$670 Million Shock: Oregon School Districts Brace for Pension Payment Surge!
Oregon’s public school districts and employees are facing a massive financial challenge. Over the next two years, school districts will need to pay an extra $670 million into the state’s public employee pension system (PERS). This sharp increase could wipe out the additional school funding proposed by Governor Tina Kotek.
This rise is due to lower-than-expected investment returns for PERS and outdated policies that continue to burden school budgets. The increase may leave districts struggling to fund essential teaching and learning programs.
What’s Happening?
Most of Oregon’s 197 school districts and 17 community colleges will see an average 1.5% increase in payroll contributions to PERS for the 2025-27 budget cycle. However, 22 school districts face much larger increases, some exceeding 10%. This is largely because their side investment accounts, designed to buffer against PERS rate hikes, are running out of funds.
For school districts without side accounts, PERS contributions could reach up to 27% of their payroll.
Impact on School Budgets
The increased contributions mean districts will lose more money than they gain from the Governor’s proposed $515 million boost in school funding. This funding was intended to improve student outcomes, raise literacy rates, and support other educational goals.
She announced in July that she’d ask the state Legislature early next year to send more than half a billion dollars to the State School Fund for the next biennium to boost student outcomes, literacy rates and more.
Public sector wages, post-pandemic hiring, and an outdated pre-2003 pension system all contributed to these rising costs. PERS Director Kevin Olineck explained that investment returns for 2022 and 2023 were about 10% lower than expected.
Historic Problems with PERS
The pension system’s structure remains a significant issue. Employees hired before 2003, known as Tier 1 and Tier 2 retirees, often receive payouts that match or exceed their full salaries. Employers are still paying off these retirement obligations, even though employees hired after 2003 are part of a newer system designed to pay just 45% of their salaries in retirement.
These high costs are expected to persist until at least 2043, according to Milliman, the state’s actuarial firm.
Districts Hit the Hardest
Some school districts, like Gladstone and North Marion, will see a dramatic jump in their contribution rates. Gladstone’s Superintendent, Jeremiah Patterson, shared his concerns, explaining that their side account, created 21 years ago to stabilize costs, is now expiring.
For the North Marion School District, payroll costs will increase by $1.3 million over the next two years. In Crook County, the Tier 1 and Tier 2 rates will rise by more than 20%, costing the district over $3 million annually.
“These increases are forcing us to divert critical funds away from students,” Patterson said.
Looking Ahea
Educators and policymakers alike are concerned about the impact of these rising pension costs. Emielle Nischik of the Oregon School Boards Association called for consistent funding from the Legislature to help districts meet these obligations.
Until changes are made, Oregon’s schools will continue to face difficult decisions, balancing financial challenges with the needs of students and teachers.