Pivoting from PERS to business taxes

By Associated Oregon Industries,

The pivot away from PERS reform and toward tax increases is something to watch for.

Prior to the convening of the 2013 Oregon Legislature, Governor John Kitzhaber submitted a $16.5 billion state budget proposal.  Among the highlights of the Governor’s budget was the addition of 500 new K-12 teachers throughout the state.

How were these new teachers paid for in the Governor’s budget?  From two very modest Public Employee Retirement System (PERS) reform proposals that would free up $865 million to spend on more government services, including the hiring of more teachers.

The first proposal seeks to limit PERS cost-of-living adjustment to the first $2,000 of monthly benefits.  Such a proposal would save about $815 million.  The second proposal would eliminate the practice of giving extra benefits to out-of-state PERS retirees who are not subject to Oregon income taxes.  This modest proposal saves about $50 million per biennium.

The Governor built his budget on an assumption that the legislature would see the value in modestly shaving PERS costs by $865 million for the 2013-15 budget and redirecting that money to schools and other services.

Without the PERS reforms, there is an $865 million “hole” in the Governor’s budget – and no real way to pay for 500 new teachers.

But despite the urgent need for PERS reform, there is a growing sentiment in the capitol that the appetite for reforming the state’s retirement system – with its $16 billion in unfunded liabilities and ever increasing costs to state and local government – is actually diminishing.

This raises the question:  What does the legislature intend to do to fill the $865 million “hole” in the budget that will be created if the legislature does not reform PERS?

Over the past few weeks, the Oregon business community has caught a glimpse of what might be on the horizon.

Our Oregon – a non-profit research and political organization funded by Oregon’s public employee unions – has announced a list of proposals aimed at business and “the rich” that would fill this budget gap by:

• Eliminating home mortgage interest deductions for mortgage interest over $400k;
• Creating a new 1% gross receipts tax on companies with $100 million in revenue;
• Limiting tax deductions for the “wealthy,” presumably Oregonians with wages of $125,000 or more; and

You can see the proposals here.

AOI members should be aware there is a real possibility that the legislature will abandon meaningful PERS reform and look instead to build on Measure 66 and 67 tax increases to find the revenue to cover the $865 million in savings the Governor anticipated from PERS reforms.