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Volume 114
Number 20
October 18, 2013
Portland
Kitzhaber’s Grand Bargain: Pension cuts for retired
school teachers, tax cuts for wealthy business owners
By DON McINTOSH
Associate Editor
In a Sept. 30-Oct. 2 special session
called by Oregon Governor John
Kitzhaber, state lawmakers voted to
shrink pension benefits for 329,887
public employees by nearly $5 billion,
while giving away over $500 million
in new tax breaks to owners of certain
kinds of businesses. But that’s not how
the governor’s office described it.
Kitzhaber’s Sept. 18 announcement
of the special legislative session de-
scribed “a framework to boost educa-
tion funding by $140 million.” It was
an agreement which would include
“cost savings from additional PERS re-
forms” with “new revenue to fund ed-
ucation, mental health, and senior serv-
ices” and “targeted tax relief for small
business owners and working fami-
lies.” The agreement consisted of five
bills, and all of them passed.
The spending was real enough.
House Bill 5101 appropriates $100
million to hire teachers and add school
days to K-12 schools, $40 million to
lower tuition at state universities and
community colleges, $41 million for
services to senior and disabled Orego-
nians, and $10 million for mental
health services. The spending bill
passed with only two “no” votes.
But the big game in the special ses-
sion was “PERS reform.” SB 861
would produce immediate “cost sav-
Rallying for immigration reform
Members of SEIU locals 49 and 503 watch Aztec dance group Ollin Yoliztli perform in downtown Portland’s Director
Park Oct. 5, where several hundred people gathered to call attention to federal immigration reform. Similar rallies
that included a broad coalition of labor, faith, immigrant, civil rights, and family organizations were held on the
same day in more than 180 locations in 40 states. That culminated in a huge rally Oct. 8 in Washington, D.C., where
90 union officials and eight U.S. House Democrats were among 200 people arrested in an act of civil disobedience.
The D.C. crowd was estimated at 20,000. Pressure is mounting on Congress to take action on creating an immigration
process that protects workers’ rights and provides aspiring Americans with a road map to citizenship. At the recent
national AFL-CIO convention in Los Angeles, delegates agreed to a resolution to continue efforts to support
immigration reform that protects U.S. workers, reduces exploitation of immigrant workers, removes employer
incentives to hire undocumented workers, and creates a roadmap to citizenship. The Portland event was co-sponsored
by SEIU, the Oregon AFL-CIO, and Oregon AFSCME. Speakers included Oregon AFL-CIO President Tom
Chamberlain and SEIU Local 503 Executive Director Heather Conroy.
Meanwhile, a certain class of busi-
ings” for state and local public em-
ployers by reducing cost-of-living in- ness owner will enjoy a tax cut that
creases for retired school teachers, fire- grows in impact each year. HB 3601,
fighters and others. Cutting amounts the revenue part of the package, makes
owed to retirees in the future reduces a number of changes to the state tax
code. It increases the
the amount public
corporate income tax
employers currently
must pay into PERS “What is the message rate by one percent-
age point, to 7.6 per-
to make up for fi-
cent, on profits be-
nancial market this Legislature is
$1 million and
losses.
sending when we cut tween
$10 million; in-
Around 95 per-
cent of all public taxes on thousands of creases the cigarette
tax 15 cents a pack;
employees in Ore-
eliminates the $183-
gon are in Oregon’s lawyers, doctors,
per-person personal
Public Employees
Retirement System lobbyists, accountants exemption credit for
incomes over $100,000;
(PERS), including on the same day that
changes the senior
workers and man-
medical deduction
agers at state agen- we are reducing
and limits it to in-
cies, universities,
comes under $100,000;
community col- benefits to retirees?”
expands the Earned
leges, school dis-
Income Tax Credit
tricts, cities, coun-
ties, and other local government units. for low-income filers who don’t owe
For decades, PERS gave retirees an an- taxes; and lowers taxes on certain busi-
nual 2 percent cost-of-living adjust- nesses that export products overseas.
But by far HB 3601’s biggest tax
ment (COLA). Under SB 861, the in-
crease will be 1.5 percent this year and change — by dollar amount — is a
1.25 percent in future years. [The re- new lower tax rate for “active” com-
duction is offset partially by supple- pany owners whose business income is
mental payments of 0.25 percent that taxed on their personal income tax re-
won’t change the base amount for fu- turns. Instead of counting business in-
come alongside other income, those
ture COLA calculations.]
The reduction doesn’t sound like business owners will now be able to
much, but it adds up, through the calculate it separately and pay a lower
magic of compound interest, to an esti- rate on it. [The new rate is 7 percent on
mated $4.9 billion over a 20-year time the first $250,000, rising to a maxi-
period. Last year, the average PERS re- mum of 7.6 percent on income over $1
tiree received a benefit of $29,235. At 2 million; up to now, those taxpayers
percent a year, that benefit was set to paid 9 percent on that income.] How
grow to $35,637 in 10 years. Now, un- the new rule will work is complicated,
der SB 861, it would grow to $33,267. so much so that the Legislative Rev-
In other words, SB 861 will be costing enue Office had a hard time predicting
today’s average PERS beneficiary how much it will cost the Oregon treas-
$2,370 a year in 10 years, by which ury; estimates are $38 million for the
time they will have lost a cumulative 2013-15 biennium, rising to $205 mil-
lion and $239 million in subsequent
$11,811 in benefits.
And that doesn’t figure in actual in- two-year periods.
“Accountants and tax attorneys will
flation. In the last 10 years, the real cost
of living has increased an average of have a heyday helping people restruc-
2.4 percent a year, so even at 2 percent, ture to take maximum advantage of
PERS retirees were losing ground. Re- this tax break,” explains Chuck
ducing the COLA to 1.25 percent Sheketoff, executive director of the
means retired Oregon public employ- Oregon Center for Public Policy.
ees will be cinching their belts a little Sheketoff testified against the tax
tighter every year for the rest of their break, and predicted that about 85 per-
lives.
(Turn to Page 8)