Public Employee Earnings: Salary, PEBB and PERS. Issue Brief April 21, 2017

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1 Public Employee Earnings: Salary, PEBB and PERS Issue Brief April 21, 2017

2 INTRODUCTION TO PUBLIC EMPLOYEE EARNINGS Oregon pays its state employees 98% of the market value for their work. 1 The total compensation package that State workers receive including healthcare and retirement plans is on average 98% of comparable compensation in the private sector, according to the Department of Administrative Services. While salaries alone are only 88% of market value 2 (the average base salary for all State positions is $4, per month 3 ), workers catch up to the private sector by having good healthcare plans and good retirement plans. This arrangement developed during previous budget crunches when state employees sacrificed higher salaries to maintain benefits, and was considered a win win for workers and the State. Healthcare and retirement plans tend to be more effective than salaries at attracting qualified workers, so by prioritizing benefits, the State aimed to make efficient use of public dollars. Workers, on the other hand, benefited by maintaining a compensation package that s competitive with the private sector. Consequently, it s misleading to look at healthcare and retirement costs alone, without providing context on total compensation. Without context, conversations about public employee benefits cause confusion and lead to the mistaken view that workers are overcompensated. The truth is that public employee compensation has fallen by 10.1% compared to inflation over the last 15 years. 4 We must take measures to avoid this confusion after all, a complete understanding of public employee compensation is a matter of public interest. The State needs to hire highly skilled teachers, child welfare workers, nurses, and public safety workers in order to effectively carryout taxpayer-funded programs. Oregon cannot hire competitively if its compensation package lags behind the market. PUBLIC EMPLOYEE COMPENSATION IN RELATION TO THE BUDGET DEFICIT In recent years, State revenues have grown twice as much as worker compensation. If there were no other variables in the equation, we would not have a budget deficit. 5 However, there are other factors like ACA and Medicaid, new ballot measures, and corporate welfare it s those cost-drivers that are driving the deficit, not State worker compensation. The PERS unfunded liability is also contributing to the state s current budget deficit. Again, context is important. Here is a breakdown of cost-drivers to the current deficit: 6 Approx $800M - ACA and Medicaid expansion costs shifting from the federal government to the state Approx $356M - Ballot Measures 96, 98 and 99 passed in November Approx $350M - Cost to fund the PERS unfunded liability Approx $308M - DHS caseload growth A CLOSER LOOK AT THE PERS UNFUNDED LIABILITY 13 70% is benefits being paid to retirees and inactive members 16% is for Tier One members who haven t retired yet 9% is for Tier Two members who haven t retired yet 5% is for OPSRP members who haven t retired yet The unfunded liability is the gap between PERS current assets and what it owes, which was primarily created by the market crash in 2008, the failure to meet the assumed rate of return on investments, and assumptions in mortality tables that have proven incorrect. It s worth noting that public employees cannot be blamed for any of these costdrivers. The rest of PERS is not considered a costdriver to the current budget deficit. Addressing the PERS unfunded liability will not solve the state s budget deficit. Even the most optimistic effort would, at best, leave 80% of the current deficit untouched. It s therefore difficult to imagine a solution without new revenue. This again is critical context that when left out leads to the mistaken assumption that reforming PERS could solve our current budget problems.

3 CORPORATE WELFARE IN OREGON S BUDGET When talking about the budget deficit we cannot ignore the fact that Oregon has the lowest effective business tax burden in the United States. 7 Study after study shows that corporations are not paying their fair share to support the services they rely on. 8 Oregon also gives out billions in tax subsidies to large corporations. According to Good Jobs First, a national government accountability research center, Oregon has given more than $6 billion in subsidies to large corporations over the last 20 years. The lifetime value of corporate tax subsidies that matured during the last biennium for which we have complete data, , was $2.27 billion more than enough to cover the entire budget deficit we face today. 9 There is no credible reason to exclude these subsidies from a conversation about how to fill the State s revenue shortfall. The low wages paid by some of the world s largest corporations also come with a cost to the State s budget. Taxpayer-funded assistance to working Oregonians and their families costs over $2.6 billion a year. 10 Over $2 billion of that is for health insurance, and over $600 million is for food assistance. About 20% of those costs ($570 million per year) are paid with State tax dollars; federal taxes cover the rest. This corporate welfare allows employers to pay low wages, while the State picks up the tab for working families in need. Here is a side-by-side look at public employee compensation and corporate welfare in Oregon. Oregon pays its state employees 98% of market value for the work they do. The PERS unfunded liability contributes $350 million per biennium to the current budget deficit. State employees have tightened their belts over the years. PEBB cost increases are capped at a 3.4% and 60% of the workforce are OPSRP members. 12 State employee salaries have declined by 10.1% compared to inflation over the last 15 years. Oregon has the lowest effective business tax burden of any state in the country. Corporate welfare, in the form of taxpayer-funded assistance to working Oregonians and their families, costs the State $1.14 billion per biennium. Oregon has given more than $6 billion in subsidies to large corporations over the last 20 years. Since the 1970s, the share of Oregon income taxes paid by corporations declined from 18.5% to just 6.7% a decline of nearly two-thirds. 11 PUBLIC EMPLOYEE COMPENSATION: QUICK FACTS 1. According to a study conducted by the Oregon Department of Administrative Services in 2016, total compensation for State of Oregon employees including salary, health insurance, retirement benefits, and Social Security is 98% of total compensation for comparable employees in the Northwest private sector. (Oregon DAS.) 2. If viewed in isolation, State employee salaries are 88% of comparable jobs in the private sector. (Oregon DAS.) 3. The average base salary for all State positions is $4, per month. (Oregon DAS.) 4. Cost-of-living increases for State employees over the past 15 years totaled 26.6% (with compounding). During the same period of time, the Portland-Salem Consumer Price Index has increased by 36.7%, meaning that employees lost 10.1% to inflation. (Oregon DAS; US Bureau of Labor Statistics.) 5. Between and , average total compensation for state employees grew by 6.6% per biennium and General Fund revenue grew by 13.1% per biennium. In other words, revenue grew by double the rate of growth in average total compensation. (Oregon DAS, PEBB and PERS.)

4 BUDGET DEFICIT: QUICK FACTS 6. The current $1.6 billion budget deficit is comprised primarily (45%) of healthcare costs shifting from the federal government to the state. Additional cost-drivers include the ballot measures passed in November ($356 million), the cost of funding the PERS unfunded liability ($350 million) and DHS caseload growth ($308 million). (November 2016 Voters Pamphlet, Oregon Legislative Fiscal Office.) CORPORATE WELFARE: QUICK FACTS 7. Oregon has the lowest effective business tax burden in the country. (Anderson Economic Group.) 8. In Oregon, businesses pay an average of 80 cents for each dollar they receive from the state in the form of a publicly educated workforce, highways and other services. Only two states Alaska and Maryland have a lower tax-to-benefit ratio for businesses. (Council on State Taxation via the Legislative Revenue Office.) 9. Oregon has given more than $6 billion in subsidies to large corporations over the last 20 years. (Good Jobs First.) 10. Taxpayer-funded assistance to working Oregonians and their families costs the State $570 million per year. (U.S. Department of Health and Human Services; The federal government covers 98.13% of the cost of health care for children, and 64.47% of the share of adult health care costs. The rest is covered by the State.) 11. Since the 1970s, the share of Oregon income taxes paid by corporations declined from 18.5% to just 6.7% a decline of nearly two-thirds. (OCPP, Legislative Revenue Office, Office of Economic Analysis.) PUBLIC EMPLOYEE COST CONTAINMENT: QUICK FACTS 12. The Public Employees Benefit Board has been a national leader in bending the cost curve for employee benefits. The average annual increase in PEBB s average premium rates since 2011 is 1.9%, 44% below the 3.4% per year target set by the Legislature for Medicaid, PEBB, and OEBB. (Oregon PEBB.) 60% of active State and university employees are members of the Oregon Public Service Retirement Plan (OPSRP), which has considerably lower benefits than Tier One/Tier Two. OPSRP members account for only 5% of PERS unfunded actuarial liability. (Oregon PERS.) 13. The breakdown of the PERS unfunded liability comes from Oregon PERS. TESTIMONIALS Working for the State not only provides my family with great healthcare and a retirement security that I couldn t find in the private sector, it also allows me to serve the most vulnerable people in my community. - Rhonda Morgan, DHS Oregon Health Authority I earn $18,000 less than paralegals in the private sector, but I care about helping students at Portland State University. I choose to work at PSU because I believe in the mission. - Emily Gothard, Portland State University

5 Working with our most vulnerable children is very difficult, but also very important. I worry that without good benefits, Child Welfare Services will not be able to hire good employees. - Roxana Camacho, DHS Child Welfare Services I think people have a false idea about how much public employees make. My salary isn t such I can put much away for myself. I manage to stash about $100 a month. I think I am about 10 years away from retirement. Financially, I will have to work until I am about 77. If my PERS was to be cut even more than it is now, I think I d just have to work until I died in my cubicle. I can t picture how I would be able to retire. - Barbara Walsh, DHS Child Welfare Services SEIU 503 REPRESENTATION SEIU 503 Represents 33,000 public employees, including State workers, higher education workers and local government workers. SEIU 503 members are front-line workers at DHS, OHA, ODOT, and more than three dozen agencies and boards around the state. We are also workers at all 7 public universities and 23 local governments. In addition to public employees, SEIU 503 represents in-home care providers and center-based care providers in Oregon.