The Lever on the Train Must Be Moved to the North or to the South. You Must Decide!
Students in an SOU ethics class are asked to make a decision. They have some control of a runaway train. They are coming to a fork in the track. The decision must be made whether to turn the train north or south. No matter which direction the train goes, there will be suffering and loss. Because there are people tied to both sets of tracks, it is a difficult decision to determine how many will suffer.
Applying this ethical dilemma to the Ashland employee PERS problem is simple. The runaway, out-of-control train is Ashland’s liability to the state’s employee retirement fund. The decision to go north is to mandate that city employees pay their PERS contribution. The decision to go south is to ask Ashland utility payers to try to keep the city solvent for the immediate future. The most important part of this scenario is who controls the lever on the train when it comes to the fork in the tracks. Those in control are the voters/taxpayers/residents of Ashland.
Before moving the lever either way, Ashland folks need to know just a few facts. This is a true dilemma which means a decision has to be made, there is no stopping the train! So, let’s start with pulling the lever to the north that mandates city employees pay their own PERS. As of today, Ashland city employees pay nothing out of their salary for their retirement fund. Instead, the citizens of Ashland pay it and much more.
Going north, the city council must mandate that employees pay 6% of their retirement. The rate needs to be increased gradually to 9%. This means that 2.5% of it goes to their state retirement fund(PERS) while 3.5% goes to their personal IRA that works like a personal checking account. Employees pay nothing now. The 6% that the city was paying for its employees’ retirement goes into a new account for future PERS liabilities that will be hefty. Turning the runaway train to the north hits the employees but may slow down the train.
The destination of the train is city bankruptcy.
Pulling the lever for the train to go south means that the City of Ashland continues to pay the 6% employee retirement plus any PERS shortfall for the city. The City of Ashland already has a $39 million unfunded PERS debt to its employees. The city pays $6 million/year towards this debt, but the debt keeps increasing, when the city revenue to PERS decreases. Moreover, there is no money “set aside” to pay the current debt or any increases.
The revenue for PERS comes from three sources. For Ashland, employees pay 2.5%, which the city pays. The employer, City of Ashland, pays an additional 28%. Then PERS investments pay 71%. When the investments of the City’s PERS money declines, then the city has to make up that difference at the end of the year. This is a conundrum for the city budgeters.
The train is going south. One easy way to somewhat control the PERS current debt is to add a surcharge to the city utility bill of about $54/month/household. Of course, this amount can increase very unlikely is it to decrease. Ashland becomes much less affordable than it already is. Turning the runaway train to the south increases the speed of the train causing loss to even more Ashland residents.
You have the lever in your hand that can change the direction of this runaway train to city bankruptcy. To turn north, the employees will pay at least 6% of their salary to their retirement funds. The city uses that expense savings to establish a “set aside” retirement fund, thus slowing the train. To turn south, the city continues to pay the 6% + retirement benefits for employees but pays for some of the increasing debt with a utility surcharge to every household. This action Increases the speed of the runaway train towards city bankruptcy.
Which direction do you want to move the lever?
P.S. Most citizens of Ashland have no idea that our city employees do not contribute a dime towards their own PERS retirement!
National Trends: https://www.nasra.org/content.asp?contentid=122
Oregon PERS Unfunded Accrued Liability (UAL): https://www.oregon.gov/pers/Documents/Financials/Pension-Summary-UAL.pdf
Ashland Chronicle Article by Ted Hall: https://theashlandchronicle.com/the-ashland-budget-deficit-is-not-a-onetime-event-it-needs-action/