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March 26, 2013
The Co-Chairs of the Joint Ways and Means Committee announced their Cost-of-Living Adjustment (COLA) plan Monday as part of their package to achieve $805 million in savings in the Public Employee Retirement System (PERS) this biennium, one of the central components of their “Turning Point” budget framework that calls for a $6.75 billion investment in public education.
Sen. Richard Devlin (D-Tualatin) and Rep. Peter Buckley (D-Ashland) introduced legislation, Senate Bill 822, which reforms PERS by cutting retirees’ COLA by approximately $400 million this biennium, and eliminates the tax reimbursement for retirees living out of Oregon for an additional $55 million in savings. The Co-Chairs’ budget also calls for “collaring” 1.9% of employer rate increases to achieve an additional $350 million in resources in the 2013-15 biennium.
“We developed this COLA reform with the understanding that it has a higher likelihood to be upheld by the court, is more equitable to retirees, particularly for lower and middle income retirees, and produces significant savings that can be used to reinvest in our public schools,” said Devlin.
The Co-Chairs’ proposal establishes a graduated COLA of marginal rates based on the level of a retiree’s benefit. Retirees would receive the current 2% increase on their first $20,000 of retirement income. The COLA would then gradually decrease; 1.5% on retirement income between $20,001 and $40,000, 1% on retirement income from $40,001 to $60,000, and .25% on all retirement income above $60,000. In order to give the PERS agency enough time to implement this new formula, for the first year of the coming biennium the COLA rate will drop from 2% to 1.5% for all retirement income.
The Co-Chairs apply a COLA adjustment to the entire portion of the retiree’s income, which is different than other proposals that call for a hard cap above a certain income level. Legal analysis has indicated the Co-Chairs’ proposal stands a better chance of being upheld by the court. The Co-Chairs’ proposal is also more equitable to low and middle income retirees — the teachers, firefighters, nurses, homecare workers, police officers and other employees — who dedicated their careers to public service.
The “collaring” proposal asks the PERS board to make use of a commonly-used tool to smooth out employer rate increases over multiple years by collaring 1.9% of the total increase. The market crash of 2008 wiped out $17 billion (27%) from the fund that supports the PERS system, causing employer rates to spike. By smoothing PERS employer rate increases over multiple biennia, the PERS fund will have time to recover those investment loses.
“This plan asks for upper middle and higher income workers and retirees to make a sacrifice that will help us stabilize PERS and begin to rebuild our schools. At the same time, we found a way to protect lower and moderate income retirees, and ensure that all retirees still will get a cost of living increase,” said Buckley. “This plan can only succeed if we all stretch ourselves, and ask higher income households and large corporations to give something as well. Cuts in spending on tax breaks is the other key piece of stabilizing funding for schools.”
“If we want to begin rebuilding our schools and other services we all count on, we must move quickly to achieve these savings,” said Devlin. “I hope the Senate and House will act swiftly to enact our proposal so we can turn our attention to the education budget.”