Oregon pension reform

Oregon Supreme Court Hears First Round of Arguments Over Pension Reforms

Did Oregon break its contractual obligation with public workers when the state cut pension COLAs? That’s what the Oregon Supreme Court will eventually have to decide.

On Tuesday, the court heard the first round of arguments from lawyers representing the state and public employees, respectively. From the Associated Press:

Attorneys representing public employees told the Oregon Supreme Court on Tuesday that a contract is a contract, and the justices should reject the Legislature’s attempt to reduce annual cost-of-living increases for retired workers.

But lawyers arguing on behalf of state and local governments told the justices during oral arguments there’s no evidence that lawmakers four decades ago intended cost-of-living adjustments for retirees to be a contractual obligation.

Keith Kutler, a state Department of Justice lawyer, described the cost-of-living adjustment as a gift or add-on for workers who were already retired in 1971. Because they were already retired, they could not have accepted contract terms, he said.

[…]

Greg Hartman, an attorney for the public employees, said what governments are seeking this time around amounts to a “full-scale assault” on Strunk and other prior rulings.

It is one thing, he said, to make changes to a pension system for workers who have yet to start their careers. It’s another to alter the terms of a deal for workers who agreed to provide service under certain expectations.

“If your promise is ‘we’ll get back to you on what that promise is,’ that’s not much of a contract,” Hartman said.

A few justices pressed government attorneys on the fairness issue. Justice Virginia Linder questioned why the 1971 Legislature was concerned about the future fiscal impact of the COLA if it was not intended to be a long-term contractual obligation.

Bill Gary, another attorney representing governments, countered that actuaries at the time could not determine the cost.

Some background on the pension reforms under the microscope in this case, from the AP:

State and local governments sought the pension cuts last year to avoid steep increases in their contributions to the Public Employees Retirement System. The action reduced employer contributions to the pension by roughly $800 million during the current two-year budget cycle. It’s unknown when the court will rule, but a decision is expected in time for the 2015 Legislature to deal with any fallout.

If the court upholds the changes, retired workers will see their pensions grow at a slower pace. Since the early 1970s, retirees have received an annual cost-of-living increase of 2 percent. Gov. John Kitzhaber and the Legislature reduced the annual adjustment (widely known as a COLA) to 1.25 percent on benefit amounts up to $60,000 and 0.15 on benefits exceeding $60,000.

The public employees may have precedent on their side. In 2003, the state Supreme Court struck down a law that suspended COLAs. The court said at the time that COLAs were part of the contract between the state and retirees.

Oregon PERS Reforms: The Supreme Court Will See You Now

Two major reform measures are finally ready for their day in the Oregon Supreme Court.

Public employees are challenging the 2013 reforms –which reduced the state’s unfunded pension liabilities by $5 billion by cutting COLAs and scaling back benefits – on the grounds that the measures broke contracts protected under the state’s constitution.

This week, both sides submitted their written briefings to the Supreme Court. Reported by the Oregonian:

Monday marked the deadline for written briefings to the Oregon Supreme Court, where public employees are challenging the legality of two pension reform bills enacted last year.

The laws reduced retirees’ annual cost of living increases and eliminated a benefit bump-up for out-of-state retirees that don’t pay taxes in Oregon. As such, they helped staunch the precipitous rise in required contributions to the system since the 2008 financial crisis decimated the fund’s investment portfolio and opened up a $16 billion funding gap.

Oral arguments will be held Oct. 14. Each side will have one hour. After that, public employers, the governor, lawmakers, employees and retirees can hold their collective breath, with a decision anticipated during expected in time for the 2015 Legislative session.

A quick breakdown of what we can expect each side to argue, from the Oregonian:

The Legislature referred any challenges to the bills directly to the Supreme Court to expedite the legal decision process. Public employees appealed the changes, arguing in briefs filed earlier this summer that the benefit changes violate the contract clauses of the Oregon and U.S. constitutions and amount to an illegal taking of private property without compensation.

The state and public employers maintain that the cost of living adjustments, contrary to previous decisions by the court, is not an immutable part of the contract. And even if it is, they maintain it can be changed, as the Legislature has done previously.

Likewise, they argue that the extra payments to cover beneficiaries’ state tax liabilities aren’t part of the contract and can be eliminated for out-of-state retirees who don’t pay Oregon taxes.

Legislators briefly weighed enacting another round of pension reforms this year, but they decided against it.

Oregon’s Governor Speaks On Future of Pension Reforms

The Oregonian is running an interesting column in the weeks leading up to the Nov. 4 election for state governor. The column is called “Tough Questions”, and it gives readers a chance to ask questions to the two candidates, incumbent Gov. Kitzhaber and his challenger, Republican Rep. Dennis Richardson.

Today, a reader asked the governor a question related to the pension reforms enacted by the state last year.

Here’s the exchange, from the Oregonian:

Reader: The court decision on the 2013 PERS changes is expected by the 2015 Legislature. You’ve said that you’re done with PERS reforms. Does that mean that if the Court strikes down all or some of the PERS changes, you will not revisit the changes that were rejected previously? If so, then what budget items do you plan on cutting to make up for the extra PERS costs.

Gov. Kitzhaber: The 2013 PERS reform, along with pension fund earnings, reduced the system’s unfunded liability from $16.3 billion at the end of 2011 to $8.1 billion at the end of 2013. As a result of these changes we are already succeeding in controlling costs and today public employers are investing more in programs and services and school districts have begun hiring back teachers, reducing class size and restoring a full school year.

The reforms adopted are fair, progressive and legally defensible. We believe the State will prevail in court. With PERS off the table, we need to harness the same bipartisan support to make targeted investments in third grade reading, science and technology education and other key programs.

In a poll on the Oregonian website, 72 percent of readers said they though Kitzhaber dodged the question with his answer. But 28 percent of readers thought he answered the question fully.