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Rising retirement costs are placing pressure on college tuitions

Public universities are spending nearly 10 percent of their budgets on retirement benefits.

COURTESY OREGON STATE UNIVERSITY - Oregon's public pension unfunded liability is putting pressure on tuition at the state's public universities. University pension costs account for nearly 10 percent of their budgets.SALEM — Oregon's public universities are devoting a growing share of spending to retirement costs, a trend that factors into rising college tuition.

Between the 2017 and 2018 fiscal years, public employee retirement costs for the state's public universities grew by 19.6 percent, according to the Oregon Council of Presidents.

That brings the total amount that universities will devote to retirement costs in the 2018 fiscal year to $166 million, or nearly 10 percent of the universities' total education and general expenditures.

The annual amount universities pay toward the state's Public Employees Retirement System as a share of overall payroll is expected to continue to rise in the next several budget cycles as well.

PERS is faced with obligations to retirees that exceed the system's current assets by about $25.3 billion.

Most employee benefits are generated by investing, and the system's funded liability tanked when the stock market took a tumble starting in 2008. So public employers started having to pay more money to help the state meet its obligations to employees.

A certain percentage increase in retirement costs doesn't mean an equivalent increase in tuition, but officials say retirement costs and health benefits are factors that can drive up undergraduate tuition.

"Combined our cost drivers create a situation where universities have to balance the realities of our state appropriations, increased costs and cuts in services to students in determining tuition," Dana Richardson, executive director of the Oregon Council of Presidents, wrote in an email to the EO/Pamplin Capital Bureau.

Undergraduate tuition at Oregon's public universities has increased, on average, 6 percent, in the past year, according to the council.

That increase is the merely the most recent.

Adjusted for inflation, average tuition and fees increased by about 38 percent for in-state residents between the 2005-06 and 2015-16 school years, according to the state's Higher Education Coordinating Commission.

And tuition is among the limited funding sources for universities.

"Community colleges and K-12 get local property taxes," says Brian Fox, vice president of finance and administration at the Oregon Institute of Technology. "For us, it really is state appropriations and tuition dollars."

There's not quick solution. Much of the $25.3 billion unfunded liability is taken up by benefits already earned, which the Oregon Supreme Court has said cannot be rescinded or reduced.

That will continue to put financial pressure on public employers, including universities, in the next several biennia — longer if there is a recession, Fox said.

"It gets really hard to balance the books when you have really massive cost increases," Fox said. "And you see those coming, for, you know, we probably have eight years of this."

University administrators say that they are also cutting costs elsewhere in their budgets.

Higher education funding and rising tuition costs were highlighted in the most recent legislative session.

In April, Gov. Kate Brown urged the Higher Education Coordinating Commission — which needs to approve tuition increases exceeding 5 percent — not to increase tuition above 5 percent without "clear and substantial justification."

But Brown had also proposed a biennial budget that the universities said wasn't enough to stave off tuition increases.

By the end of the session, though, public universities ended up receiving about $736.9 million in general fund money for the two-year budget cycle — an amount about 10 percent higher than what the governor had recommended in December 2016.

"Higher education's always gotten squeezed when the budget's tight," said Jeremy Rogers, vice president of the Oregon Business Council. "And the budget's often tight."

Rob Fullmer, an IT specialist at Portland State University who served on the Higher Education Coordinating Commission from 2013 to 2016, contends that the squeeze on both universities and students results from structural deficiencies in the state's budget — what he characterizes as decades of inadequate revenues for higher education.

In 1990, voters shifted most funding responsibility for K-12 schools from local property taxes to the state through Ballot Measure 5. Fullmer argues that put considerable pressure on state resources to support more with less money. Oregon gets most of its general fund revenues from income taxes.

In late May, as the Legislature was working on the state's budget, the university presidents echoed concerns about revenue stability in a letter to the legislature and the governor.

"We have hobbled along through boom and bust cycles making investments and levying cuts as income tax revenues rise and fall," the university presidents wrote. "These dramatic swings have taken a toll on our institutions, shifting the responsibility of paying for a public university away from the state and toward students and families."

Fullmer, a PERS member who has worked at PSU since 2005, also said that the slimmer benefit packages for those hired after 2003 — the result of legislative reforms — have already been tough on public universities.

He said public universities face additional pressure to provide good retirement and health care benefits — another cost driver — in today's tight labor market, where employers are competing for skilled employees.

"These are professional, white-collar jobs," Fullmer said.