Oregon

In the late 90s Oregon PERS was re-structured for new employees with a leaner retirement package with more risk assumed by the employee/retiree.

The major problem comes from an agreement penned in the seventies. In an environment where typical raises were 8-10 percent to keep pace with inflation, the employee union settled for raises for half as much. In exchange, the generous pension plan was crafted to defer benefits.

In the ensuing years, rising costs and a successful effort to limit property taxes starved state and local government. The fiscal "emergency" left inadequate funding to create reserves to fund the "bubble" of tier one retirees that now are stressing the budgets of all public agencies. With no sales tax, revenues are dependent on unstable income taxes that rise and fall with the economy.

Attempts to break the contract have been rejected by the courts. This strategy is a dead end, but is the favorite policy proposal for the Republican nominee for governor.

Tier one retirees will be an obligation for the next 20-30 years. The state needs to address how to fund this obligation AND maintain quality schools and services. Tax increases will be necessary, including potentially a sales or gross receipts tax.