In a not unexpected announcement, Oregon Gov. John Kitzhaber recently told the annual gathering of the Oregon School Boards Association (OSBA) that he has identified three areas of potential "reform" to the Oregon Public Employees Retirement System.

PERS reform is expected to be a hot topic of discussion at the 2013 Oregon Legislature, which convenes on Feb. 4. Oregon AFSCME political staff expects a wide range of PERS-related bills to be introduced. Kitzhaber, in his remarks to the OSBA, said he will focus on three issues:

• Reducing annual cost-of-living adjustments on pension benefits;

• Decreasing or eliminating the "pickup" of employee retirement contributions; and

• Eliminating a tax benefit for out-of-state retirees.

Reducing COLA adjustments would appear to be the most difficult hurdle to clear legally. While Kitzhaber didn't specify a particular amount, several legislators have openly discussed attempting to limit COLAs to the first $24,000 of a retiree's PERS income. Currently retirees get 2 percent COLA adjustments annually on their entire benefit — whether they are well-publicized anomalies like former University of Oregon football coach Mike Bellotti, who rakes in some $400,000 annually in PERS payments, or a more typical retired public employee whose pension ranges from $24,000 to $36,000 per year. 

But PERS Coalition attorney Greg Hartman says changing COLA payments to those already retired would be problematic under the law. Oregon Supreme Court rulings on earlier reforms, largely stemming from the 2003 Legislature, reaffirmed a basic "a promise is a promise" contract for retirees. It's a muddled situation for all involved, as well over 60 percent of PERS' financial obligation is to people already retired. A PERS analysis estimates that limiting COLAs to the first $24,000 in member benefits would save the system $576 million every two years, and reduce PERS' overall unfunded liability by $3 billion.

Union officials note that "pickup" language is negotiable in any contract already. Employers have been reticent to raise it over the years for the very reason it was established in the first place: it saves them employer taxes with Uncle Sam. Current state law is, however, 6 percent or nothing. Legislation is expected that would change that detail to allow negotiations for anywhere between 0 and 6 percent. Unions opting to agree to less than 6 percent would have the ability to bargain offsets in other areas (wage increases, etc.).

The out-of-state tax issue dates back to 1989, when federal courts ruled Oregon could not tax federal government retirees differently than it did state and local government retirees, which at that time were untaxed. Rather than giving up the income tax generated from federal retirees, Oregon began taxing its own retirees as well — but passed laws essentially granting a 9 percent boost to PERS retirees that offset the income tax, therefore holding state and local government retirees harmless from the tax.

That issue has come under scrutiny in recent years. People who retire outside of Oregon — whether they move after retirement to Arizona, for example, or have always lived out of state in places like Vancouver, Wash., or Payette, Idaho — receive that extra 9 percent even though they don't pay Oregon income tax on their PERS benefits. The 2011 Oregon Legislature passed a bill that prospectively taxed out-of-staters who retired as of Jan. 1, 2012, but the 2013 session is likely to entertain bills that go back and eliminate the boost for anyone who lives out of state.

The governor also talked to OSBA members about the unique "disconnect" that exists in bargaining teachers' wages statewide. When Oregonians passed Ballot Measure 5 in 1990, they shifted the major burden of financing K-12 education to the state General Fund. Yet teacher wages and benefits are bargained locally in 197 separate Oregon school districts.

"It's this disconnect between what is bargained for at the local level and the actual fiscal condition of the state that creates the fluctuation and instability in school funding and contributes to this rolling crisis of layoffs and lost school days," Kitzhaber said.

Kitzhaber did not tout any particular solution to school administrators. The possibilities range from somehow tying local school district negotiations to the state's revenue forecast, to the "nuclear option" of statewide collective bargaining for teachers in one master contract, an issue the Oregon Education Association adamantly opposes.