Reducing public employee pensions, raising corporate taxes and trimming other state spending all could be part of a politically feasible package to balance Oregon's next two-year budget without decimating public services for vulnerable Oregonians.

But reaching a deal to do those things and getting it passed in the next four and half months is going to be a huge stretch - and may not happen.

Those were the primary conclusions of speakers at a City Club of Portland Friday forum dedicated to addressing tax increases and the huge unpaid bill for public employee pensions.

The crux of their presentation: What can state leaders do to prevent unacceptable cuts to schools, colleges, health care and other services, given the $1.8 billion mismatch between how much it costs to run state programs and how much money is available to pay for them?

The speakers - an economist, a school board official and a public policy consultant - took some solutions off the table, including a sales tax and declarations of bankruptcy.

But the panel offered a palette of what its members said were reasonable options, including targeted spending cuts, increased corporate taxes and the state taking on part of local governments' PERS bills.

The conversation comes as Oregon lawmakers grapple with the $1.8 billion funding gap, created because the state is spending money faster than it's bringing it in. Democrats are eager to address the income side of that equation with a tax on corporations, while Republicans are focused cutting spending.

Chief among the programs Republicans want to reduce is the Public Employee Retirement System, short-handed as PERS. In the wake of a 2015 Oregon Supreme Court decision, however, lawmakers have limited options for trimming the system's high costs.

Jim Green, executive director of the Oregon School Boards Association, said he thinks leadership in the Oregon Legislature is lacking. Green said while Democrats like Senate President Peter Courtney, House Speaker Tina Kotek and Gov. Kate Brown all want to address the troubled pension system, doing so risks angering their donors and electoral base.

"When you throw PERS into the mix, maybe health insurance and taxation, that's like the three strikes against a politician, right there, running for reelection," he said. "But they need to step up to the plate and say, 'We need to do better in Oregon.' And I think they will."

What could a potential PERS fix look like?

Tim Nesbitt, a former labor union president who served as an adviser to former Gov. Ted Kulongoski and now consults on public policy, said public employees are going to have to accept some cuts to the pensions they now stand to receive.

He said they will suffer if they don't - from both reduced state services for themselves and their families and from increased workloads and decreased pay or health benefits at their workplaces.

Nesbitt suggested that pension benefits should be dialed back most for Tier I and Tier II employees hired before 2004, as newer employees have a less-generous pension plan.

He said the PERS changes should be agreed to as part of a three-point plan.

First, he said, corporate taxes should increase, with some tax cuts for low-income households hit harder by subsequent price hikes that companies pass on to consumers.

Second, the state needs to dial back pension benefits under the public retirement system to ensure its affordability and sustainability for years to come, he said.

Neither of those things, however, will eliminate the enormous bill sitting on the table, the unfunded liability currently estimated as $22 billion and likely to grow substantially. Nesbitt said the state - as opposed to school districts, cities or counties - should pay least a portion of that bill.

"The state created this problem," he said after the forum. "It only makes sense that they should step up."

Still, he expressed pessimism that lawmakers will reach a so-called grand bargain this year.

"It's a long shot," Nesbitt said.

The next budget cycle, beginning in 2019, is more likely, he said, because by then, any extra money school districts have saved to cover their PERS crunch will have disappeared. Until then, the state lacks the urgency to force the issue, he said.

"You want to talk about when the schools go off the cliff?" he asked. "That's when."

In response to questions at the forum, the speakers systematically dashed hopes of several funding solutions.

Changing the state's property tax system is difficult because it requires a constitutional amendment, and Oregonians still haven't warmed to the idea of a sales tax, Green said.

"Sales tax and property taxes in the state of Oregon are kind of off the table," he said.

That leaves a corporate tax akin to Measure 97 and increased income taxes, he said.

In the absence of adequate funding for their PERS costs, declaring bankruptcy isn't a legal option for school districts, he said.

In terms of spending cuts, John Tapogna, president of ECONorthwest, had a few suggestions:

The state spends more than other states to provide healthcare to its employees, he said. And, he said, Oregon should reduce the number of people it incarcerates.

"Oregon incarcerates twice as many people as Chile," he said. "And Chile was run by a military dictatorship."

(According to the most recent data available from the National Institute of Corrections, Oregon incarcerates 376 people for every 100,000. That's 2 percent lower than the national average. According to the Institute for Criminal Policy Research, Chile's incarceration rate is 235 per 100,000.)

Despite party differences, nearly all Oregonians agree on a few things, Green said: They value schools, transportation and public safety. The school boards group hired polling firm DHM Research, which is currently working to find out what voters can stomach in terms of taxes.

"Okay. You didn't like Ballot Measure 97," he said. "What do you like, knowing what you value as Oregonians?

"I think what we'll hear from Oregonians is something really loud and clear: 'I like the tax that somebody else pays.' But ultimately, if we want really good schools in the state of Oregon, and we want better infrastructure ... we need to recognize one thing. We have to pay for it."

-- Anna Marum

amarum@oregonian.com

503-294-5911

@annamarum