Rep. Richardson: Are proposed PERS reforms legal?

Rep. Dennis Richardson (R-Central Point)

In a recent newsletter entitled the PERS Crisis, I reviewed the proposed PERS reforms offered by the Oregon School Board Association (OSBA).  It focused on how crucial it is for Oregon’s school districts, local government and State agencies to address the billion dollar financial black hole caused by escalating public retirement payments being made to shore up PERS Tier 1’s costly benefit packages.This week, Jay Kenton, Vice Chancellor for Finance and Administration for the Oregon University System (OUS) stated in the House Committee on Higher Education and Workforce Development that $1,100 of the tuition paid by every Oregon university student annually goes just to pay the costs of PERS. (Click here)

Let’s focus on two PERS questions:

(1.) What is the likelihood the OSBA’s 5-plank PERS reform plan will stand up in court?

(2.) What are the consequences to 2013-15 budgets if some of the PERS reforms are overturned by the Oregon Supreme Court.

Are the OSBA PERS Reforms Constitutional? 

Recently retired Supreme Court Justice W. Michael Gillette, who served on the Court for 24 years and participated when two major PERS precedents were decided. When asked for his considered opinion on the constitutionality of the proposed Cost Of Living Allowance (COLA) adjustment—which is contained in the OSBA, Co-Chairs and Governor’s PERS reform proposals—the former Justice’s opinion was reported in The Oregonian:

“As to reductions of COLAs…, the best argument is that the Legislature has amended the
statutes in substantive ways in the past, proceeding as if the details of the COLAs … are
completely within the control of the Legislature and can be changed from time to time …
Thus, ‘scaling back’ COLAs for pensioners with larger pensions may be entirely permissible,
because the amount of a COLA is a flexible detail of that part of the PERS system, not an
immutable characteristic of it.”

More recently, the Oregon School Board Association’s Deputy Executive Director, Jim Green, wrote the following to all Oregon legislators concerning the OSBA’s proposed PERS reforms contained in Senate Bill 754:

“A lot has been said about OSBA’s proposal, but let me make it clear at the outset that
SB 754 is not an attack on our hard-working, dedicated public employees. Our proposed
legislation is a list of modifications to PERS that attempts to address the growing cost of
an unsustainable system. Public employers are facing huge increases related to PERS
coming this July if there is no action taken by the Legislature. For school districts alone
the PERS rate will go from about 19% of payroll to almost 27% of payroll. PERS’ own
actuary has indicated that these rates, over time, will continue to grow. School districts
are facing even more difficult budget decisions this next school year and beyond if
changes are not made.

”One element of any discussion surrounding PERS modifications is whether the proposed
changes will withstand a constitutional challenge. One thing is inevitable, if changes are
made there will be a legal challenge, and the Oregon Supreme Court will need to review
the legislation and determine whether it passes constitutional muster.

“There have been a flurry [of] legal opinions and arguments made from various lawyers on
many of the proposed modifications. OSBA has sought a legal opinion on its proposed
modifications. I am attaching a copy of the legal opinion we received related to our
proposal. The analysis was conducted by Bill Gary of Harrang Long Gary Rudnick,
P.C. Mr. Gary is a former Deputy Attorney General of Oregon, former Solicitor General
of Oregon and has represented the interest of public employers in PERS litigation
since 1999. Mr. Gary was the lead counsel in the City of Eugene v. PERB, and was
also counsel in the litigation surrounding modifications made to PERS in 2003 and
the cases that followed (Strunk, White and Arken). His knowledge and expertise
related to Oregon’s PERS is well established.”

I remember listening to Mr. Bill Gary testify during the PERS Reform Committee hearings back in 2003 and no one knew more about the issue than he did.  I can only say that I have read his legal opinion and it is well-reasoned. His opinion provides the legislative history and case law supporting the conclusion that each of the five PERS reform proposals contained in SB 754 are likely to be held constitutional by the Oregon Supreme Court.  The primary basis for his opinion is that the Supreme Court now considers its PERS decisions based on whether or not a “statutory contract” exists.  Such “statutory contracts” may be subject to legislative adjustments, and, in fact, have been adjusted on numerous occasions. To read and reach your own conclusion on the credibility of Mr. Gary’s detailed legal opinion, click here.

What are the Consequences if PERS Reforms are Found to be Unconstitutional?

There has been substantial confusion on what the consequences would be if PERS reforms are passed and subsequently found to be unconstitutional by the Supreme Court.  Some have erroneously opined that if, for instance, a billion dollars of PERS reforms were vacated by the Court it would result in a billion dollar shortfall in 2013-15 budgets. For an example of why this is not true, click here. In short, PERS is complex and implementing most of the PERS reforms will be complicated. Nevertheless, if the Legislature reduces the PERS rates based on the PERS reforms it passes into law, the new PERS rates will continue throughout the 2013-15 biennium.

What Does This Mean For Oregon Citizens?

If you care that nearly 5,000 Oregon teachers have been laid off in the past five years, that Oregon’s school year is one of the shortest in the nation, and that the number of Oregon students is increasing dramatically in many classrooms, then you will care about the 40% increase in PERS costs scheduled for Oregon school districts in the next two years and demand PERS reforms now.

If you care that annual tuition costs have increased beyond the reach of some students and that $1,900 of that tuition goes just to pay for PERS and group benefits, you will care about implementing PERS reform without further delay.

If you care that SB 754 has not even been scheduled for a public hearing, then please consider contacting your legislators and demand action on reforming PERS.  Remember the majority party’s legislators and leaders are the ones who control committee agendas.

Time is passing and the need for PERS reform must not be allowed to be swept under the rug, again. Our children deserve better, and their education should not be stunted because of extraordinarily high Tier 1 retirement benefits, when fundamental fairness requires PERS Tier 1 excesses should be addressed and reformed.

Contact information for Oregon legislators can be found here.