final decision will be made until July 2010 when the 2009 returns become finalized. In the meantime, there will be 3 more meetings fraught with hand-wringing and despair as the Board and the employers wrestle with the problem of how they can push the problem on down the road while making it clear that they aren't. It will be an interesting 7 months and the knives and guns will be hoarded and the battle studies will take place in semi-slow motion.

For me, the answer is simple. The Board should hit the employers hard now. Make it clear that this is the system the Legislature baked and there are simply no other ways the employers can weasel their way out of future promised obligations.

Apologia

My primary source for Phil Kiesling's "meditation" on the PERS system failed to include Kiesling's cover letter. Since Kiesling explicitly asks that the cover letter be included, I am reprinting here since the source linked below does not include it. Kiesling tries to answer some of the questions about his motivations in the letter and set the record straight about errors and omissions and updates between the current version and previous versions. So here it is, extracted from the original source:

Begin letter:

"Friends and fellow Oregonians:

About 4 months ago, I started making a few inquiries about the status of Oregon’s Public Employee Retirement System (PERS), which was much in the news a half-decade ago. I thought I might do an 800 word op-ed piece about the effects of the 2008 market downturn on the system. But one question led to about 3 more, and as summer turned to fall and then early winter, the end result (after multiple drafts) is the attached White Paper, which is roughly 15 times the length.

My apologies for that. I know everyone is super busy, and this hardly the stuff of compelling literature for most people. But I thought this might be of potential interest to you, given how long and thoughtfully each of you has contributed to thinking and acting constructively about important public policy issues in this state. So in case this topic is of interest, I thought I’d send it along. (And my apologies to those who received this more than once; I’ve lost track of who got some earlier versions).

Indeed, if any of you have seen an earlier draft, please consider this one to supersede that. As I explain below, I have made more than a few changes, and old versions (and their flaws) of things do tend to linger longer than they should in cyber space.

I also fully recognize that while this November 9, 2009 draft reflects an extensive effort to respond to the myriad of comments and corrections I received, I’m sure that I failed to correct everything. But having started this inquiry in July – and much has indeed changed since then – it felt like it was time to call it “baked” at least for the time being, and send it out, remaining warts and all (and I fully confess some do indeed remain.).

For those who were able to read the previous piece, there’s nothing earth-shatteringly new in here. The main explanations – and conclusions – pretty much remain the same, though there are some important corrections in both tone and substance throughout. In addition to working diligently -- though I’m sure, not completely successfully -- to wring all factual errors from the large to relatively small from this piece, I want to highlight and emphasize several major points:

• An Executive Summary has been added, to try to encapsulate the more salient, big picture points

• Updated PERS numbers have been inserted where appropriate – especially multiple references to the fact that the PERS fund has rebounded significantly during CY 2009, and may finish the year with 15-18% investment gains. That said, I also repeatedly emphasize that even with a year that may restore most of 2008’s massive losses, the outlook for PERS’ funding situation, while certainly better than it was in earlier reports, is still very challenging. Readers should take various predictions and charts – especially those based on the May 2009 -- with that caveat, but also recognize that the general trajectory of rates remains in a relatively steep, upward direction for the next few biennia, under most foreseeable scenario save for a return to very high and multi-year (e.g, 12-15% annual) rates of return.

• This draft reflects a more sophisticated – and admittedly more favorable -- discussion of the role the PERS Governing board has played, post 2003 reforms, to further reduce PERS’ vulnerabilities. However, it’s also evident that much of the “non debate/non-awareness” of PERS’ situation during 2003-2007 was due to investment returns over 5 years of close to 15% -- almost double PERS’ Assumed Earnings Rate of 8% . The 2008 market downturn definitely did not “cause” PERS’ current predicament. Rather, it simply revealed -- sooner, and more uncomfortably than virtually anyone would have liked -- the longer term problems that PERS faces under more “normal” (not to mention, any “sub-normal”) investment environments.

• The “possible options” section has also been expanded somewhat. However, I want to once again re-iterate that the main purpose of this paper was to 1) Try to slash through the dense jungle of assumptions, actuarial terms, and acronyms so that readers could more easily grasp the basic and most important aspects of the system; and 2) Describe the broad outlines of the structural challenges PERS faces in coming years, given past decisions and existing policies (e.g. everything from benefit levels to rate-setting policies, assumptions, and processes).

This paper’s purpose was not to advocate a specific PERS reform agenda. Indeed, in both tone and substance I deliberately worked to steer clear, for now, of exactly that. (I do, however, strongly advocate for a robust, open debate that involves sufficient time and opportunities to involve not just public employers and their employees, but the general public. )

Indeed, it’s been my experience over the years that fierce partisans in this debate – and there are many, on both sides – often want to quickly steer PERS-related discussions into territory that’s almost “theological” in nature. Do you -- or do you not -- think that public employees do good, valuable work, and therefore are entitled to everything (and perhaps more) than what they’re currently scheduled (or believe they’re entitled) to receive?

For many, this is the general outline of the debate they want to have – and I have few illusions that even this white paper can avoid being sucked into exactly this kind of rhetorical vortex, too. So if you hold the more positive view, the discussion can quickly become a matter of, “We were promised this in exchange for lower wages, so what’s the problem? And since private employers don’t give (or sometimes cheat) their employees when it comes to decent pensions, maybe, private workers deserve a PERS system, too!” And if you hold the more negative view, it can quickly devolve to, “What a bunch of overpaid, overprotected complainers! Let’s just cut these excessively generous benefits!”

What a dreary – and ultimately off-point -- discussion, however much energy and heartfelt passion folks bring to the table.

While some – including current retirees, whose retirement benefits, ironically, are virtually untouchable when it comes to any proposed changes that are legally permissible – might want PERS discussions to focus on this (and related questions), the larger, important point is this: Oregon has and needs a public pension system. PERS is that system, and it’s one that Oregon taxpayers are ultimately responsible for, since it’s part of a compensation package that they (and their elected and appointed representatives) have decided on, through both laws and negotiated contracts.

But what are the prices of sustaining that system, as currently configured – including the potential costs on everyone, not just taxpayers, but on public employees themselves? And what possible changes might make such a system better, stronger, and more sustainable over time, under current and future scenarios that everyone needs to plan for as best we can?

Finally, I want to call people’s attention to the possibility of important decisions relating to PERS, perhaps happening very quickly. On November 19, 2009, the PERS Governing Board will discuss – and could even decide on -- some significant policy changes that bear directly on PERS future. (For example, whether rates should increase by 6% or 3% for 2011-13 under the current “double rate collar” policy).

Given the virtual absence of meaningful discussion of PERS during the last 6 years in journalistic, political, and other circles – I’m concerned that such a fast decision-making pace could prove unwise –not mention, quite unnecessary. (Existing net Employer Contribution rates will remain in effect through June 30, 2011). If any of you have concerns – either about the speed at which changes could be made, or the proposed changes themselves -- I encourage you to communicate them directly to members of the PERS Board and staff, and sooner rather than later.

I plan to attend the next PERS Governing Board meeting – Friday, November 20th, at 1 pm at PERS headquarters in Tigard – and have been warned by many to wear a flak jacket. Indeed, the PERS “blogosphere” is already filled with many dark speculations about my own personal motives, and the origins of the white paper – Am I running for Governor (No!); is this a product of the dark cabal known as the “Junto, (??!); and am I trying to take away the hard-earned benefits of existing PERS retirees? ( a) No; b) I’m a Tier I future beneficiary myself; and c) even if I wanted to, that would be a non starter given the court rulings!)

But I am trying to do something I think is very much needed in Oregon at this time: raising some important, legitimate questions as to whether such a large and basic pillar of current public policy rests on the kind of firm foundation most would -- or should --agree is needed (regardless of their political philosophies and views about government generally). This is ultimately a question of how well we collectively manage this function – not just to ensure we get it right for today’s workers and citizens, but also for those citizens of future years and decades who deserve something better than inheriting a mess that we could have/should have fixed on our watch -- but chose not to because we didn’t want to be inconvenienced by difficult discussions, much less actual decisions.

You may also feel free to forward this white paper to others. I only ask that if you do so, you also forward the above discussion that includes my various caveats (“Mistakes were made”) and the larger context I’m trying to put this into.

Thanks for any interest you might have in this – and for those brave enough to wade in, happy reading!

Phil Keisling

=========================

Let The Walls Come Down

In the past few days our favorite non-politician (Phil Kiesling) has released an updated version of his "meditations" on the PERS system. You can read Phil's latest draft here. I have to give Kiesling credit for picking up and correcting many of the mistakes that littered his previous versions of this document. Nevertheless, Phil's objective seems to be to provoke a serious discussion about PERS' future with legislators, the executive branch, the unions, all the various public employers. I strongly suggest that you read this updated version for it lays out some of the areas where PERS members might be facing some changes. Phil treats everything in the PERS contract that isn't legally nailed down by court decisions as subject to potential negotiation and/or legislation. Even if you don't want to wade through the lengthy text (this draft is nearly 20 pages longer than the first draft), please do not miss the APPENDIX. It is here where Phil lays out ideas for discussion. I do not want to discuss the document here, but I would suggest that readers who wish to discuss this come to our PERS Discussion Group (POD), which you can get to by clicking on the first link at the left. Please pose your questions there, although you are free to comment here, as always.

You Can't Beat The House

My head is spinning from the garbage being distributed lately. It seems that the announcement that PERS employer rates are going to rise has triggered a series of non-sequiturs from all directions. Everybody, it seems, has an idea to fix PERS. One thing unites all these ideas - they all involve taking things away from members. No matter what happens, PERS members are always the whipping boys and girls for advocates of smaller (or larger) government. Somehow it always seems as if we are greedy, ungrateful, spoiled brats who just want our PERS benefits and the public be damned. Everyone seems to forget that PERS benefits are not negotiable. They represent the ONLY retirement system available for most members (OUS members aside). The only element of the retirement system that was ever negotiated was the 6% pickup, but few today recall that it was presented to the unions in the form of an ultimatum - it is this or nothing. The unions wanted pay raises at a time when inflation was running at 12-14%. The state, predictibly, couldn't afford raises of that magnitude so Vic Atiyeh and Bob Straub came up with the idea that by paying for the employees' required PERS contribution, that would work out cheaper for the state and better for the employers. So, if you have a choice between the 6% pickup or nothing, you take the 6% pickup. I recall many, many PERS members griping to high heaven about not getting a pay raise. Now the 6% is historically part of the general PERS contract. It isn't going to be given up in negotiations.

So right now we have the Boregonian carping about high employer rates, The Statesman Journal writing about the ripoff of employer side accounts, and The Eugene Register-Guard complaining about the high cost of health care for public employees. Phil Kiesling wants to put everything in the union contracts up for renegotiation with tougher public employer negotiations. Steve Buckstein of the Cascade Policy Institute wants us to believe that if we raise taxes (via Measures 66 and 67) this will (a) all go to pay for the PERS "boondoggle" and (b) will cost the state much-needed jobs.

I can predict right now that politics will make very strange bedfellows during this coming January special election. We will have some peculiar groups of people supporting or opposing Measures 66 and 67. I'm not exited about Measure 66, but think Measure 67 is long overdue (or do I have them backwards?).

Regardless of what I think about these two tax measures, I can assure you that the lever that will be used to defeat them is going to be PERS costs. So, once again, we will be demonized no matter what happens. If the measures pass, people will bitch and moan that all the money is doing is to pay the costs for greedy PERS members. If the measures fail, it will be because of the greedy PERS members. In short, the house will win no matter what. Heads they win, tails they win. We lose no matter what. I don't like those odds.

Conjunto

Interesting musical form, emanating out of Mexico and on the border. Don't know its origin, but its suffix -junto is from the same root as junta. What does this have to do with anything? Nothing and everything. It is likely that the "position paper" on PERS may have originated in some discussion of PERS at a relatively new "club" called Junto that has 42 members, all prominent Portland/Oregon Democrats. Membership includes some of our favorite people including Greg Macpherson and, surprise, surprise, Phil Kiesling. The group was organized by someone I've known for a long time. If you are interested in this group, you might want to Google the word "junto" and find an October issue of Willamette Weekly with an article by Nigel Jacquiss on this not-so-public group. I suspect we'll be hearing more policy proposals emerging from this group. The membership includes an awful lot of familiar and not-so-familiar names. Beware.

Throw a Stone

For those of you who listened to OPB's "Think Out Loud", which aired this morning from 9-10, you would have found one of the guests to be a bit of surprise. Phil Keisling, former Oregon Secretary of State, was there to discuss his latest "PERS Position Paper". While I had heard rumors of such a document, I was neither certain of its authenticity or its authorship, much less its contents. Well, now we know the document exists and its author is Phil Keisling. The latest version is 36 pages long and is dated October 12, 2009. I have located a copy and have posted it here. Read it and understand that Kiesling has thrown the first stone into the pond called PERS in advance of the 2011 Legislature. Perhaps Kiesling is running for something, or just wants to stir up trouble. One thing is for sure is that active PERS members will certainly need to be on their guard before the next set of bad shoes drop.

Closer To The Bone

Tomorrow morning at 9 a.m., Oregon Public Broadcasting's radio program "Think Out Loud" will feature a discussion and call in about "PERS" in the current economy. The show airs on all public broadcasting stations that are part of the OPB network. It is 91.5 FM in Portland and at other frequencies around the state. It also streams live (and delayed) here. I don't know for certain who is on the show (I am not, that much is certain), but I know that invitations have been extended to Paul Cleary, Executive Director of PERS, Greg Hartman who represents the PERS Coalition, someone from OPRI (not sure who), possibly Ted Sickinger of the Oregonian (author of the latest hit piece on PERS), and probably one or two other luminaries - perhaps Bill Gary or someone who represents the employers. The show has a blog organized by topic (the show tomorrow already has about 10 posts), which is supervised in real time, as well as an opportunity to call in and make points and ask questions. I encourage all to listen to this show. Emily Harris, the show's host, is an exceptionally good interviewer and host, and this is an opportunity to learn what some of the public policy issues might be when the 2011 legislature convenes. Just remember that both the Oregonian and the Statesman Journal have published recent hit pieces on PERS and they've catapulted PERS into the public eye, yet again. Each time they strike, the outcome cuts closer to the bone. Be aware, be alert, listen, and call.

Wrecking Ball

On Wednesday November 4, 2009, the Oregon Public Broadcasting show "Think Out Loud", hosted by Emily Harris will focus on the PERS system in Oregon. The show will air at 9:00 a.m. Wednesday and again at 7:00 p.m. The show can also be streamed from the OPB website. At this point, I'm not sure who all the guests will be. I *may* be one, although I have not been extended an invitation yet (I've been contacted, but I haven't spoken to anyone about it yet). Greg Hartman, someone from OPRI, and Paul Cleary are known to be involved. This could be a seminal show as it may be possible to divine what PERS opponents have in store for actives and current retirees during the next election or Legislative cycle. With the Whoregonian and the Statesman Journal both publishing major articles on the PERS system in the past two weeks, and the Whoregonian editorializing on the sad state of affairs there, it seems quite likely that we have not yet eluded the snare of the fowler. There are many out there who would like to apply the wrecking ball to PERS and this next Legislative session (2011) may be the year of our discontent. In the meantime, plan to listen, plan to call in, plan to participate on the "Think Out Loud" blog. Register early so you don't waste any time while the show is airing.

You Might Die Trying

The Whoregonian's piece on Sunday about PERS managed to antagonize quite a few people - some good, some bad. My personal internets are buzzing with various shards of information about how we might see a variety of groups try to take on the local rag with a concerted information campaign to show how wrong-headed the Oregonian is. While they just "report" the news, they do far more than report. Every article is an editorial, whether they agree or not with that assertion. The headlines are editorials and much of the article's structure may be put together in such a way to lead a reader to the ineluctable conclusion that PERS is a failed enterprise that must go, or be significantly changed. Needless to say, everytime the Oregonian takes a strong stand on PERS, the Legislature inevitably gets into the action. This is why I predict -- this doesn't take a seer or genius to do -- that PERS reform will, yet again, be part of the 2011 Legislature.

In any case, the word I'm hearing is that the unions, the various other organizations that represent PERS members and retirees, PERS itself, might be moving towards a more concerted effort to counter the Oregonian's campaign of dis- and mis-information. I have no idea how, when, or if this will all come together, but if it does, expect it soon because the Oregon's effect is NOW. Unfortunately, the damage is already done, and I hope that efforts to change public opinion don't cause people to die trying. The general populace isn't very smart when it comes to PERS, and the Oregonian dumbs it down so that it is understandable. Unfortunately, that understanding comes at the price of substantial accuracy and versimilitude.

It does my heart good to read that the Oregonian's subscriber base has fallen to its lowest level since before it merged with the Oregon Journal. May this bastion of SI Newhouse finally bite the dust, or be turned over to some people who know not to bite the hands that feed them.

In the meantime, good luck to all those who may be trying to set the record straight. I give you props for trying, but I have low expectations of your chances to succeed in the court of public opinion.

I Hate Yer Ugly Face

Strong words, but that's how I feel about the Sunday Whoregonian setting out on its agenda to derail PERS again. I can only hope that PERS offers some sort of rebuttal to this slash and burn job by our local bird shit cage liner. The paper has the local loonies enraged and they are frothing at the mouth over at Oregonlive.com, where you can get angrier and angrier as these Lars, Rush, Bill O', and Sarah Palin wannabes ply the bit bucket with small are large piles of bit shit to be dumped on all the lazy, overpaid public employees. I wish I could encourage you to engage these morons, but I have found that doing so only enrages them more. It is all heat, fire, but neither warmth nor light.

Make sure your fight is done with facts; just remember that facts are boring to people who don't want to bother with them. The anti-PERS rhetoric is brought to you largely by people for whom numbers are alien concepts brought to us by illegal immigrants.

The article I'm referring to lies on the front page (above the fold) in Sunday October 25, 2009 Oregonian. Read it, but for heavens sake do not buy this paper. The fewer people who buy the paper, the sooner its extinction will come. The only favor we can do ourselves is to hasten its demise, before they hasten ours.

I Got The News

This is only the second or third post that doesn't really involve PERS, except tangentially. It really doesn't involve anything except to let people know I'm still alive and writing. I receive a daily investment update and today's update seems to be related almost entirely to public employment retirement systems. I'll just share the headlines: "MacFarlane quits as CalPERS real estate manager"; "New York State delays $1 billion pension contribution"; "North Carolina puts placement agent rules in place"; "Oregon treasurer undergoes treatment for cancer".

I find all this news on the same day a bit creepy. Ben Westlund's recurrence of lung cancer is worrisome. He heads the Treasury and the OIC. I don't know the internal structure of Treasury well and I don't know how things could play out if Westlund is unable to return to work. I'd hate to give our lamebrain Governor the right to choose Westlund's replacement; god knows what we'd get. Just the though scares me.

Fortunately it is neither Friday the 13th nor Hallowe'en, so perhaps these aren't omens of the future. They seem too close together for comfort.

Back to my cave.

Farewell My Lovelies

PERS, like other state agencies, is planning furlough days for its employees over the next two years. Just to keep everyone up to date, please be advised that the PERS offices in Salem and Tigard will be closed on Friday October 16, 2009, Monday Feb 15, 2010, Marcn 19, 2010, April 16, 2009, June 18, 2010, August 20, 2010, September 17, 2010, February 17,2011, March 18, 2011, and May 20, 2011. All of those dates are Fridays and were selected to minimize the impact on as many stakeholders as possible. According to sources, these closures will save the state about $2 million per closure day.

This notice brought to you by the lovelies at PERS.

Way Down In The Hole

Greg Hartman, attorney for the PERS Coalition, posted an update on the status of five PERS cases on the AFSCME website yesterday.

Hartman notes that after 6 years, there are still 5 cases before the Oregon Court of Appeals in varying states of hearing. First is Arken, which is a case on behalf of "window retirees", arguing that the adjusted benefit they received following the "settlement agreement" in the City of Eugene case is not legal. That case was heard in Multnomah County Circuit Court over an extended period of time and has moved to the Court of Appeals. Briefs have been filed, but there is no date set for oral argument.

The second case is the Robinson case, which asserts that section 14(b) of the 2003 reform legislation prevents PERS from recovering for "overpayments" resulting from the 1999 earnings distribution of 20%. The coalition won this case in Circuit Court, but both parties have appealed to the Oregon Court of Appeals and briefs have not been completed. The hope was that both Arken and Robinson would hit the Court of Appeals at the same time, but they are staged differently and now have a low likelhood of being appealed simultaneously.

The White case challenged the settlement agreement itself. Judge Kantor ruled against the PERS Coalition and a notice of appeal has been filed. Briefing has just begun.

Kay Bell's case is an individual piece of litigation handled by Hartman's associate Aruna Masih. The trial jury ruled in Kay's favor that she was given incorrect information at the time she retired. The case formed the nucleus of the SB 897, which passed in both chambers of the Legislature and was then vetoed by the Governor. Both plaintiff and the defense have appealed the verdict (for different reasons) and parties are in the briefing stage for the Oregon Court of Appeals. The Coalition is also studying whether to pursue a Legislative override of the Governor's veto during the Legislative special session early in 2010.

Finally, there is the Murray case. This is one that has received very little publicity but has already been argued before the Appeals Court. It relates to how PERS is supposed to charge administrative expenses in a year where there are no earnings. PERS apparently thinks that administrative expenses should come from variable accounts, which the PERS Coalition says it is not appropriate to charge the variable account. This case is simply waiting a verdict from the Oregon Court of Appeals.

Five cases, six years, interminable waiting. That's how Oregon thanks its dedicated public employees. Hartman believes that most of these cases will have results from the Court of Appeals by next year sometime. The bad news, still, is that the hole gets deeper and deeper. Even with verdicts from the Court of Appeals, every case is eligible for review by the Oregon Supreme Court, which is virtually assured. We are still facing another 2-4 years before a final outcome in any case. My original estimate of 2012 may be hopelessly optimistic as 2013 or 2014 seems more likely. I hope I'm still around when these verdicts finally come down.

Dope Ball

PERS latest waste of members' money was in the case of English v PERB, just ruled on by the Oregon Court of Appeals. This case involves a matter of policy in domestic partnerships. The plaintiff was in a domestic partnership that got terminated. Under Oregon Statute, a domestic partner *can* be named as a beneficiary on a PERS account. Following the dissolution of the partnership, the plaintiff sought to change beneficiaries. This privilege accords to married persons who divorce, depending on how the divorce decree is structured. PERS ruled that the plaintiff had no legal basis for changing beneficiaries because Oregon statute is silent on the question of domestic partnership dissolution and does not consider domestic partners as having *all* the same rights as married persons. PERS asserted that to allow this would "jeopardize the tax status of the plan". The Plaintiff appealed the case to an Administrative Law Judge, who ruled that PERS did not provide evidence that the plan might be impaired as a result of letting this plaintiff change benefiaries. PERS appealed that verdict and the case went to the Oregon Court of Appeals, wherein PERS lost again for the same reason. The OCA remanded the case back to PERS for resolution.

PERS has made a mockery of the entire judicial process asserting in almost every piece of litigation filed in the past 9 years that either (a) whatever they were being asked to do would "jeopardize the tax-exempt status of the plan", or (b) that it would be too costly to implement the changes. Never once have they every provided an ounce of actual evidence that either was true, but they continue to use our money to assert this as fact without support. Instead of this continuing battle of wills over PERS' assertions, it seems to me that PERS could save a lot of our money to seek a private IRS ruling about exactly what the plan can and can't do in these kinds of cases. Bravo to the judges who had the courage to call PERS' bluff and send them back to their hidey-holes to work out new lame excuses on which to impale members. Litigation against PERS is like a game of rope-a-dope with a dope ball. It is tiresome and time to stop.

Have a safe and sane holiday weekend. Drive carefully and don't become a statistic out on the mean streets of Oregon.