Hughes v. State of Oregon

1, January 8, Oregon chapter section Argued Laws and submitted I, Oregon Constitution under Article section declared unconstitutional accruing performed on or benefits accrued or for work as it affects retirement insofar validity Oregon 28, 1991; September the constitutional before 6,1992 August is sustained HUGHES William G. Plummer,

and Charles L. Petitioners, v. OREGON,

STATE OF and Barbara Roberts Governor Oregon Department Revenue,

Respondents. (SC (Control)) S38544 UNION, PUBLIC EMPLOYEES OREGON Mullaley, Morgan, K. Dawn Velma Oregon Employees’ Association, School Employees Slawosky, Oregon Mary Retired School Guest, Pat and Petitioners, v.

STATE OF OREGON Oregon Department Revenue,

Respondents.

(SC S38549) George BRUNE, Betty

Jeffrey Davis, Drew, Davis, John E. C. McElroy, Logan, Ann Grant Frazier, Bob Murphy, Pesanti, Norton, Linda Judith Thomas P.

Marylu Philip, Wolford, Keith Oregon Association, Education Employees, Oregon of Classified Association County State, & American Federation Municipal Employees, Council Fighters,

Oregon Fire State Association Nurses Administrators, School Confederation Petitioners, STATE OF OREGON, Respondent.

(SC S38700) PORTLAND POLICE ASSOCIATION, Leo Painton, Oregon Council of Police Associations

and Pieter Van Dyke, Petitioners, STATE OF OREGON and Department Revenue, Respondents.

(SC S38701) (Cases Consolidated) 838 P2d 1018 Faust, Jr., John R. Schwabe, Williamson & Wyatt, Portland, the cause and argued filed the briefs for petitioners William G. Hughes et al. Coon,

James S. Coon, P.C., Sherwood & Portland argued cause filed the briefs for petitioners Oregon Public Union et al. Employees Hartman, A.

Gregory Hartman, Portland, Bennett & argued the cause and filed the briefs petitioners George et him Smith, Bruñe al. With on the brief was reply Monica A. Portland. Aitchison,

William Aitchison, B. Hoag, Vick & Taran- tino, Portland, filed the brief for petitioners Portland Police Association et al.

Robert Atkinson, General, M. Assistant Attorney Salem, argued respondents. cause for With him the on brief were General, Dave Frohnmayer, Attorney Linder, L. Virginia General, Kistler, Solicitor and Rives Assistant Attorney Gen- eral, Salem. HOOMISSEN,

VAN J. J., concurred in and in Fadeley, part dissented and an filed opinion. .

Peterson, J., dissented and filed an opinion. HOOMISSEN,

VAN J.

INTRODUCTION The has conferred on special jurisdiction the review court, timely filing by this on of a for petition to the of constitutionality interested evaluate party, 1991, 796, § Laws Or Laws ch 15.1 1991, chapter Chapter 823. 823, the subjects benefits under Public part, paid (PERS), Retirement 237.001 to Employes’ System 237.315, to state income taxation.2

Petitioners, interested have undeniably parties,3 review timely challenging, partic- filed for various petitions ulars, the Laws constitutionality jurisdictional provision provides: governing The this case to determine whether the taxation of retirement benefits “Jurisdiction System by Employes’ received retired members of the Public Retirement systems by political other established this state or subdivisions of retirement including provision, this state in violation of constitutional but not limited is rights of retired under Article I of to violation of contract members section Oregon Constitution, I, the or clause Article Constitution of the States, Supreme upon Supreme United is conferred Court. If the Court provisions, Supreme that such taxation violates constitutional determines discretion, remedy.” may, appropriate Laws in its fashion an Or ch Court 15(1). 796, § Thus, justice justices All are members of PERS. each has this court Normally, judge has a financial in the of this case. when a financial interest outcome case, interest, small, judge outcome of a should recuse no matter how 3C(l)(c). court, however, Conduct, This is Code of Judicial Canon himself herself. only in this ch one the claims raised case. Or authorized consider 15(1). justices Thus, necessity” of this § court the “rule of authorizes Pearson, 40, 58, 103 P2d adjudicate As claims. stated Woodward v. those (1940): every taxpayer a fellow taxpayers attends in case where “Our interest as taxation; money reason of the enjoin payment but derived seeks disqualifying interest is available unattended the same fact that tribunal no determined, and other courts be this court of such a case wherein the issues compelled judges and decide such composed tax-paying have to hear been issues.” 550, 64 (deciding that Gore, 245, 247-48, 40 L Ed S Ct Evans v. 253 US See involving a case Supreme of the United States to decide appropriate Court it is judges). compensation ability Congress of federal to tax the (or public employees their present retired in this are Petitioners case respondent primary political representatives) the state and its subdivisions. employer-employee opinion, Oregon. Throughout we refer this State of merely are employees.” Those references relationship “its “the state” and employer the state or one public employers, whether for all terms convenient parties subdivisions, employees are respective public who political and their itsof case. this 6 we those

823, considering challenges, 1 and 3.4 After sections with the state5 to receive have a contract petitioners hold that local taxation benefits free from state and PERS retirement (1989)6 (amended by Or ORS 237.201 as provided former 1991, 1991, 823, 1); chapter § and that Laws Oregon Laws ch in of that contract 823, 1, an impairs section I, 21, section Constitution Oregon violation of Article it relates to PERS retirement therefore, is a as and, nulhty for work before accruing performed benefits accrued or hold that We further legislation. effective date of that 3, peti section breaches Laws Oregon state and local subjects insofar as it to tioners’ PERS contract or for accruing benefits accrued PERS retirement taxation 1991 legisla the effective date of that before performed work of that tion, any obligations rather than impairing not violate the Contract section 3 does contract, and therefore United States Constitu or the Oregon Clauses of either the either the moreover, 3 does not violate tions; of the other respects any or United States Constitutions by petitioners. argued

FACTS Statutory Background A. enacted the Public the legislature (PERA). § 90-701 to 90-723 Act OCLA Retirement

Employes’ 401). 1947) (Or inception, ch From its Laws (Supp all PERA were from explicitly exempt under the paid benefits tax exemp- statute providing and local taxation. The tion stated: or a annuity, of a person pension,

“The contribution, allowance, to the return of retirement itself, any allowance optional or retirement annuity, pension, provisions and discussed are set out All statutes and constitutional relevant below. petitioners’ or their “PERS “contract with the state” Our references groups merely opinion terms for the various are shorthand contract” this they government, each petitioners, and the contracts who work for different levels of employers. respective participating have with their throughout opinion this was the referred to Former ORS 237.201 immediately statutory provision before the enactment in force relevant 1991, chapter 823. Laws or accru- benefit, right accrued any or other or death benefit act, and the of this ing provisions under the any person act, be shall created in the various funds money state, and shall taxes county, municipal all exempt or execution, attachment subject garnishment, or insol- any bankruptcy operation process other (Or law, unassignable.” 90-723 and shall be OCLA vency 23) added). 401, § (emphasis ch Laws statute, 237.201 later reenacted That former (1953) (at form),7 unchanged virtually least remained 1969, the amended Then, twenty-four years. that it applied statute to provide expressly ” ‘ Or imposed. all local taxes ‘heretofore or hereafter state and amendment, § ch 13. After the former (1969) provided: ORS 237.201 a annuity, or right person pension, “The to an contribution, allowance, the return of retirement or to itself, annuity any optional or allowance pension, retirement benefit, accru- any right death other accrued or benefit or or 237.001 to ing under the of ORS any person provisions to by ORS 237.315, and the in the various funds created money state, 237.281, exempt county be all 237.271 and shall from shall and taxes or municipal imposed, hereafter heretofore any execution, not or subject garnishment, be attachment contrary exemption Strictly speaking, parties’ assumptions, and to the the tax exemption presently enacted in is not the under The tax statute consideration. 1945, 401, 23, 1945, § Employes’ Act of Or Laws ch was set Public Retirement 1953, legislature repealed preexisting statutes forth at In all and OCLA 90-723. time, 1953, At enacted Revised Statutes. Or Laws ch 3. OCLA (1953). repealed ORS See 90-723 was and reenacted as 237.170 former (1953) Statutes, Legislative History (noting OCLA 90-723 as Revised Prior 237.170). general legislature’s repeal and reenactment of reenacted at ORS 1953, any changes in the law. ORS statutes in it did not intend to make substantive (1988), 174.550; 13, 760 Oregon, 380, 393 appeal n P2d 846 Eckles v. State (1989). 237.170, however, repealed shortly ORS dismissed 490 US 1032 Former 1953, 180, § 18. true for after it was reenacted. Or Laws ch The same- was 180, repealed § so the 1945 Act. Or Laws ch 2. That Act was remainder of public employees participate security program. Or in the federal social Laws could program employees participate § ch federal authorized 1. That advantage only program if at the time took no state retirement existed the state Retirement, Ways Special Report to the Joint and the federal benefits. Committee on (1953). Apparently, retirement Means later reenactment of a state Committee Thus, program prohibited. ORS 237.201 the tax was not former (as 1989), through subsequently now was enacted as under consideration amended 200, § Employes’ of 1953. Or ch 22. As the Public Retirement Act Laws below, legislature may intended Act to be different we discuss the 1953 have the 1953 however, language Here, only in substance from the 1945 Act. we note that the (1953). virtually ORS OCLA 90-723 was identical to 237.201 former process operation any bankruptcy

other or the or insol- enacted, vency existing added.) law heretofore or hereafter or and unassignable.” (Emphasis shall he

Over the next various amendments were made years, several to the before the amendments By immediately statute. (1989) here, at issue ORS 237.201 provided: former right person pension, annuity “The of a to a or a allowance, contribution, the return of retirement itself, annuity any optional or retirement pension, allowance benefit, any benefit or death or other accrued or accru- ing any under the of ORS 237.001 to person provisions 237.315, money and the the various funds created ORS 237.281, exempt garnishment shall be and 237.271 state, taxes county municipal all or heretofore hereafter under ORS shall imposed, except provided execution, subject garnishment, attachment or be operation any bankruptcy other or to the or process insolvency existing law heretofore or hereafter or enacted obliga- except process upon support for execution or other 25.050, pursuant entered to ORS tion or an order or notice 25.450,416.445 419.515, 25.060, 25.310,25.350,25.360, added.) unassignable.” (Emphasis and shall he 316.680(l)(d) statute, One other former 823, 3),§ ch a tax Or (;repealed by law, It significant state income tax also is to this case. pro- vided in part: from federal taxable

“There shall subtracted income:[8] * * * *

ii* “(d) from the payments The amount of received Fund under ORS 237.001 to Employes’ Public Retirement exempt which are from state taxation under ORS 237.315 237.201.”

Thus, 1989, of made the PERS exemption, that statute tax (1989), then for in ORS 237.201 provided apart former income law. tax 8 Oregon’s system personal income income tax measures state taxable Therefore, exemptions specific taxable income. ORS 316.007. tax reference to federal adjustments Oregon to federal taxable income. are based on

9 Legislative Amendments B. 1991 of the United States In Court Supreme Treasury, Michigan Dept. 803, 109 Davis v. 489 US decided (1989).9 Davis, Supreme 1500, 103 L Ed 2d 891 S Ct paid by benefits exempts pension if a state Court held taxes, income without from state state and local governments federal benefits paid by exempting pension similarly and constitu state violates statutory then that government, tax 489 US immunity. of intergovernmental tional principles accord Barker v. 112 S Ct Kansas,_US_, at 817; (states tax retire military 243 118 L Ed 2d of retired state while the benefits exempting ment benefits workers; such differential treatment government and local tax of intergovernmental constitutional doctrine violates the 4 mandate of in the non-discrimination immunity codified 111). whose the Court held that states Consequently, §USC tax treatment are for such disparate statutes provide alike or to to tax state and federal pensions either required them alike. 489 US at 817-18. exempt issued its decision

When the Court Supreme Davis, benefits as personal taxed federal Oregon pension (1989) and but, ORS 237.201 income, pursuant former 316.680(l)(d) (1989), PERS retire exempted former this court Subsequently, ment benefits from that same tax. taxation scheme violated constitutional Oregon’s held that Ragsdale v. immunity. principles intergovernmental Dept. Rev., (1992).10 529, 542, P2d 971 823 Davis, decided

To the 1991 comply with benefits to state income personal PERS retirement subject taxation, rather than to federal benefits exempt pension 823, is the result of chapter such taxation. Laws efforts. compliance those 9 allowed certiorari recently Supreme of the United States has Court (1991), Taxation, granted Va 322, 410 Virginia Dept. cert

Harper 242 SE2d 629 amended_US_, 1934, 118 order _US_, 112 S L Ed 112 S Ct 2d Michigan Dept. (1992), whether Davis v. L Ed 2d 222 to decide Ct Treasury, 803, 109 1500, 103 L Ed 2d is retroactive. S Ct 489 US passed comply HB with Davis legislature attempted when it The 1989 906). identical, 1989, chapter bill were (Oregon 2 and 3 of that Sections Laws provisions respectively, sections 1 however, law, it was referred HB became presently Before under consideration. voters, rejected who it. to the sections of Oregon

Sections and 3 are the operative 823. Those sections are the focus of the chapter in this case. dispute (1989) by Section amended ORS 237.201 former (1) of ORS and by that statute subsection 237.201

making the tax making a second subsection to ORS 237.201 adding 237.201(1) to state personal in ORS exemption inapplicable amended, therefore, ORS 237.201 income taxation. As provides:

“(1) or a right person pension, annuity of a to a allowance, contribution, to the return of retirement itself, any or retirement allowance annuity optional pension, benefit, accru- any or death or other accrued or benefit under the of ORS 237.001 to ing any person provisions 237.315, money in the funds created ORS and the various 237.281, garnishment shall be exempt 237.271 and state, county municipal taxes heretofore or hereafter all under ORS shall imposed, except provided execution, any attachment or subject garnishment, not be process operation bankruptcy other or to existing law heretofore or hereafter or enacted insolvency obliga- other except process upon support for execution or 25.050, tion or an order or notice entered to ORS pursuant 25.350, 25.360, 25.450, 419.515, 25.060, 25.310, 416.445 or and shall be unassignable. “(2) to state apply Subsection this section does paid amounts under ORS

personal income taxation of (Amendments emphasized.) 237.001 to 237.315.” ORS repealed in relevant part, Section former 316.680(l)(d) had made the tax (1989), the statute that benefits, previously provided for PERS retirement income (1989), 237.201 of the state apart former tax law. THE PARTIES

CONTENTIONS OF PERS, ORS 237.001 argue Petitioners first the state for a unilateral 237.315, constitutes an offer employ- which a accept by accepting person may subdivisions. Peti- ment with the state or one of its political by taking their of that offer acceptance tioners argue their contract with binding such creates employment retirement benefits respective employers provide Next, petitioners argue offer. pursuant to the terms from all state ORS 237.201 former of their contract PERS, a term and local taxes set forth 1 and 3 that sections argue with the state. Finally, petitioners 1991, 823, which and result Oregon chapter permit of Laws benefits, of impair state income PERS retirement taxation not to tax PERS retirement contractual obligation state’s a violation of benefits; argue, is impairment, petitioners that Constitution,11 and Article I, 21, of the Oregon Article section 1, of the United I, 10, section clause the Constitution States.12 taxation of that

Alternatively, petitioners argue benefits, 1991, Laws PERS retirement as allowed by Oregon and 823, is a of their governmental taking property chapter has for that just compensation the state not provided 18, Article I, which constitutes violation of section taking, Constitution,13 Fifth Fourteenth Oregon and the and to the Amendments United States Constitution.14 The state concedes that PERS is contract between however, the state The state employees. argues, (1989) allowed 237.201 former on not a term of that contract. The state bases its assertion ^[*] 11 * * Article “No >> **** I, section law impairing 21, of the Oregon Constitution, of contracts shall provides ever part: be passed 12 States, I, Article section clause of the Constitution of the United provides part: * * * * * * pass any impairing Obligation of “No shall Law State * * Contracts Constitution, I, part: Oregon provides in Article * * * just property public shall not he taken for use without “Private state, compensation compensation; except nor in the without such case * * *."

first and tendered assessed States, provides in The Fifth Amendment to Constitution of the United part: * * * life, liberty, deprived property, person without due “No shall be use, just law; public process private property nor without shall taken compensation.” applies Compensation via the The Just Clause of the Fifth Amendment states Fourteenth Amendment to the United States Constitu Due Process Clause 1, 105 Bank, 172, 175 n Ct Planning v. 473 US S tion. Williamson 3108, 87 Comm’n Hamilton (1985) Chicago, (citing Chicago, & US L B. R. Co. Ed 2d Q. (1897)). 241, 17 581, 41 L S Ct Ed 979 (1) grounds: away two the state not contract its sover- (2) eign power specificprovision taxation; issue, at prom- ORS 237.201 was not intended to be a former issory Alternatively, argues or contractual statute. the state if that, this holds court that the tax allowed ORS 237.201 is a term of the PERS contract former employees, between the state and its then both sections and chapter merely 3 of 823, impairment Laws are a breach of that contract rather than an of its obligations. petitioners’ taking argues claims,

As to the state arguments premature petitioners those sought are because have not — — just compensa- and thus have not been denied tion.

FIRST FIRST THINGS arguments regarding Oregon Petitioners’ implicate the constitutions of both considering any questions and the United States. Before constitution, however, under the federal we first address petitioners’ arguments Oregon under the Constitution. See Oregon, 252, 257, Stelts v. State 299 Or P2d 701 1047 of (1985) (questions of state law shall be considered and dis- posed reaching of before a claim that this state’s law falls imposed by short of a standard the federal constitution on the states); Kennedy, 260, 262, State v. 295 Or 666 P2d 1316 (1983) (same).

STATE CONTRACT CLAUSE petitioners’ arguments We consider under the first Oregon Contract Clause of the Constitution. Ability

A. The State’s to Make Contracts Oregon I, 21, Constitution, Article section provides part: in * * * impairing obligation “No law of contracts shall * *

ever passed be Oregon, In Eckles v. State 306 Or 760 of (1988), appeal P2d 846 490 dismissed US 1032 this applies I, court concluded that Article section to contracts private made the state as well as to contracts between Contract Clause applies the idea that the Although parties.15 Aldrich, v. Campbell see novel, is not to state contracts (1938) dismissed 305 US 559 appeal P2d 208, 213-14, 79 contract, not though to Contract Clause public (applying Contract and federal between the state distinguishing Portland, The Or City v. O’Harra Clauses), and (same), Its lies significant. significance it is 526-27 are if the appropriate that, contractual conditions the fact legislature to a met, succeeding bind a legislature may one Cranch) (6 Peck, course of action. Fletcher US particular (1810) (“The is, that 87, 135, L Ed 162 asserted principle act which a former competent repeal any one is Legislature and one competent pass, Legislature was Legislature abridge succeeding Legislature. cannot the powers general legisla correctness of this so far principle, respects if under a tion, never be controverted. But an act done can * ** When, law, Legislature cannot undo it. succeeding then, repeal its law a law in nature rights[.]”). cannot divest those a contract

Whether the state is to be a alleged party however, the determine dispute not, analysis proper a law of the state violates the Contract Clause of whether applies The conclusion that the Contract Clause of Constitution Eckles, private public origins both contracts followsfrom the clause. origins, stating: the court discussed those Constitution, provisions many of I of “Unlike Article provision against impairing section contracts has early source in the state and colonial but in the ultimate constitutions I, States, Constitution the United Article clause * * * Northwest Ordinance of 1787. < n **»** “* * I,section 21, very adoptedin 1859,language *WhenArtide similar ** provision was *. to that of the federal constitutional used similarity language parallels infer and from the drawn “We predecessor provisions the constitutional this court that between framers federal Oregon incorporate of the intended to the substance of the Constitution interpreted by provision, Supreme it was the of the United then Court Constitution, States, necessarily every Oregon though the case decided into Subsequent Supreme provision. United States under the federal decisions, Court the 21, course, although interpretation of do not control the section history may light early provision, and those decisions thereby shed on the of the federal (citations Oregon provision.” at 389-90 and footnotes on the omitted). Thus, pre-1859 Supreme States cases of the Court the United the substance plays significant interpretation a in our Contract Clause. role be I, First, two it must requires steps:

Article section a contract exists to which the person determined whether and, second, it must be an is a asserting impairment party; impaired whether a law of this state has determined General of contract law principles of that contract. even where the state is will both normally govern inquiries, Eckles v. State at to the contract issue. alleged party to be Or at 396-97. Oregon, supra, party is to be a alleged

In cases where a number of addi contract, however, developed courts have Eckles, detailed the nature In this court tional rules. rules). of those rules. See id. at 397-99 (discussing origins (1) a state contract will not those rules are: Briefly, unambiguously that does not legislation inferred (2) contract; the Contract an intention to create express domain; of eminent Clause does not limit state’s power not contract its may away “police power.”16 the state limita exhaustive of necessarily possible Those rules are not I, but under Article section tions on state contracts nature “must be found within rules of this further 21, itself.” Eckles v. I, or of Article section language history 399. Oregon, supra, State of 306 Or at one case, recognize In this the state asks that we con of state controlling interpretation additional rule I, may section to wit: that the state tracts under Article sound to tax. sovereign power Although not contract its away rule, it is such a we conclude may support reasons policy I, of Article section history language not “found within cases fact, following at as the 21, itself.” 306 Or 399. the substance of demonstrate, rule is opposite into Arti that was incorporated federal Contract Clause supra in 1859. See note 15 I, adoption cle section on its 21). I, of Article section origins (discussing years ‘police power’ emphasized in recent “[T]his court has regulations!.]” power indistinguishable to enact laws and from the state’s inherent Thus, Oregon, supra, application of the rule that Eckles v. State of 306 Or at 399. I, away “police power” under section Article a state not contract currently employed Constitution, f‘balancing” analysis does not embrace the analysis Clause in Supreme States in its of the Contract Court of the United I, at 399. of the federal constitution. 306 Or Article clause

15 (7 Cranch) 164, 3 L Wilson, 11 US v. Jersey In New States, the United Court of (1812), the Supreme Ed 303 Marshall, that, when held Justice through Chief speaking land with a promise made a of grant New Jersey State of tax of that taxation, a repeal exempt the land would Likewise, Contract Clause.17 the federal violated exemption (3 How) 133, 11 L Court, 44 US The Tax v. Appeal in Gordon holding a similar Court made (1845), Supreme Ed 529 it had exemption a tax ability repeal a state’s regarding hank and its stockholders. charter to a in a corporate granted the State Branch Piqua in The however, Most significantly, of (16 How) L 369, 14 Ed v. Knoop, 57 US Bank Ohio of Gordon,18 the Court similar factually case (1853), a that a state the argument and rejected considered expressly a tax exemption. a contract to provide enter into could not The stated: Court certain state, from taxation by exempting that a

“The idea sovereignty, is of modern of its parts portion with property, with may part that if a state argument is the growth; and so other, as to divest itself every so may in one instance it this would argument Such an of taxation. sovereign power of the the exercise of against and as conclusive strong be as a tax may levy upon if Legislature For taxing power. of the may property absorb the entire

property, they where is an every power of there The same be said payer. judgment. of exercise

6(* ^{[*] [*]} * * State, prop- exempting certain

“The that a assumption sovereign power, taxation, of its relinquishes erty from objects of may select its taxing power The is unfounded. amount regulated by the

taxation; generally this is Now, State. of the purposes to answer the necessary of policy is a question from taxation property Bank the State The Branch Piqua and not of power.” Knoop, supra, Ohio v. 57 US at 383-84. validly provide an contracted to that a state had The Court’s conclusion analysis developing early on in the Court’s was made from taxation (7 Cranch) 164, Wilson, Jersey 3 L Ed 303 v. Clause. New US federal Contract interpreted The first (1812), that clause. only in which the Court case wets the second (1810). Cranch) (6 Peck, 187, L Ed 62 v. was Fletcher 10 US (16 Knoop, 57 US Piqua Bank Ohio v. the State of Branch The facts How) 369, 14 below. are discussed L Ed 977 Dodge Woolsey, were reaffirmed The principles Piqua (1855). (18 How) L Ed 401 331, 360-61, 15 59 US in his Professor Cooley, this evaluating question, limitations, stated: constitutional treatise on which arises interesting question the most “Perhaps is, for the competent whether it is this discussion it from by grant preclude hands as to up to so bind its own any of the essential attributes exercising for the future juris- subjects within its regard sovereignty in exercise the diction; whether, power of taxation[.] instance, it can ^[*] ** agree that it will not concerned, it has been is power far as the of taxation “So States, Court of the United Supreme decided so often State on the without remonstrance though not State, courts, a for consideration agreement by an received, property, that certain to be supposed received or taxation, or to be from exempt or franchises shall rights, rate, by the protected a contract agreed is taxed at a certain longer be considered Constitution, can no question that the Limitations 280-81 Constitutional Cooley, T. open an one.” (footnotes omitted). (1868) Wall) (8 Rouse, 75 US Friendless v. Home Accord (“It (1869) adjudica by repeated L 495 is settled 438, 19 Ed on a contract based court, may by that a State of this tions or corpo of an individual consideration, exempt property perma taxation, period either for a specified from ration and the Contract Hale, The Court Supreme also see nently.”); (1944) (discussing L Rev 640-54 II, Harv Clause: 57 tax).19 sum, their away power contract of states to ability met, the have been conditions contractual if the appropriate from taxation.20 an provide bind itself may state 19 adoption Constitu post-date the of the Although authorities these subject ability to accurately of the of a state’s they assess the treatment tion before that Supreme of the United States away power Court contract date. 20 339, 341, MacKay, Hogg P 779 v. 23 Or 31 cites dissent Justice Peterson’s rule, i.e., validly make a contract proposing a different case, however, considered the exemption. discussed nor provide That neither a tax simply held that It the state or federal constitution. Clause of either Contract subjects among unless a all classes of provide for uniform taxation had to ruling, Id. at 341.' That in the special enumerated constitution. class was otherwise moreover, have since been provisions Constitution that rested on

17 Clarity Contracts State B. I, in an Article noted, the first step

As contract whether a is to determine analysis Clause Contract is a party. an asserting impairment person to which the exists exists, whether contract noted, determining Also as to be alleged legislation involves state this case because from that legislation will not be inferred contract, a contract create a intention to expresses unambiguously unless it Oregon, supra, 390-91; Eckles v. State at 306 Or contract. supra, Campbell Aldrich, v. at 213-14.21 159 Or contractual issue of legislative An analysis flows uniqueness is That unique. in this case intention subjects. only For a brief require within like classes uniform taxation amended Dept. history provisions, see Mathias v. of those discussion of the constitutional (1991) (Van Hoomissen, J., dissenting). 68-69, Rev., P2d Or 272 particularized and argues is a more dissent that there Justice Peterson’s alleged ascertaining legislative if intent contractual stricter rule for proposition subject are Providence The cases cited for that of taxation. concerns (4 Pet) Portland, (1830); 514, 560, 7 City Billings, L Ed 939 Ladd v. 29 US Bank v. Wilmington 271, 275, 51 P (quoting Philadelphia, and Baltimore (10 How) (1850)); 376, 393, L Ed Maryland, 51 US Railroad Co. v. (1899). 231, 239, 19 383, 43 Kentucky, L Ed 679 Covington 173 US S Ct proposition Providence Bank not stand for the asserted. Those cases do (the being Wilmington Co. latter case Philadelphia, and Baltimore Railroad case) provide a tax will support do state that a contract to for the Ladd subject expressed. The on that never he assumed unless an intention to contract cases, however, particular verbal point being not that some made in those rather, taxation; relating required contract to formula was for a state to create a subject legislation on its required with the of taxation that the at issue deal Court cases, legislation exemption all. The had no tax at In at issue face. both those argued could parties for the that who asserted the contract however, legislation; legislation, did provisions of the be from various inferred Bank, 560; Philadelphia, supra, 29 US at taxation. See Providence not refer to Co., supra, circum- 51 US at 393. such Wilmington Baltimore Railroad legislature had stances, unwilling relevant that the Court was to assume 560; exemption. 51 US at 393. provide a tax 29 US at to contracted legislation cases, Covington requires be clear and unam- Like own our legislation. 239. The rule biguous 173 US at a contract will be inferred before terms, expressly applicable is, by to all Covington in its own stated construction may imply rule of Although that the alleged that case be contracts. Id. statutes to taxation, relating rule differently applied in statutes should he construction subject with of taxation. that deal itself is not limited statutes legislature’s power to sovereignty than is the a matter of no more Taxation is subject regardless statutory legislature legislate If the creates at all. — — good or ill sovereign respect. limit for matter, power in That some it limits its require guarantee in the Contract Clause. We embodied of the substance finding a contract. such clarity intention before only of contractual that there be statutes, subject regardless matter. is the same for all That rule the fact that in determining whether ORS 237.201 former (1989) states a valid contractual which obligation, we constitutionally impaired, do not on a begin writing blank slate. We from the begin that PERS is a premise contract between the state and its The contrac- employees. v. tual nature of such in Taylor pension schemes was settled Bd., Mult. Sher. Ret. Dep. 445, 450, 510 P2d 339 (1973).

The state concedes it premise this the extent concedes that, court, as this is a con- interpreted PERS that PERS is at present tract. Notwithstanding agreement a contract between the state however, and its employees, argues that PERS was not intended to be a contract when the legislature first enacted that scheme in 1945. invitation,

We decline the state’s in that implicit argument, revisit issue of the contractual nature of PERS and similar an issue that was first pension plans, Taylor decided the state two decades against nearly ago Bd., Mult. Sher. Ret. Dep. supra. Moreover, because the scheme under consideration in this case is the Public supra see find it Retirement Act of note we Employes’ more to look to the intent on the legislature’s appropriate in 1953, enactment of that scheme to its intent on opposed of the history the enactment of the 1945 Act. Our analysis Act under- the enactment of the 1953 reveals an surrounding in PERS intent to create contract lying legislative rights employees. legislative history regarding little exists

Although Act, took certain actions legislature Act and in the 1953 Act that enacting the 1945 repealing demonstrate belief that the enactment legislative created constitutionally protected PERS scheme Act, the 1945 rights. Specifically, repealing for and made careful account provision of all under the rights pre-1953 accrued guarantee payment (Or See ORS 237.950 to retirement 237.980 system. 180) Public liquidation pre-1953 ch (providing under System rights Retirement

Employes’ protection was the system). protected rights One those for in OCLA 90-723. See exemption previously provided Although (protecting pre-1953 exemption). 237.980 of pre-1953 those in and legislature’s protection rights, itself, to underlying legislative not reveal intent the careful continuation protect rights, enact and the pre-1953 gains benefits accrued under a different system when cast on of the advice to background given character Patterson General before by Attorney Governor In an system liquidated.22 opinion, Attor- pre-1953 General stated: ney

“In response your request opinion to for our as to the constitutionality present of modification of the retirement annuity pension Oregon applicable of the plan State of to employees political subdivisions, of the and its we you existing validly plan may changed advise that the by action, legislative vested rights preserved by are such if legislation. “The vested rights which we refer are of two kinds:

(1) Rights of retired members of public employes retire- system annuities, ment amounts of specific pensions and provided by chapter [the 1945 Act] (2) amended; rights as of all members present of the public employes system equiva- retirement to a substantial which, retirement, lent of the upon benefits they would be entitled to receive system. as members Either class of rights saving includes the of pending litigation and any cause right, of action contemplated based on a and the legislation saving should include such provision. [a] “It is not unusual to designate rights of contributing system members of a ‘vested’ prior as to the occurrence of the upon event payment which of benefits is authorized. How- (Cal.) ever, Beach, as shown in City Kern v. of Long 179 P. (2d) 799, 802, 803, right ‘is an pension integral part of contemplated and, compensation’, ‘[although there may be right tenure, no public employment rise to gives certain obligations which are the contract protected clause Constitution, including payment salary which Therefore, has been earned.’ in making change in retire- benefits, ment it is essential to principle adhere to the that an employe’s right to retirement benefits can not be destroyed legislative legal given, Where a enactment follows the advice before the enactment, opinion Attorney General, in an opinion relied on we have such an providing legislature’s enacting purpose an indication of the the measure. See Rev., (1992) Ragsdale Dept. 529, 536, 823 (particular legislative P2d 971 apparently attempt respond “enactments were an to the concerns raised two General”). opinions Attorney without the enactment of a substi- ‘by repeal statute added). Att’y (emphasis Gen

tute’.” Op of We conclude that the actions the 1953 legislature, 237.980, of ORS 237.950 to reflect a enacting recognition by Attorney General. We hold posited concerns PERS intended and understood that constitu- legislature offer, to its for a unilateral by employees, ted an the state of turn an examination of the essentials contract. We now that PERS contract. are

Accrued and benefits accruing pension protected of is in line with the theory under Law. a of compensa- which holds that are form pensions pensions rights vested contractual acquire tion and that employees Bd., supra, Mult. Ret. Taylor Dep. v. Sher. benefits. pension pension 265 at An employee’s Or 450. of the time of his or her acceptance benefits becomes vested at PERB, 33 Or Id. at accord Gantenbein v. 451; employment.23 (1978).24 On rev den 315, 1257, P2d 282 Or 537 309, 576 App in a pension plan interest contractual vesting, employee’s by legislation. not be may substantially impaired subsequent Bd., 450 Sher. Ret. 265 Or at Dep. supra, v. Mult. Taylor Ass’n, Fund v. Teachers’ Ret. 164 Or (citing Crawford Schrunk, Adams v. P2d 6 Or 87-88, (1940)); App 729 99 (1971).25 rev den Attorney 586-87, Oregon’s 488 P2d bene- contractual nature of pension General articulated this fits as follows: by pension plans, whether established law

“Employe contract, contractually inter- property based vested create employer, except by not be est which terminated of prospectively. employer payment pen- offers future compensation currently for work sion benefits and earn such future benefits performed. Employes accept employer’s acceptance Although employee accepts a on a new PERS offer membership employment, is that does one of the terms of offer PERS period actually begin employment until after six-month with the employer. ORS 237.011. necessary rights arising completion the service before Contractual Dep. Taylor Sher. subject v. completion Mult. pension of that service. receive a are (1973). Bd., Ret. 510 P2d 339 265 Or Bd., Dep. supra, 450-51, Taylor Ret. Mult. Sher. at this court 265 Or Schrunk, 580, 488 App in Adams v. holding P2d expressly approved Or (1971). rev den performing Op Att’y current labor.” 38 Gen (1977) added). (emphasis The fundamental behind the logic conclusion that the PERS statutes create a contract between the state and its employees is that: adoption pension

“the was an plan offer for a uni- lateral contract. Such an offer can be by the tender accepted Bd., part performance.” Taylor Dep. v. Mult. Sher. Ret.

supra, 265 Or at 452. Accord Rose Transit v. City Portland, 588, 593, City (1975).26 533 P2d 339

Thus, virtue statutes, of the terms of the legislative history, and our holdings PERS is the contractual intent of the this case has been decided. The only remaining therefore, question, is whether and to what extent ORS 237.201 was intended former to be a term of the PERS contract.27 City City Portland, 588, 533 (1975), Rose Transit v. 271 Or P2d 339 this of explained: court employee pension disability may “[A]n plan or be viewed as ‘an offer to the

employee accepted by which employee’s employment, continued and ” employment such underlying constitutes the promise.’ consideration for the (Quoting (1974).) Electric, 323, 331, McHorse v. Portland General 521 P2d 315 ignores Justice Peterson’s dissent the existence of the PERS which concedes, explores only the state whether there is contractual intent for the tax exemption failing statute. That significance view errs in consider of context. When faced with a series of statutes that have been held to constitute a contract and a exemption tax statutes, term contained within one of those courts have been far ready more exemption to hold that part the tax constitutes of that contract than in alleged cases where it is that a exemption standing contract arises from a tax statute alone or in relation to other statutes which Compare are not contractual. following cases which hold a tax larger to be a term of a contract: (9 Otto) University People, (1879); Northwestern Farrington v. 99 US 25 L Ed 387 (5 Otto) Tennessee, 679, 24 v. (1878); 95 US Yard, L Ed Jersey New v. (5 Otto) 104, 24 (1877); (20 95 US L Ed 352 Maguire, The R. R. Co. v. 87 US Pacific Wall) 36, Wall) 264, 20 (1874); (13 22 L Wilmington Raleigh Reid, Ed 282 & R. R. Co. v. 80 US (1872); (8 Wall) L Rouse, Ed 568 Home the Friendless v. 75 US of (4 (1869); Wall) Mathis, L 143, 18 19 Ed 485 (1866); McGehee v. 71 US L Ed 314 The Piqua Branch Knoop, supra; the State Bank Appeal Ohio v. Gordon v. The Tax (3 How) Court, 133, 11 L (1845); 44 US following finding Ed 529 with the cases no Powers, contract: Wisconsin & M. R. Co. v. 191 US 24 S Ct L48 Ed 229 (1903); Covington Kentucky, supra; Saginaw v. Manufacturing City East Salt Co. v. (13 Wall) (1872). Saginaw, 373, 20 East 80 US holding L Ed 611 Most of the cases tax statute to be a involving legislative corporate contract are instances proposition charters and rest on the settled in the famous case of Trustees of (4 Wheat) College Woodward, 518, 4 Dartmouth (1819), 17 US L Ed 629 that such charters underlying contract, however, are contracts. The nature of the is not controlling. significant underlying The fact is present. that an contract was This case

C. Contract Terms PERS of the contractual nature of accepted proposition is an to the more issues background precise PERS essential (1989), in this case: whether ORS 237.201 presented former the PERS tax is a term exemption, petitioners’ and, so, if to what extent the benefits due under that contract noted, that term. As state contract are tax under exempt have a with the dispute petitioners does not under PERS. Its is that the argument simply exemp 237.201 which is tion ORS provided former here, not a term of altered law at issue is that contract. The state asserts:

“Quite legislature has established an elaborate clearly, the clearly, Ore- public employees. Equally scheme for pension judicial deem the statute contain a unilateral gon decisions benefit, the essential terms of pension contract offer for changed employee’s detriment once which cannot be to the But it public employer. or she has undertaken work for he do, conclude, readily petitioners’ arguments as too much to relating benefits is a term the every pension statute impair- alter without contract which the cannot taking rights away public breaching or contractual ing, employees.” why as to arguments

The state makes several former statute. promissory is not a contractual 237.201 however, we those are considering arguments, After persuaded. the fact arguments, the state’s

Contrary to of the Public was enacted ORS 237.201 former is material Acts of 1945 Retirement Employes’ This case nature of that statute. the contractual determining enacted as a exemption not involve an isolated tax does ORS 23-7.201 Rather, statute on taxation. general former (1989) which this of the statutes is an integral part nature. See has held to be of contractual court previously — underlying analogous presents with where we are faced an an situation — question statute a term whether the tax is the PERS contract and the is significant terms are in those cases the tax contract. is that Also repeal exemptions. not, face, The not to those on their indicative of an intention obligations provisions’ protection followed that was afforded to those constitutional promissory they part larger not were they of a from the fact that were in and of themselves. Bd., Mult. Sher. Ret. 265 Or at 450 Taylor Dep. supra, scheme). contractual nature (discussing public pension That statute was enacted as of the acts that part parcel statutes, became those the Public Retirement Acts Employes’ of 1945 and 1953.28 The state’s view arguments ORS former (1989) it, 237.201 in isolation and evaluate whether standing alone, demonstrates the requisite unambiguous legislative intent to create a contractual That obligation. analysis steps back from the which is whether proper question, ORS former 237.201 is a term of a contract that the state concedes exists. In The Piqua Branch the State Bank Ohio v.

Knoop, supra, Court of the Supreme United States evalu- ated the contractual nature of a tax limitation found 1845 Ohio statute that authorized incorporation banks. its 60th section, the statute that a bank provided under it would organized pay of its six-percent profits, which sum “shall be in lieu of all taxes to which the or company the stock therein, holders would otherwise be subject.” 57 US at Thereafter, 377. the Ohio legislature attempted to tax the banks at a higher rate under a law entitled: “An act to tax banks and stocks, bank and other same as is now taxable property the laws of the State.” Id.

A bank challenged the act imposing higher rate, alleging the new law impaired the obligations of its contract with the state which it had gained through charter issued under Ohio’s laws general the incor- regarding poration banks. Ohio Supreme Court had sustained validity law, new stating: “ ‘It must be admitted the [60th] section contains no language importing a surrender of to alter the taxation prescribed, unless it is to be inferred from the words, “shall be lieu of all taxes to which company, such thereof, the stockholders therein, on account of stock owned 237.001, Act, part provides: ORS ‘‘ORS 237.001 to 237.315 shall of the 1953 added.) Employes’ be known (Emphasis as the Public Retirement Act of 1953.” part of, Former ORS 237.201 was enacted as merely to, not incident that Act. Our emphasis placed here on the fact that ORS 237.201 was enacted former Act, 200, 22, merely placed among § 1953 PERS Or Laws ch the PERS statutes, as is placement particu intimated Justice Peterson’s dissent. Mere of a any part significant. lar statute in Revised Statutes is not 174.540. subject”; frankly

would be and it is conceded otherwise law, general if these had occurred a would they words they a If are open place to such construction. the where general this important, already found we have seen law is is Why provisions, upon general subject. and a many of its provisions, be classed with these especially not this fact, belongs there? properly view of the that in its nature it as law a rule of regarded prescribing We think it should be taxation, and not a contract changed, stipulating until legisla- and change: legislative command not a against any ” US (quot- tive with these institutions.’ at 378 compact Trust ing Company, The Ohio Insurance and Debolt v. Life (1853)). Ohio St Court, the Ohio reversing Supreme In the decision of United Supreme responded: the Court the States law, general in a as section is not found “The 60th Supreme State. The act of by intimated Court the sense, banking in the that all associations general only it; special under but the Act is as permitted organize were by if no were incorporated to each other institution bank This by one. any it. We this cannot be controverted suppose it no make view is clear in itself that illustration can so clearer. charter, which given by the and

“Every privilege valuable it, under acceptance organization of it and an conduced to Legislature, changed is a which cannot be is not in the where the do so reserved charter. power charter, tax discount, specific rate of the duration connected provisions essentially to be and other agreed paid, franchise, to the business of necessary with the and Bank, cannot, consent, subject without become added). legislative (emphasis action.” 57 US at 379-80 that, on the fact placed

The Court special emphasis previously had corporations charters generally, private “in of a contract between State held to be the nature been fact, with the Id. at 381. That combined the corporation.” con- surrounding the tax limitation to those relationship the Ohio tax statutes, led Court to conclude that tractual provided protection statute was within the purview The Court concluded federal Contract Clause. com- to be a “does not import legislative

limitation statute a contract changed, until but mand nor a rule taxation from the nature of the lan- stipulating against change, circumstances under which it used guage added).29 Id. at 382 adopted.” (emphasis whether a statute is of a determining particular nature, we, contractual like the Court in Piqua, conclude the context which the tax statute is enacted is of primary case, in this and purpose context importance. Specifically, (discussed above) the fact entire PERS contract and was enacted as and part parcel ORS 237.201 former the Public Retirement Act of 1953 lead to a conclu- Employes’ is a term of the PERS larger sion that ORS 237.201 former isolation, at the statute in as the Only by looking contract. this Such an do, state asks us to could one conclusion. escape exercise, however, is not Con- analytically proper helpful. and is a we hold that PERS was intended to be sequently, the state and its and that contract between employees, former 237.201, enacted as an essential of and within part ORS a term of that contract.30 context of that Our ORS 237.201 is aterm of the holding former contract, moreover, is more than supported by just judge As has stated: one * * * Supreme Piqua language in the absence of “The Court looked not to taxation, restricting subsequent legislative modification of the method of but to act, purpose contrary and the context and the entire arrived at a conclusion Skidmore, 33, 387 290, 297 Application that ofthe court.” 75 Ill 2d NE2d Ohio added). J., (Ryan, dissenting) (emphasis noted, 10, (Oregon supra legislature passed HB 3508 Laws As note the 1989 1989, 906), 1991, 823, chapter respects chapter in the abill identical to Laws Although rejected similarity purpose HB under consideration. the voters history legislative between that bill and makes worthy bill of the unenacted note. Report, prepared Legislative the Joint A Revenue Office for Research regarding Equity HB entitled “Taxation of on Retirement Tax Committee Income,” History in in a on “A of Retirement Exclusions Retirement Oregon,” states: (PERS) exempt System pensions Employes’ have been since Retirement “Public that, pensions exempt system since in' 1953. Before were the they was created time, exemptions be a method began At that were considered to 1946. directly appropriating money.” employees without to increase to state benefits 1989) (May Equity, HB 3508 Exhibit Joint Committee on Retirement added). (emphasis unsurprising additional evidence that the rather conclusion is This parcel of the PERS retirement all concerned to be and was considered is, compensation was, core, compensation. That package at its a form of deferred Bd., Dep. subject Taylor Sher. Ret. expressly, v. Mult. of the PERS contract. supra, 265 Or at 452. context and of the PERS contract and ORS purpose former To be more of the tax precise, language exemp 237.201. face, tion in ORS 237.201 on its unam former evinces an contractual biguously underlying promissory, Howser, intent. See v. 475, 480, Whipple 291 Or legislative (1981) (the 632 P2d 782 best evidence of the legislature’s is the particular language intent behind statute Wilson, State ex rel Cox v. itself); 747, 750, 562 statute (1977) (same). In Oregon, supra, Eckles State of P2d 172 391, this court noted that when a statute contains 306 Or at which is “indicative commitment not legislative language future,” or amend the statute such repeal language is a contract. statutory confirms a conclusion that statute is, 237.201 As enacted in 1945 and former more in its than the rest of language if anything, promissory this court has held to that, the PERS scheme independently, Bd., supra, be a contract. See v. Mult. Sher. Ret. Taylor Dep. scheme). As contractual nature of public pension (discussing the PERS retirement enacted, the exemption provided taxes. The “shall be” from all state local exempt benefits — which was held to be Piqua of the statute language — tax “shall be stated that the simply specified contractual or the stock holders lieu of all taxes to which the company 57 US at 377 therein, subject.” (emphasis would otherwise be added). tax “shall In its that the promissory aspect, specified is identical to Piqua taxes, in lieu of other the statute be” statute existed from 1945 237.201, ORS as the latter former to 1969. amended the statute to pro-

In 1969 the legislature PERS “shall be from all paid exempt vide that benefits under or state, taxes county municipal hereafter heretofore added). (emphasis § Laws ch Or imposed.” amendment, the that, virtue of that argue Petitioners became unmistakable. character of the statute promissory to only that the amendment was intended The state counters rather tax exemption by implication the repeal prevent the from expressly repealing to the legislature than prevent those competing We need not choose between provision. we amendment; the about intent arguments legislation the 1945 and 1953 have concluded that previously to a con- intended it and the legislature was promissory in the 1969 minimum, nothing At on its enactment. tract from that conclusion.31 amendment detracts In we hold the tax sum, exemption that former (1989) an is a of the PERS contract and term ORS 237.201 Therefore, by state under that contract. the obligation Constitution, I, of the Oregon virtue of Article contract, including that obligations

taxation, are without subject legislative impairment not to of the PERS beneficiaries. the consent Former ORS Obligation

D. Nature 237.201 ORS we determined have Although former (1989) an states

237.201 we can whether before determine we 1 and or breach that impair obligation, sections more we con define that Put must obligation.

must plainly, are to determine what PERS benefits strue statute (1989). from taxation under ORS 237.201 exempt former states: 237.201 pertinent part, former person pension, annuity “The of a to a an or right allowance, contribution, return retirement to the itself, any pension, annuity optional or retirement allowance benefit, any or other accrued or accru- benefit death under of ORS ing provisions 237.001 person 237.315, money in various created ORS and the funds Covington supra, support Kentucky, dissent Justice Peterson’s relies on language arguably promissory that tax even more its view statutes with Covington distinguish here do than the statute at issue not constitute contracts. Kentucky, passed able. The result that case turned on the fact that the state which exemption, general passed power to the the tax had statute which reserved (which necessarily repeal will or amend all at included statutes there). Although at statute did contain statute at issue 173 US 238. reservation exception repeal if such intent was or amendment would be allowed an statute, id., significant expressed” given “plainly it in a the Court considered more very purpose permit maintain that the of the reservation statute the state to Kentucky legislature type over the of statute at issue in that case and that control 238-39, not, power. exemption, relinquish expressly did in the tax reserved Id. at Moreover, importantly, exemption was an most the tax at issue there 239-40. and larger to outside confines of a contract. In distinction isolated statute charters, corporate see other cases where the court noted the contractual nature — municipal supra emphasized corporation note the charter of the Court that — long party seeking to be enforce the had been held tax at 241-42. non-contractual. Id. 237.281,

237.271 and exempt garnishment shall be from state, all county and municipal taxes heretofore or hereafter added.) imposed[.]” (Emphasis

In that we are construing provision, aided very little as to its legislative history meaning. any event, discern the intent legislature’s behind the we statute need turn only indicator of primary intent, that the language Howser, of the statute itself. Whipple supra, Or at 480. Under the language statute, of the the permanence of the tax not be exemption may questioned; the statute is Thus, on that unambiguous point. whatever retire- PERS ment benefits are the tax protected by the state is exemption, bound to maintain contractually status exempt that (1989). ORS required by 237.201 former language statute also reveals what partic- ular PERS retirement benefits are contractually protected from taxation. In legal and cate- logical contemplation, three (1) gories rights exist: that have potentially rights (2) (3) accrued; rights are accruing; rights may (1989) the future. Former ORS 237.201 accrue unam- biguously addresses itself to two of those categories, namely, identified benefits that have variously “accrued” or are under “accruing” not, however, PERS. The statute does refer to PERS retirement benefits that accrue the future. may so, Had it chosen legislature to do could have dealt with benefits, future but it did not.

For within 237.201 example, former itself, legislature evidenced the fact that it knew how refer to the It are provided future. the stated rights exempt all state and local taxes “heretofore or hereafter added.) That is in con- imposed.” (Emphasis language sharp trast to the language referring rights of the statute to what i.e., are protected, rights those “accrued or That accruing.” distinction is did not significant. Because include benefits that accrue in the future as may compensa- tion for work not within the yet performed scope (“In we ORS 174.010 exemption, include them. statute, of a judge simply construction the office is, substance, ascertain or in and declare what terms omitted, or to not to insert what has been therein, contained added). inserted.”) omit what has been (emphasis (1989), as ORS 237.201 We conclude that former contract, that the state promised means term of the PERS are have accrued or benefits that that all PERS retirement so as ORS 237.201 long work for accruing performed former Laws Oregon before the enactment of (e.g., in effect remained 823) taxation exempt from state local 1991, are chapter — — is no obligation But the the state’s promise forever. than that. greater terms, legis- means is that the

In what this practical tax retire- not contract ability lature did away on work accrue in the future based ment benefits or All PERS benefits accrued retirement yet performed. 28, 1991,32 after as for accruing September compensation date, exempt contractually work after that are not performed has no Thus, income because the state taxation. not to tax PERS retirement obligation contractual unaccrued Act, effective of the benefits for work after the date performed taxation of any action in relation the by impairment those unaccrued benefits could not constitute an obligation.33 or breach of a contractual the PERS defined the relevant

Having obligation i.e., we turn next to question impairment, 1991, 1 3 of Laws Oregon chapter whether either section the PERS contract. impairs E. Impairment Obligation Contract noted, case, 1 3 As this sections purposes of are 823. sections of Laws primary Oregon chapter Section narrows the tax expressly scope contractual we (1989), for in ORS 237.201 provided former exemption. by have now defined that Section repealing for in provided previously former 316.680(l)(d) results taxation of PERS retire (1989), ment benefits. 28,1991, day September last the effective date of Laws before

1991, chapter 823. Hoss, rel State ex Thomas v. 21 P2d 234 had a similar Or case, salary holding. plaintiffs before the In that this court held that earned salaries, law, employees’ of a 1933 reduced not be affected effective date which could I, law because of Clause Article the Contract however, held, plaintiffs law Constitution. The court that the then-new could reduce salary prospectively. 143 Or at 47. standpoint, Oregon

From a constitutional many respects 823, resembles the “Transfer 1(3), 3), § (Special Act,” Or Laws 1982 Session ch constitutionality of which this court scrutinized in Eckles v. Oregon, supra. case, In that this court determined State of plaintiff had established that ORS 656.634 created that the plaintiff Among other between the and the state. contract things, provided Indus- statute that monies the state (IAF) exclusively for Accident Fund would be used trial compensation purposes workers’ statutes and declared proprietary had no interest in them. that the state legisla- spite however, 656.634, of ORS the 1982 Act the Transfer Act. Section of the Transfer ture enacted legis- permit the state to “direct modified ORS 656.634 to any [funds] latively disposition surplus of excess of the 2 the Transfer Act contained in the IAF. Section of reserves” in sur- to transfer million Fund. directed the State Treasurer $81 plus the IAF to the state General funds from sought 2 to determine whether sections

This court unconstitutionally impaired the Transfer and 4 of the obligations Act emphasizing 656.634 contract. After of the ORS obligation, imposed the a valid contractual that ORS 656.634 4 Transfer Act was of the court held section unconstitutional:34 obligation the impairs the Transfer Act

“Section four of 656.634 because formerly stated of the contract obligation respect with eliminate that section four would for IAF funds surplus The state could use IAF funds. surplus chose, liability without contractual any purpose that it I, four, then, section violates Article Section [plaintiff]. * * Eckles, at 306 Or supra, Oregon the Constitution 399. regard stated that to section the court

With necessarily invalidity follow from did not of that section invalidity held First, the court 4. at 399-400. of section Id. analyzed 4 first because: The court section constitutionally valid modification Act is a “If four of the Transfer section as well because [plaintiff], two is valid with then section

the state’s contract ’’Eckles v. modified contract. with the section two is consistent transfer made supra, Oregon, at 395. State of from the remain- be severed the invalid section should Id. at 400 n 19. Next, court the Transfer Act. der of between an impairment distinction long-held discussed the Id. at of contract. and a breach of a contract obligation an that, although the fact the court discussed Finally, 400-01. did contract, not, it did 2 of the Act violated section the contract. obligations impair alter section 2 “breached that, section Rather, although court held That contract remains. of that obligation state’s the breach.” Id. at [plaintiff] is to compensate obligation Transfer Act did not 2 of the section Consequently, 402. Constitution. I, section violate Article an Act that impaired Like of the Transfer section Eckles with the plaintiff of the state’s contract obligation the 1991 law IAF, in the section as to funds surplus PERS contract under which impairs obligation an benefits, PERS retirement state has contracted not to subject Act, the effective date of the 1991 accrued or before accruing eliminates or local taxes. Section quite simply, state taxes. The contractual as to income obligation the state’s 1, if would permitted, unilateral worked change PERS retirement subject formerly exempt allow liability income taxes without contractual benefits to state — Arti- petitioners a result within the directly prohibition I, cle section 21. conclude, therefore,

We that section alaw I, violates Article section 21. As contract, section 1 is a as it nullity of a impairing or for accruing relates to PERS retirement benefits accrued date that section. work before the effective performed not be taxed. Former ORS 237.201 Those benefits (1989). unconstitutional, 1, not being Because it is section is severed. See Or Laws Act, to the remainder of the necessary 9(2) 1991, 823, severability). § ch for (providing however, follow, we hold that For the reasons that violate 823, does not 1991, chapter section 3 of Laws I, Clause of Article section 21.35 Contract section is void Because we have held that accruing before effective date of the as to PERS retirement benefits accrued or Act, remaining petitioners’ in relation to further discussion of section section 1 explained, changes

As we have hand, Section on the other obligation. state’s contractual out of the contractual deals with the tax that arises a mirror of only the tax laws is obligation. The distinction is obligation it is not the itself. obligation; important. Eckles, I,

In this court that Article section explained a state from its contracts: breaching does not prevent (12 Wheat) Saunders, 213, L US 6 Ed 606 “Ogden [25 (1827)], of a contract was to obligation established that the legal imposed upon duties the contract- be understood as the the contract. Ordi- upon of law ing parties operation obligated to the the narily, perform to a contract are not parties terms; in according performance, to its lieu nonbreaching breaching may compensate party party * * * as directed the contract. perform the failure to if remedies are only is available other Specific performance deemed to be nonbreaching party’s inadequate protect (Second) §§ Restatement Contracts contractual interests. Cf (1979). 359-60 ‘‘Moreover, may, that a state long it has been established abrogate or its domain violate through proceedings, eminent See obligations. without its contractual impairing contracts (6 How) 507, Dix, 12 L Ed River Co. v. US Bridge [47 West (1848)]. Co., Vermont’s condemna- Bridge WestRiver effect, was, toll-bridge franchise plaintiffs’ tion of together payment franchise contract with breach of the Although the franchise contract damages for the breach. could not obligation, which Vermont created a contractual obligation contractually obligation impair, This eminent but of specific performance compensation. law of general akin to the rule ofthe domain rule is somewhat no contractual ordinarily contracts there * * * specificperformance. obligations and the law of contractual general

“Given the through the ability to breach its contracts state’s undoubted domain, that the we conclude of its of eminent power use I, perform Article obliged by state is not contracts, at least the terms of those according contracts parties case, interests of where, in this the contractual property are financial the state has contracted with whom therefore, opinion, challenges, necessary. of this The remainder is not constitutional only pertains 3 of that Act. to section I, 21, con- cases, protects section Article In such interests. for its compensate the state to by obliging tractual interests (footnotes and Or at 400-01 contracts.” 306 breach of those omitted). citations some Eckles, in which Transfer Act 2 of the Like section mandating by with the plaintiff state’s contract breached the contract, by contrary to that the State Treasurer by an action by afforded exemption previously the tax repealing former 316.680(l)(d) 1991 law results (1989), section 3 of the benefits, an in breach action the taxation of PERS retirement In PERS contract. other term of the of the tax the 1991 chosen, to section 3 of words, the state has pursuant the PERS contract term of law, to breach This the state has with its employees. that the state PERS benefits are contrac- do whose Anyone with impunity. or in is entitled to taxation, part, whole tually exempt Notwithstanding the state’s breach.36 remedy however, 3, section breach of contract caused petitioners’ obligations does not in the state’s any way impair that section 1991, the PERS contract. Laws Oregon under petitioners I, 3, not violate Article 823, therefore, section does chapter 21, section of the Constitution.37 Oregon CLAUSE

STATE JUST COMPENSATION the tax on their argue imposed Petitioners next 1991, Laws retirement benefits under section 3 of Oregon 823, of their taking prop constitutes a chapter governmental I, in violation of Article erty just compensation, without granting jurisdiction taxation this court to determine whether the state’s unconstitutional, legislature provided: “If of PERS retirement benefits is also Supreme provisions, Court determines that such taxation violates constitutional discretion, may, appropriate remedy.” Supreme Or Laws Court fashion an 15(1). legislative fashioning § ch authorization did not extend to remedy wrongs, Even if our for sub-constitutional such as breach contract. discretion, authority us, remedy, permit inherent would as a matter of to fashion a appropriate govern we decline to do so here. The is the most branch among express ment in the first instance to choose the available remedies. We no opinion appropriate remedy as to the for the breach of contract caused section 3. 37 Notwithstanding Supreme opinions of the our citation of several of the Court Clause, holdings analysis in our our United States state Contract that same section is unconstitutional and that section 3 of impairment indepen are based law is a breach rather than an of the PERS contract 1032, 1041, dently state, federal, Michigan Long, rather than 463 US on law. See (1983) (state 3469, 77 L Ed 2d 1201 identify independent 103 Ct should S court decision). ground for its I, Constitution.38 Article section

provides part: * * * “Private shall not be taken for use property public without nor in the just compensation; except case state, without such first assessed and compensation tendered[.]” 1991, 823,

Petitioners that Laws argue Oregon chapter or, void that should be held that statute should alternatively, be amended so that it will for the provide just compensation we considering arguments, After alleged taking. petitioners’ disagree. case, 1991, 823,

In this Laws section Oregon chapter 3, an constitutional taking power is not exercise of state’s I, 18, of triggers requirement for which Article section Rather, law is an exercise of the just compensation. Not of a every acquisition state’s constitutional taxing power. constitutes a taking interest the state private property 18; under the lawful exercise of other through powers section e.g., it, taxing “police power,” available to power, the state may, consistently power purchase property, acquire private property requirements, with constitutional taking. that does not constitute interests in a manner such an interest government acquires when the Ordinarily, taking power, just compensa other than its through power Eckles v. State See constitutionally required. tion is not of Oregon, supra, (“Exercise of the ‘police power,’ 306 Or at 398 domain does not power,’ unlike exercise of the ‘eminent Comp. Woodard Lbr. Co. v. Un. require compensation.”); (1944) Com., 333, 338, 145 P2d 477 (government 173 Or of exercise through acquired property through purchase, Enterprise Enterprise Co., v. but see Ir. Dist. taking power); (1931) issue (discussing takings P 507 468, 479, 300 assessments). Thus, because relation to ad valorem special as contemplated taken petitioners’ property, the state has not Constitution, there is no I, 18, the Oregon Article section constitutional provision. violation of that 1991, chapter argue Oregon section Laws Petitioners also they just compensation, property interest which taking, of the constitutes a without disposition of that Given our term of the PERS contract. have the tax above, however, we do not reach that contention. section CLAUSE

FEDERAL CONTRACT Clause, Contract under the federal claim Petitioners’ Constitu United States 1, I, clause Article under that the analysis tion, Although is not well taken. also Contract Clause than under is different clause Constitution,39 Oregon we conclude for the provision not violate that 823, section does Constitution, violate the that it does not reason same contract, not an of the PERS i.e., the law provides for a breach contract. the state under that an obligation impairment 125, 64 L Seattle, 251 US 233, 237, 40 S Ct v. Port See Hays (1920) (breach of contract differs impairment Ed 243 (16 Otto) 95, Colorado, 106 US Brown v. contract obligation); (violation of contract L 1 Ct Ed S obligations);40 Ogden of contract impairment differs from Wheat) (12 Saunders, (describing at 256-57 supra, 25 US a contract” “impairment difference between contract”). of an “impairment CLAUSE FEDERAL JUST COMPENSATION Laws claim that Oregon With respect petitioners’ Fifth under the 823, 3, taking section worked 1991, chapter 39 1, 97 1505, Jersey, S Ct generally v.New 431 US See United States Trust Co. (1977) 92, (discussing applying reh’g federal 975 52 L Ed 2d den 431 US whether, analysis). appropriate steps case of a contract determine the federal government private person, a state law violates the the and a between (1) impairment a substantial Whether the state law constitutes Contract Clause are: (2) creating impairment is relationship; law the whether the state of a contractual (3) used justified by legitimate public purpose; and whether the method significant, public purpose significant legitimate constitutes an the the state to advance persons. obligations private See R. repudiation unnecessarily of its contract broad (1986 15.8, Nowak, § & Rotunda, Young, Law at 103-04 & N. Constitutional J. J. cases). 1991) (summarizing Supreme United States Court of the Supp relevant Otto) (16 95, 1 175, Colorado, L Ed 132 S Ct 106 US In Brown v. question as to federal existed Supreme held that no Court of the United States by the impaired obligation made of a contract Colorado whether the State of Territory The Court stated: of Colorado. here. All the question is not reviewable the state court “The of this decision impair remain, attempted to obligations and the State has not the contract be, and the plaintiff claims it to in error is all that the

them. If the contract are, they just says that can be the most are what he and statutes Constitution Territory agreed to do what is that the State has refused contended for contract, impair any way it not in but does This violate should be done. added). (emphasis obligation.” 106 US at 98 and Fourteenth Amendments United States Constitu tion, I, 18, those constitutional like Article provisions, section the Oregon Constitution, do not limit a state’s otherwise v. Alco Pittsburgh power lawful exercise of its of taxation. Parking 369, Corp., 373-74, 2291, 417 US 94 S Ct 41 L Ed 2d (1974). Thus, violate section does not those constitu provisions. tional

CONCLUSION conclusion, in the light language of the promissory enact- 237.201 and the context of the former as contract, ment that statute of the PERS we hold see supra petitioners state, have a contract note with to receive their PERS 5, retirement benefits free from state and local taxation provided (1989); ORS 237.201 by former 1991, 823, and that Laws Oregon 1, impairs section chapter I, of that contract violation of Article section 21, therefore, of the Oregon and, nullity Constitution is a as it relates to PERS retirement accrued or accruing benefits performed work before effective date of that 1991 legisla- 823, We further Laws Oregon tion. hold chapter as it section breaches PERS contract insofar petitioners’ local subjects state and taxation PERS retirement benefits or for work accrued before the effective accruing performed of that date rather than of the legislation, impairing any obligations of that and therefore section 3 does or violate Contract Clauses of either Oregon moreover, States Constitutions; United section 3 does not either or violate United States Constitutions Oregon argued other respects by petitioners. Laws section I, unconstitutional under Article declared insofar Oregon Constitution as it affects retirement benefits for work on or performed Septem- accrued before accruing ber 1991. The constitutional validity 3, is section sustained. J.,

FADELEY, and concurring dissenting part. decades,

For state government and promised state Public government employees local that their Employes’ (PERS) Retirement and annu- System pensions retirement ities would forever be from exempt state income taxes. That tax became a the exemption promise term of employment contract between and its workers. government The The promise was embodied statute. statute * * * “The of a proclaimed: [PERS member] apension ** * state, shall be from all exempt county municipal (1989). taxes heretofore hereafter ORS 237.201 imposed.” The trust funds out of which the will be pension paid amounted to billion in mid-1991.1 These trust funds $12.5 are tax promise by also covered the in ORS “the extending promise 237.201 to cover language in the various funds created ORS 237.271 and money 237.281.”

As a term of the the promise employment for PERS with retirement benefits carries it protections. constitutional Constitution provides: ** * impairing “No law of contracts shall ** Const, I, §

ever be Art passed Or 21. commands: The federal constitution * * * * * * pass impairing “No State shall Law * * Const, I, § US Art 10.

Obligation of Contracts *.” constitu- and the Notwithstanding promises, shall promises that no law such impairing tional guarantees to tax attempt chose to ever be passed, new statutes passing benefits by PERS retirement promise reflected the statute provisions removed to repeal legislation The effect of the 1991 exemption. of tax retroactively, in order so do statutory promise, I pension payments. taxes income exact state altering prom- holding legislation, that the concur constitution, the state effect, violates retroactive ise with the PERS 21, and, I, consequence, as a Article accruing to and those to retired members accrued benefits ‘Act ‘may of the 1991 effective date other members before and such members those that, I concur not be taxed.” Comprehensive Financial System Annual Employes’ Retirement Public Report, 1991. June benefits,

accrued and I 1991 Act is a accruing nullity. concur both for the reasons set out the lead as to opinion section Laws and for the chapter reasons set out in this separate opinion.

However, I hold that section 3 of that like- chapter wise the state impairment guarantee, violates as well I, its federal Article section of the violating counterpart, void, Constitution of the United States. I it also nullity, hold and that action to tax PERS it any pension benefits under is I cannot in the impermissible. join failure to do so. majority’s The majority that the code is “a mirror agrees exemption in the state’s contract to never tax obligation” promise benefits, but permits then it to use that idea to mirror-image impair obligation. 314 Or at 32-33. I dissent from that holding to the extent that majority opinion upholds validity constitutional of sec- tion 3. Retroactively the tax does indeed repealing exemption violate both the state and federal not an constitutions. It is action that justified explained away by the use of I mirror-based abstract do not that analogies. agree altering — the second section the identical exemption accomplish result held, is as to the first section, to be an — unconstitutional result and a is “nullity” constitutionally — The effect the same permissible. impairing obligation — the same contract is the same. The state’s to never promise benefits, tax PERS and acted on accepted by public is an employees, state’s contract is identically each section. impaired

This case is a special created proceeding by Oregon Laws to test chapter the constitu- tionality of state taxation on imposing retirement benefits to PERS retirees from a PERS trust paid fund, notwithstand- the state’s ing promise never tax such pensions.2 Section 15(1) describes the task as “to determine whether the taxa- * * * retired members tion of retirement benefits received is in violation of constitutional provision.” (Emphasis * ** added.) 15(2) Section permits “any person interested by Oregon for those benefits was removed change outpost point opinion, 823. That set at the relevant in this 314 Or at 11-14. received from” amounts imposed upon income tax a state act, legislative for “review” of the this court PERS to petition 15(6) those filed for review to limits requests but section 15(3) law’s effective date. Section of the new days within * * * if interested be considered that “a shall person provides PERS. Retired persons member” of is a retired person removing the 1991 legislation asserting have petitioned PERS pension payments from their vested the tax exemption them is income tax on a nine imposing, percent unconstitutional. correct solution to the constitutionally problem gov- on state retroactively reneging

posed by legislation the for- establishing contracts follows. I begin by ernment’s the terms of that contract. mation and of state and 30, 1991, employees June retired

As of 56,1603 had earned retirement numbering local government service, on the relying promise long years public benefits by were, and or their survivors exemption, they of tax amounts. date, individually varying receiving pensions THE CONTRACT STATE’S For 45 years Oregon government The Offer. employees perma- and employees prospective promised retirement benefits would retirement which system nent promise from state and local taxes. That be always exempt chose a career of in state statute for all who was memorialized or local see. government with state service prede- ORS 237.201 or its years, those 45 During in part: cessor statutes provided annuity or a pension, of a to a right person “The contribution, allowance, [to] the return of

retirement itself, any optional annuity or retirement allowance pension, benefit, or accru- or other accrued or death benefit ** * * * * state, and county all exempt be ing shall taxes.” municipal (PERS) System Oregon Employes Member Handbook Retirement Public (1992-93). 133,178 not-yet-retired persons but members of were active Another relying promise performed public of tax service on

PERS who entered Book, that, reports Oregon p Blue Ibid. exempt pensions. The 1991-92 Oregon 20,000 950 different year inactive members and an additional calendar utilizing public employers PERS. were state’s tax years, 22 of those For last ‘ state, municipal county referred ‘all expressly promise 237.201, as imposed.” taxes hereafter heretofore from 1969 to 1991. written who have all persons promised government State district, and state school, county, special city, given service teachers, and judges fighters, fire including police, employees, subject will never be income from PERS retirement that their income tax. to the state mirror the tax code did not the income tax

Initially, designed contained no language It exemption promise. tax exemption of permanent the promise implement were However, PERS payments payments. PERS retirement 582, sec- 1957, chapter Thereafter, Oregon not taxed. noted the law, pre- expressly a relevant tax 1, amending tion statutory by enacting in ORS 237.201 existing exemption. to honor the income tax law in the cross-reference to use agreed voters after just income to establish of taxable definitions federal-law taxation, a corollary to state income subject amounts dollar would always payments PERS retirement promise tax chapter.4 in the income placed exempt benefit of PERS subtraction required 1969 provision That as defined taxable income from the amount of payments (as language exemption-by-deduction Immediately adoption before of that income), general there of taxable part to use of federal definitions of the switch-over pre-existing statutory provision taxable income very similar was a definitions, of PERS benefits the absolute one that also cross-referenced in ORS 237.201. from state taxes stated (1967) provided part: in ORS 316.110 “ items, which shall be following include the income’ does not ‘Gross chapter: exempted taxation under this from <<* * * * * * * * “(13) limit Nothing intended to affect or in this subsection is beginning years applicable to provisions This is of ORS 237.201. subsection 31,1956.” after December (as does, provide, time, provided part, inasmuch as the now 237.201 it At that ORS unconstitutional, “nullity” and, change attempting it is section of the 1991 Act void) therefore, that: person pension, annuity, retirement allowance right or a “The of a * * * annuity, or other pension, retirement allowance itself [and] the * * * accruing any person statutes] shall be [the under PERS accrued or * * added.) state, (Emphasis county, municipal from all exempt taxes income that the amount of law, lowering thus federal pay- PERS the amount of the state law taxable under the 1969 say, § That is to ch 15. Or Laws ments. hereaf- “heretofore or both the enacted Assembly Legislative 13) (Or and the 640, § ch language ter imposed” federal taxable “from subtraction mandating language from [PERS] received of “any payments of amounts income” are from exempt to 237.315 which ORS 237.001 under ORS 237.201 237.201.” Compare under ORS taxation 316.067(l)(d) (1969). simultaneously These with ORS retirement payments exempting enacted statutes of tax exemp- the state’s promise income taxation continued each other with and confirmed exactly They tion. dovetailed see, government’s as evidence of statute, for all to retirement bene- that PERS contractual continuing promises taxation. from state exempt would always fits once earned are retirement system aspects promised Other case. this questions the constitutional deciding relevant retire- are after benefits that monthly payable The amount of service in the number of varies, years ment on depending 237.147(2), government, state and local employment 237.147(1).5 A attained, ORS final level salary and on the to state for each of service year percentage multiplier specific deposited to the contributions is government applied or local PERS trust fund. for each most employees multiplier The pension The net effect percent. service is 1.67 year public after income in PERS pension is a reduction 1991 tax laws Each service general to 8 percent. of about 5 percent taxes benefits, of at of retirement taxation is employee deprived, three during years earned of benefits equivalent least the magnitude of that A deprivation service. that person’s public a law passed it results from and, because substantial public contract with of the state’s a term change retroactively contract. of the state’s violates the employees, construing protection the cases light reviewed which will be of obligation, impairment against salary highest final level control length of service two factors of The same administration, e.g., ORS 237.220 for systems special pension within PERS separate judge members.

42

shortly, aspect additional of the state’s contract with one public employees state and local deserves mention. Retire- annuity pension rights ment and under the state’s contract absolutely, rights public employees property with vest as years employee, the individual after five of service. Under any employee 237.111, is a member of and who PERS who has made contributions to the fund for each of five years permanent has a in the calendar individual account fund that: * * * fund employee’s “shall remain to the credit and * * * paid attaining after earliest retirement

there shall be * * * age, a service retirement allowance which shall consist of: * * *

“(a) An annuity equivalent employee’s of the accu- mulated contributions and interest thereon credited to the employee; “(b) A the contributions pension provided by * * *; and

employers “(c) (nonrefund) An additional life for pension prior * * service *.”6 Acceptance. promise In return for the state’s paid benefits, future, in the would be that retirement free of state tax to be (and compensation paid for other at the time service) police, performance 196,000 fire over fighters, judges, Oregonians teachers, and other have dedi- working performing their useful services for cated lives governments. state and local persons employment those entered into with

When government, person accepted state or local offer. As 450-51, each the state’s Taylor Dep. 445, Bd., v. Mult. Sher. Ret. (1973), 339 states: 510 P2d

“Oregon joined rejecting has the ranks those gratuity theory pensions has held that contractual rights pension employee to a can be created between the 6 (indicating interruptions See also ORS 237.091 that certain service shall continuity employee’s membership system). be deemed to break the not (1953), vesting, Initially, years’ required for absolute ORS 237.110 service 608, vesting years by Oregon chapter period was reduced to five Laws but the initially years vesting judge and was enacted as five members of section (but including by Oregon members of Laws 1.380, judicial system repealed by Or retirement ORS 1.312 to the old former 21). § ch Ass’n, v. Teachers’ Ret Fund employer. Crawford had who we that a teacher P2d held Or entitling him to duty already completed prerequisite could right thereto which had a vested contractual pension In Adams impaired. substantially be not thereafter (rev. Schrunk, denied (1971), 6 Or 488 P2d 831 App ** * 16, 1971), was [subsequently, plan the November of inclusion of such service. The Court deny amended to the not, had a con- recognized, as that thus Appeals Crawford the completion of right could be established tractual before agree that necessary pension. to a We with service opinion. % *

# has that “We conclude from above authorities but, concept pensions, the contractual of adopted only also, can to the concept rights prior that contractual arise necessary pension.” (Emphasis to a completion service original.) state, The in this that the retire- proceeding, agrees and of are of ment retirement benefits system payment Moreover, 1365 Att’y contract. Gen existing Op (Or 1977) (cited 20-21, 314 Or at that the by majority, opines payment property nature of the future “vested seen, can interest.” As under the contract formed and service earns acceptance, performed offer present future, in the and after paid retirement benefits to be at only benefit that one’s current retirement. future payments computed length work and service earn are on the basis of the it, all by of service and the rate of terms pay that set forth state law.7 expensively employees’ its less because the Government obtained services gross nearly adequate providing pension a more amount was lowered cost of payments put exempt of in trust nature the benefit contributions retirement. See purchase payable employee’s annuities at the time each future Legislative Report Income” Research “Taxation Revenue Office Retirement money (agreeing point). expense with Less meant less tax this employee’s general years public taxpayers past to fund from the over exacted cost, proposes keep but salary benefit of lower and benefits. Government cost, employees accepted in order away promise to lower take thereby bargain depriving employees keeping of the benefit the benefit of its but of theirs.

RETROACTIVE CHANGE OF

TERMS OF CONTRACT Change. holding Rag Function Under the (1992); Dept. Rev., sdale v. 823 P2d 971 Kansas, US_, Barker v. S Ct 118 L Ed 2d (1992); Michigan Dept. Treasury, and Davis v. 489 US 109 S Ct 103 L Ed 2d 891 all states are required by grant federal law to the same tax treatment grants federal retirees as the state to its own and to local government retirees. Before those were decided, cases Ore gon employees’pensions government exempted public state had state local tax,

from the income its contract required, pen with them it had but taxed federal retirees’ except relatively sions, for a small threshold amount. attempt

The 1991 Act is an to avoid loss of state pensions by revenue derived from the income tax on federal altering apparent discrimination in taxation federal system predicate retirees, discrimination that formed the for holding unconstitutionality Michigan Dept. in Davis v. supra. Treasury, In order to continue to obtain tax revenue Legisla employees’ pensions, from federal retired Assembly retroactively changed tive enacted a statute that the employees its terms of contracts with both retired and current government.

of state and local Change. chapter The Retroactive Or Laws by adding section amended ORS 237.201 a new existing statutory exemption subsection to the term. Before the 1991 law tax

change, read: right person pension, annuity “The of a to a or allowance, contribution, retirement pension, to the return of itself, annuity any optional or retirement allowance benefit, any or or accru- benefit or death other accrued to ing 237.315, any person provisions under the of ORS 237.001 money and the the various funds created ORS exempt be shall 237.281, garnishment and and 237.271 from county municipal state, all or taxesheretofore hereafter imposed, 118, shall provided chapter as under ORS except execution, any attachment or subject garnishment, not be or process operation any bankruptcy other or to the existing or hereafter or enacted insolvency law heretofore obliga- process upon support for execution or other except 25.050, pursuant tion or an order or notice entered to ORS 25.360, 25.450, 419.515, 25.060, 25.310, 25.350, 416.445 added). unassignable.” ORS 237.201 (emphasis and shall be above, law, pre-existing first numbered the change The (1) providing and then added subsection as subsection follows:

“(2) (1) apply does to state Subsection of this section not paid under ORS personal income taxation amounts ”8 to 237.315 237.001 tax the exemption income code mirrored existing Because the also to make it the tax code was amended formerly provided, with the new subsection 237.201. consistent 3(d), for provides that, from ORS of the following language 316.680 repeal in ORS 237.201: had confirmed previously, amount of received from Public payments “The Retirement Fund under ORS 237.001 237.315 Employes’ ”89 state taxation under ORS 237.201. exempt which are is identical The content of each the two changes effect. Before the PERS benefit were change, payments income After two from the state tax. each exempt is, changes, longer exempt; would no payments benefit wording, payments past under new retirement income tax. services become taxable would CONSTITUTIONS VIOLATED at least two The acts of the 1991 violate two or more violate guarantees constitutional this Failure to others, by the case.10 urged parties would substantial harm enforce the constitution permit Oregonians. of older tens of thousands like one can enforce constitutions.

Courts this our function the drafters of judicial impelled need and separate courts grant independent constitution a of government. vis-a-vis other branches When strength 8 subject paid to the or other benefits to all PERS members become Retirement state income tax. repealed to be language item in a list of items subtracted described one gross arriving before at state taxable income. income only against violations, majority prohibitions Of the discusses the the four impair obligation laws the of contracts. state guarantees,

court fails to enforce the constitutional constitu- debating only tion a dead becomes letter the court society.11 I, VIOLATED;

ARTICLE SECTION 21 RETIREMENT CONTRACT IMPAIRED prohibition against govern- The state constitutional * * * plain: impairing obligation ment action is “No law the of passed.” very purpose contracts shall ever be Yet that thewas — retroactively ofthe 1991 Pension Taxation Act eliminate tax-exemption government’s the term of the contract with public employees. impaired by

It is clear that the state’s contract is the change statutory retroactive the terms of provision violation of the state as it constitutional was under- adopted. stood to mean when meaning looking

That is to be derived at the meaning prohibition against of federal constitutional impaired state laws Oregon pioneers of contracts when prohibition

used that source of the they placed similar one our constitution. Eckles (1988). Oregon, State 306 Or 380, 390, 760 P2d 846 correctly The Eckles court stated the rule for inter- preting Oregon I, section Article Constitution as follows: Oregon

“[T]he framers Constitution intended to incorporate provision, the substance of federal as it was States, then interpreted Supreme Court of the United * * [i.e., into the Subsequent Constitution *. after adopted when a contract impairment provision in our patterned state constitution on the federal provision] decisions, Supreme course, Court United States do not control interpretation although those shed light early decisions on the history federal (No. 2, Rehnquist points Quarterly 111, As Chief Justice out in 16 Wilson 1992): genius system only Rights “The our to create not Bill of but also coequal judiciary, independent president congress, and the to enforce rights. Lofty-sounding those an declarations mean little the absence of give meaning. Only independent judiciary institutional structure to them rights governmental powers.”

can individual and other limits on enforce added.) (Emphasis

47 at thereby provision.” on the provision, 390. Supreme by States, Court the decided the United

Cases impair- Oregon adopted constitutional contract before prohibition, ment follow. (7 Cranch) Jersey L 3 Wilson,

In v. US New (1812), Jersey legislature Ed New transferred certain to a “tribe of Delaware Indians” in full settlement land legislative act in the The tribe’s claim to other land state. provided that that land law, any tax, subject usage not hereafter be

“shall contrary thereof, in any to the wise notwithstand- custom Cranch) (7 11 US ing.” at 165. repealing legislature passed sec- later, an act that Years thereby removing act, the tax tion its former from statute third land. a sale of tribe’s land to After exemp- repealed parties, an act the state tax Supreme opinion by Justice The in an Chief Court, tion. certainly by impaired “[t]his a held that contract Marshall this Id. The law that would annul essential of it.” at 167. repealing exemption “is act Court held that repugnant States, inasmuch to the constitution of the United impairs contract, is, as it of a on account, void.” Ibid. Supreme it that the constitu- Court made clear prohibition applied into contract terms entered

tional involving early contract, In itself. a state’s case contract, when held: “When a law is in its nature court absolute repeal rights have vested under that * * added.) (Emphasis rights the law cannot divest those (6 Cranch) 87, 135, 3 L Peck, v. 10 US Ed Fletcher (1810). (4 Wheat) Sturges Crowninshield, 17 US L Marshall 205-06, Ed Chief Justice background provision protecting explained the for the federal impair designed retroactively contracts from state laws obligations: “A legislation that lax general system dissatisfaction with undoubtedly our revolution which followed the war of subject. It is the mind of convention to this directed probable that laws such as those which have stated in been argument, produced complaints, loudest were most immediately convention, therefore, felt. The attention theof particularly money, was to paper directed and to acts which discharge enabled debtor to than his debt otherwise stipulated nothing intended, in the contract. Had more been nothing But, more have would been expressed. opinion convention, ofthe much more remained be done. The same might mischief he effected public other means. To restore confidence it was completely, necessary prohibit only particular the use of means it be might which effected [e.g., states their printing own paper money], prohibit but any use means which the same might mischief be [i.e., contract], produced impairing obligations state laws * * * declares, The constitution therefore that no state shall ” pass ‘any law impairing obligation of contracts.’ (4 Woodward, Trustees Dartmouth And in College 17 US Wheat) 518, 643, 4 L Ed 629 opinion Marshall’s for that held court that charter granted by in government, acted, to which others had response was a “contract within of the constitution, letter and within its also.” spirit v. Saun- The Court Supreme later decided Ogden (12 Wheat) (1827). ders, 25 US 6 L Ed 606 In the initial opinion, filed before reargument, what constituted constitu- obligations, in the of a tionally protected private context contract and not of the government, was discussed as follows: it is that if

“Again, insisted the law the contract forms a it, part of the law repealed impairing itself cannot be without obligation of the contract. This I proposition must be permitted to deny part]. may repealed [in It be at time at legislature, the will of the any part then it ceases to form of those contracts which beentered into. The afterwards is no repeal more void than a new law be would which upon construction, operates or duration. Both are validity, contracts affect their (if valid, view which I take of this correct) case they may be as contracts afterwards affect so, formed-, but they upon neither are bear existing con- if and, tracts-, case, in the in repeal former which the contains enactment, no application constitution would forbid repealing past only. law to and to contracts those *

“* * not, cannot, think [F]or it has and I it for a moment, which, terms, be maintained that a law in express which, existing of an varies the construction law, effect, produce is made to the same repealing former (12 25 US obligation of that contract.” impair not does added). Wheat) (emphasis at 260-61 dis- Marshall, opinion, a separate Chief Justice that could be cussed the nature the contract constitutionally follows: impaired principle

“That there is an essential difference on which act on and those which act past, between laws contracts; first can description those of the future subjects justified, proper while those ofthe last are seldom be discretion, at be admitted.” Id. ordinary legislative must 334. said, Marshall “The thing

As Chief Justice forbidden added). at 335-36 (emphasis retroaction." Id. was that a York holding Ogden initial New enacted con- state statute providing bankruptcy, before state, into in that formed of that tract debt was entered bank- and, thus, the debtor took contract’s when obligations statute, impair- statute could not under ruptcy The distinction obligation. ment of the contract’s “posterior” in turns is between Ogden on which the initial opinion laws; of a new either enactment retrospective prospective or old law that the or effect changed validity law an repeal prohibit- contract was violation the clause existing repeal enactment or of contract because the ing impairment but not a violation when the enact- operated retrospectively, formed on contracts repeal operated prospectively, ment only. after the law was passed laws, final held that state opinion bankruptcy

The enactment, could cross valid within the state although other states without their the citizens of state lines bind (12 Wheat) 369. The Court continued 25 US at consent. state- upheld in its initial that holding opinion of the

portion in words: following laws adopted bankruptcy power by of that ordinary fair and exercise “That the obliga- a violation of the necessarily does not involve states contracts, fortiori, of contracts.” posterior tion of multo (12 Wheat) at US 369. here dictum majority appears also on rely Saunders, v. Ogden supra, that had no part in play

the actual decision let alone in the initially, different decision rendered after reargument later. year That reliance is erroneous because the overlooks the majority unanimous view in Ogden law, of a in repeal existence at the time a formed, contract was would unconstitutionally impair of a obligation contract where the repeal had the effect of varying a term of the contract.

The operation of the federal impairment provision, cases, demonstrated foregoing was well known before Oregon adopted constitution. time During the of terri- torial statehood, status preceding decision the supreme court of the provisional government term, June Oregon, 1847, held an act of the territorial legislature void as violation of the guarantee against impairing obligation contracts. That decision noted the of the understanding distinction of obligations that a state could not impair, as follows: broad and

“[A] well defined distinction was made between the contract the remedy for the enforcement of that contract; and the court held that while the remedy to enforce the obligation of a contract might be modified as the wisdom direct, yet should the constitution intended to restore and preserve public confidence completely, by establishing great principle obligation that the of con- Burns, Knighton tracts should be inviolable.” 1847). 551 (Appendix, Burns, Knighton v. supra, at Or Territorial Supreme Court devi- recognized “any ation from the it, terms of a contract impaired and that objection law, to a on ground of its impairing obliga- the extent tion of a could never depend upon which the law change affects it.” (Emphasis original.) For this Biddle, court cited Green v. proposition, 21 US (8 Wheat) 1, L5 Ed 547 as an (invalidating, impair- ment of the contracts, a statute that Kentucky diminished the remedies of land owners adverse against possessors, where the statute diminishing after passed formation of a “compact” between Virginia Kentucky wherein those states in land agreed rights ceded by Virginia Kentucky should be determined law in Virginia effect at the time of formation of the compact). a debt was incurred Knighton, evidenced a by note in

calling payment Knighton cash. held that a statute permitting payment script, enacted after the debt was incurred, would violate the federal constitution by impairing if it were applied the pre-existing note. The Knighton commented, court Or at that:

“the framers of the constitution wisely acted in incorporat- ing prohibitory this clause in instrument, and that its expounders merit gratitude of the nation for had having give the firmness to to it such construction as affords an ample remedy for the consequences which must otherwise result from the temporary expedients legislators.” one recent

Only of our opinion court turns on inter- pretation contract clause. It holds that a statute that changes the terms existing impairs obliga- tions of the contract I, violation of Article section 21. In Eckles v. State Oregon, supra, 306 Or at the court held: “The state is obliged I, not Article section to return the IAF, funds to the but the circuit court erred in awarding not

plaintiff a declaratory judgment that section four of the Transfer Act is unconstitutional insofar as it affects employers with SAIF insurance contracts that were in exis- tence on or the date of the enactment of the Transfer before added.) Act.” (Emphasis The Eckles held that majority another section the Transfer Act legislation question case, merely the state directing treasurer to transfer funds from the IAF account to the state’s fund but general purporting law, change any either retroactively prospectively, did not offend the impairment clause. majority the court in Eckles distinguished the

section found unconstitutional from the section not found, so as follows:

‘‘Unlike section four Act, however, section two does not alter retroactively the terms of that contract.” 306 Or at 402 added). (emphasis to the

Adding significance of the distinction between laws acting on retroactively existing contracts and those acting the Eckles contracts, on future also

prospectively majority that a new law that explained retroactively “alter[s] contract,” (i.e., in terms of terms of “contracts that were that enactment”) before the effective date of the is existence insofar as it affects” those terms. at “unconstitutional 402-03. fits each of 1991 description exactly

That the two in tax law. Each affected the tax changes exemption exemp pensions applied employee’s tion of that each vested retire Therefore, ment of distinction ground employed contract. Eckles, one section of 1982 Act explain why Transfer not, violated the constitution while another section did is case 1 and each available in because sections 3 present have the identical retroactive effect of benefit taxing pay ments, when the to receive the had vested and payments a accrued, during account of services that were performed on statutory time when the contract that the benefits provided Trust from taxes. See United States Co. exempt were 1, 18-19, L Ed 2d New 97 S Ct 52 92 Jersey, US (1977) unconstitutional, under the federal constitu (holding clause, in 1974 of legislative repeal state impairment tion’s enacted in 1962 on the basis which statutory covenant 1974); had been made the state between 1962 loans Bank, that Dedham 447, 454 Mass King v. (holding it a different formed, give a court “cannot once of the statute which after- consequence construction contract was entered employment wards Once the passed”). term, benefits exempt into the tax retirement containing control. legislative state it beyond constitution placed Act, case, repealing 3 of the 1991 In this rights and payment for PERS benefit exemption effective, does alter retroac- Act became accrued before that The with public employees.12 the terms of the contract tively rejected 1989, chapter the voters referred to and Laws exemption covering repealers PEES benefits of the state income tax contained repealers 1 and of of that now found sections like those 1991, chapter funding repay of the PERS mechanism to a fraction 823. But the taxation, benefits, pension lost to state used have been each retiree would fund, general money. tapped itself derived Act the state different source of money state revenues. The 1991 Act uses from state income taxes and other repay a funds to belonging present PERS in the PERS trust to all and future retirees subjecting they PERS lose because minor dollar amounts fraction following chart the Eckles illustrates distinction con- the 1982 Transfer Act cerning apply does not to the 1991 Pension Taxation Act.

1982 Transfer Act 1991 Pension Taxation Act Section 4: Amended Section 1: repeals a statute income tax retroactively controlling expenditure benefits.

SAIF “surplus” funds.

Section 2: Directed Section 3: repeals state Treasurer to transfer income tax exemption (by dollars from SAIF account subtraction from taxable income) to state fund general of PERS benefits. account. case present is clearly from the distinguishable of Eckles that held that one section of the 1982 Act there

considered did not I, violate Article section 21. Differences include:

1. In Eckles, no term of contract that a provided dividend would ever be declared, let alone one providing dividend certain amount any or method to providing any ascertain an amount of any future In case, dividend. the present a retired member receives a fixed minimum monthly amount, amount already determined at the time of retirement. Eckles,

2. no statute and no other contract term in (refunds) evidence required that dividends must be paid. Whether to when pay, and the rate pay, or amount to pay, were always optional with the Board of Directors of SAIF. Not so for retirement contracts in the present case. Here the monthly payment amount is fixed at the time of retirement, based on provisions of the pre-existing contract enacted in statute and on selected options the retiree. by 3. There was no Eckles, set time in at which the claimed contract to a dividend out payable had surplus become or would become certain and fixed in amount. Thus payments retirement to state taxation. by Of course paying future retirement benefits are diminished for the “increase,” pay percentage because the funds to the added come from one or another funds, expressly subject $12.5

of the retirees’ billion trust a fund itself to the tax exemption promise of ORS 237.201. Eckles, say, removing could not million one $81 change any amount of retroactive any specific worked can in the case as say present individual as one each retiree. are

These of distinction consistent grounds totally with and the several pronouncements supported Eckles court that:

(1) point “Plaintiff not of SAIF does performing by that SAIF has been excused virtue added). 389 (emphasis Act.” 306 Or at ‘ (2) Act, however, two section four ‘Unlike retroactively not Id. at does alter terms contract.” added). 402 (emphasis (3) premium “Insured benefit from employers may surplus drawn from IAF funds. reductions and dividends ** * in the That These benefits are set ‘discretion’ SAIF. showing does insured preclude ‘discretion’ transfer, employers were harmed but the existence 402 n that harm cannot Id. at 24. presumed.” (4) funds showing that the transfer of “[There is] no * * * harm to contractual interest.” [plaintiffs’] caused some at Id. 403. “ command state cannot avoid a constitutional [T]he state’s interests by ‘balancing’ against it another of the obligations, such as the ‘vital interests’ protection people.” Id. at 399.13 authorities,

Under alter- foregoing Const, Art cannot stand. Or ing existing obligations, Act 21. of the 1991 are void I, § Sections and 3 pay- accrued future retirement previously rights the date work before effective ments based on performed 1991 Act.14 13 297, 305, Publishing O’Leary, P2d Oregonian 303 Or 173 See Co. also (“The (1987) by ‘balancing’ it government command cannot avoid constitutional obligations”). against of its another correct, analogy holding portion would if of Eckles were that Even the to the trustee, Eckles, acting government, point. In as poor case to on that follow million, returning successfully one dollar $8Í avoided even converted to own use its owners, rightful without enforcement of beneficial owners court to its left the SAIF, 570, 660 (denying rights. Frohnmayer v. P2d their also See courts). independent access to the SAIF supports proposition majority opinion, also Note 314 Or at 27 of impair obligations of the PERS members’ 1 and section 3 that both section calling adjectives, attempted by the tax use of The disavowal retirement contracts. OTHER CONSTITUTIONAL VIOLATIONS Clause, Federal Contracts Article Section 10. In United States Trust Co. v. New Jersey, supra, agency a state A money. statutory borrowed covenant related to that transaction that borrowing promised certain reserves and not be used any revenues would for other Those purpose. reserves and revenues were for pledged security bonds to be issued after the covenant was enacted. In legisla- ture repealed statutory covenant. The Court of Supreme the United States that the 1974 act explained impaired contract under which the was loaned money between 1962 and 1974. The state law was declared void.15

The fails to majority force to the or the give facts in United States Trust Co. v. New Jersey, holding supra, that the state law diminishing security the state promised by of bond repayment borrowing by repealing promise violated the impairment of contracts clause. The majority relegates case, this adverse to to a “see generally” view, cite supporting only the that current proposition federal court analysis of the federal clause differs from current analysis clause. 314 Or n at 35 39. The law struck down in United States Trust Co. v. New Jersey let hook, state off the partially, as does section 3 of the 1991 Oregon Act. Section 3 is unconstitutional under the federal I constitution. dissent from the failure to so majority’s hold.16 exemption “ageneral” statute, in ORS 316 “isolated” and 314 Or at does reasoning not overcome the of note 27. 15The rule of United Jersey, supra, States Trust Co. v. New apply would to tax (11 Otto) Mississippi, Stone v. 814, 820, 5 As contracts. 101 US L Ed 1079 (1880), states: is, “All that has been [govern- determined thus far for a consideration it may, discretion,

ment] in the public good, exercise of reasonable and for the powers [i.e., particular surrender a of its granting in this taxation].” majority support cites two federal cases to failure. 314 Or at 35. (16 Otto) Colorado, Brown v. 106 US L27 Ed 132 the Court said: “Neither does the record show that a decision was rendered below favor of validity Colorado, impairing law of No of a contract. question presented by pleading, such rulings and the do not indicate * (16 anything brought of the kind was to the attention of the court* *.” 106 US Otto) at 98.

56 Brand, Ex Rel. Anderson v. Indiana US 303 L

104-05, 58 S Ct Ed a statute of Indiana, years’ a teacher tenured status five granting after was referred and made of a teacher’s employment, term contract. The statute included a limited the condi- termi- employment tions under which the teacher’s could be Thereafter, nated. the statute was and the district repealed who than a teacher had served more five years discharged her contract to tenure. The Court recognizing without the statute repeal held that of Indiana teacher tenure violation I, in of Article impaired obligation contract 10, of the federal constitution. — a prohibiting The constitution’s force state — not a law of contract does passing impairing obligation on whether state depend government question its statutorily choose “breach the contract” by ignoring When state public employees. manifested promises must, terms of here, it order to avoid the pass as must law contract, impairment obligations pre-existing are vio- both the state and federal constitutions clauses of breach, it is but an effort case, just lated. In such each thereby violating or diminish obligation, eliminate contracting of the government constitution. Where the one no public regulatory purpose, where there is parties, policy new law in order and where the must government pass contract, the government’s avoid a substantial formed, law at time the contract was existing stated in the Trust v. New violated. United States Co. the constitutions are Sturges Jersey, supra. Justice Marshall said As Chief Crowninshield, (4 Wheat) supra, at the contract US prohibit was drafted “to use clause impairment Seattle, 233, 237, Hays Likewise, 64 L Ed v. Port 40 S Ct US (1920), the Court stated: complete Washington, performance pending or after “Had the materially scope passed performance by of his complainant, an act to alter lands, compensation, upon filled to diminish his or to defeat his lien obligation. impairment attempted no have been an there would doubt simply, seventeen legislation question purpose or effect. It after had no such contract, provided years delay performance that the without substantial public to the over project to the lands turned should be abandoned title Ibid, added). (emphasis municipality.” majority Or at 35. Obviously, what cites both cases for. 314 neither case holds the same mischief [of means which [by government] by obligations] might produced.” impairing THE REMEDY FOR THE CONSTITUTIONAL WRONGS 796, 15(1), pro- Laws chapter in part: vides

“If Supreme Court determines that such taxation vio- constitutional provisions, Supreme may, lates Court discretion, its fashion an appropriate remedy.”

I that the concur PERS benefits not be pension “may taxed.” 314 atOr 31.17 constitution,

To defend the I declare sections and 3 The Retirement Taxation Act, void, invalid, and I dissent from the impermissible. failure to do so as If majority’s to section 3. I would necessary, 17Injunctive remedy against public relief also is as available as other private rights, West, Wiegand 254, 144 officials for violations of v. 73 Or P 481 appropriate prevent prohibited Enterprise and is to collection of taxation. Ir. (1931) (court Co., 468, 473, 300 Enterprise equitable power Dist. v. 137 Or P 507 has authorized, imposed property to restrain collection of tax where tax is not or is on Russell, (1927) subject tax); Pierce, 337, 345, to Dant & Inc. v. 122 Or P255 (equity appropriate enjoin already Injunctions paid). is to collection of tax which is peculiarly appropriate prevent multiple are to both and successive suits such as are probable Johnston, Eldridge 379, 411, 245 (1952); in this case. v. 195 Or P2d 239 see (1912) Andrus, 78, 89, (injunction also appropriate Micelli v. 61 Or P120 to prevent “reasonably apprehended” repetition damages Injunc trespass). appropriate government law, tions are where the threatens to enforce a void Alum. (1957) (“It Bend, 412, 423, 311 Utensil Co. v. North 210 Or P2d 464 is clear that this court is committed to the rule that if the threatened enforcement of a void ordinance rights injunction properly party, will prevent affect the of a will lie to the threatened occurring.”), irreparable damages occur, menace from and where will otherwise (1913) (“The Co., 223, 233, 129 Bernard Willamette Box & Lumber 64 Or P 1039 ‘irreparable damages,’ issue, prevent injunction may wrongs term to which includes repeated continuing character, damages of a and or which occasion that are esti standard.”). only by conjecture, by any mable and not accurate See Hickman v. Six (1975) (court Homes, Dimen. Cust. 543 P2d 1043 in its discretion case). grant injunction justice equity based on Injunction appropriate remedy is also the for the federal constitutional violation. 282, 287, 38 County, 510, 62 1110, 1117 See Union P. R.R. v. Weld 247 US S Ct L Ed (1917) (reversing injunction grant against lower court’s refusal to collection of an allegedly illegal adequate remedy, by tax where the of an law a existence action at for taxes, uncertain”); afterpayment, Osage refund of is “debatable or United States v. 128, 134, County, (finding adequate 251 US L S Ct 64 Ed grounds injunctive against systematic for relief local tax exactions where there was disregard purpose destroying and intentional of law state officers rights States”). persons “subject protection of a to whole class that was of the United gov-

enjoin any threatened taxation contravention promise payments. to never PERS retirement ernment’s tax dissenting. PETERSON, J., legislature’s power power A most basic is to corollary important, power, equally laws. A to but enact that power repeal laws it has At the heart is the enacted. power levy power power, govern is a third taxes. general legislature rule, one cannot bind later As legislature. majority that, states because the tax Employes’ parcel enacted “as Public 1953,”

Retirement Act of it follows that “former larger 314 Or at 25.1 237.201 aterm the contract.” disagree for these reasons: perma- In order

1. to find intended nently bargain away power tax, must that intention unmistakably Inclusion of a tax with other clear. is not sufficient to establish the statutes create contract permanent exemp- requisite legislative intent to create a tion. legislature, intend 1969, in and did not to 1945,1953,

2. The permanent employees create tax contract with PERS to a exemption. Legislative subsequent particularly sessions, action

3. legislature 1971, did not believe the shows that away. power to tax been contracted had intended to In order to find that 1. power bargain away permanently tax, its unmistakably Inclusion a intention must be clear. a con- other statutes that create tax with legisla- requisite is not to establish tract sufficient permanent exemption. tax intent create a tive Supreme United Court of the Both court this away its emi have a cannot contract held that state States Bridge police power. power or its See WestRiver nent domain (1848) (a (6 How) state Dix, 507, 12 47 L Ed 535 v. US Co. domain); Boyd away Alabama, 94 v. not contract its eminent Otto) (1876) (a (4 24 state cannot 645, 650, L Ed 302 US State Oregon, Eckles v. police power); its away (1988) (the cannot contract state P2d 846 380, 397-98, 760 Or appeal police power), or its domain power its eminent away (1989). Court of Supreme The 490 US dismissed against prohibition not stated a similar has United States tax. Unquestion power impairing permanently state’s upheld power the Court decisions of early ably, However, the Court to tax. away power to contract states finding against rule of construction has a strict applied Co. v. Michigan Ry. & Wisconsin exemption. tax irrepealable (1903); L Ed 229 379, 24 Ct US S Powers, 191 L Ed 679 231, 19 S Ct 173 US Kentucky, v. Covington (1899). United Court of the of the Supreme No decision has an irrepealable last 100 years upheld in the States exemption. and the Court Supreme of this court

Precedents rule of construction this strict suggest the United States When a tax exemp- tax exemptions: irrevocable concerning that does create with other legislation tion is included create an irrevocable tax contract, the intention to there can shown that clearly unambiguously must be so intention. doubt about the legislature’s be no 306 Or at In Oregon, supra, Eckles v. State of I, Oregon section concluded that Article this court made the state as well Constitution, to contracts applied that conclu reaching between private parties. to contracts I, origins had its sion, the noted that Article section court clause Clause, I, Article in the federal Contract Con Constitution, and that the federal of the United States con had been interpreted encompass tract Clause Constitution adoption tracts prior is that of that conclusion 1859. Id. at 389-90. significance later legislature Clause may prevent Contract if that legislation legisla earlier repealing amending Peck, US nature of a contract. See Fletcher tion is (6 Cranch) then, a law is (“When, L 87, 135, 3 Ed those the law cannot divest contract, a a of repeal its nature rights”). that the a determination

Because legislatures of away power intended to contract future issue concerning particular and of the people legislate results in a diminution of sovereign power, this court find an unwilling to intent to create a contract absent an unambiguous expression intent to do so from the legisla- ture. Eckles v. State Oregon, supra, 306 Or at 397. In Eckles, the plaintiffs claimed that a 1982 law authorizing (IAF) transfer of from the money Industrial Accident Fund the General I, Fund violated Article of the Oregon Constitution, because the law the IAF creating contractually obligated state not assert any interest proprietary IAF. whether determining act legislative creating the IAF was a the court stated this rule construction:

“[A] state contract will not be legislation inferred from does not unambiguously an express intention to create a . [Citing Although cases.] contract. the rule is concerned with agreement, existence of contractual rather than with the extent of the agreement, created effect of the rule is to eliminate the state’s contractual obligation whenever concerning there is doubt agree- added). ment.” Id. at (emphasis Accord Aldrich, v. Campbell 213-14, 79 P2d 257 (“the intention of the legislature thus to create contractual obligations, to a certain extent of resulting extinguishment powers, must clearly unmistakably governmental appear” (emphasis dismissed 305 US 559 added)), appeal United States Trust Co. v. New (1938); Jersey, 1, 17 n US Charles River Bridge (1977); 97 S Ct 52 L Ed 2d 92 (11 Pet) (1837). Warren Bridge, 420, 544, 36 US 9 L Ed —

Eckles stated the rule a state contract will general not be inferred from legislation that does not unambiguously — express an intention to create a contract and then listed other rules state contracts inferred from special concerning legislation. Eckles v. State Oregon, supra, 306 Or at 397-99. special Those rules include the rules power state’s eminent domain is not limited the Contract Clause and ‘ ” Id. at that the state not contract may away ‘police power. Eckles also 397-98. suggested there be other special I, rules within of Article section 21. language history Id. at 399. Another that, such rule is because the special to tax power government governmental is at the core intent to tax must power, legislative relinquish power

61 no as to leave expressed unambiguously and clearly be so for doubt.1 room in court, dictum, this stated that

As early no to has right be that “the may better rule the as to it of the state so power place bargain away taxing v. succeeding legislatures.” Hogg the control of beyond added). (1893) 339, 341, P McKay, (emphasis 23 Or 31 779 Portland, City Ladd v. 271, 275, in later, years Five of 51 P 654(1898), city of a to tax for power which concerned the tax power the court stated that the to improvements, street ‘ be unless the intention presumed relinquished ‘is ‘never ” declared in clear and terms.’ unequivocal is relinquish and Baltimore Philadelphia, Wilmington from (quoting How) (10 v. 376, 393, 13 L Ed Maryland, Railroad Co. 51 US (1850)). States has Supreme 461 Court of United of against irrepealable a rule strict construction long applied its a intent exemptions; legislature’s away tax Bank all doubt. In Providence must taxing power free from (4 Pet) 514, L Ed Billings, v. 29 US Chief Justice Marshall stated: taxing power importance;

“That is of that it is vital government; are truths which it essential to the existence of acknowledged are necessary They cannot be to re-affirm. and seem, It relinquishment asserted all. would that say, power presumed. such a is never to be We will not that relinquish it; sufficiently not that a consideration it, may induce a not exist: but as valuable to release of partial retaining is in it community whole interested insist, undiminished; right community has a that ought presumed, abandonment to be in case not which it purpose the deliberate state to abandon does appear.” term, it “the

In the Court’s December 1850 reiterated that taxing power relinquished of State is never to be presumed unless the intention is declared clear and relinquish Bal- and Philadelphia, Wilmington unambiguous terms.” (10 How) at timore Railroad Co. Maryland, supra, v. 51 US Portland, supra, v. quoted approval City with Ladd taxation, general power rule for Because of the essential nature of the strictly construing exemptions they state’s tax are in favor construed Fish & power against Santiam taxpayer’s free tax. to tax and to be (1962). Com., v. Tax Game Ass’n Or 368 P2d 401 see also Vicksburg, Shreveport 275; 32 Or at Pacific Dennis,

Railroad Co. v. 665, 668, 116 US 6 S Ct 29 L Ed (noting quoted strictly “rule has been upheld constantly reaffirmed every variety expression”).

Concerning the that must be made to type showing establish an Court irrepealable exemption, Supreme of the United States in Covington Kentucky, supra, 173 US Clause, at a case the federal involving Contract stated: — — relating

“Before particularly a statute one to taxation irrepealable, subject should be held to be or not to amend- ment, repeal directly an intent not to or amend must be so unmistakably doubt; and as to leave no room for expressed otherwise, plainly expressed. the intent is not It is not so only when the existence of the arises expressed intent conjecture.” inference or

Given the and federal Contract similarity Oregon Covington Clauses, is for persuasive authority proposi the will to create only tion that the most suffice explicit language v. State And Eckles statutory exemption.2 an irrevocable tax Oregon, supra, 390-91, 397, 306 Or at which enunciates is standard, authority. the same essentially binding to I do not the state has the power dispute its to tax. The is what away power question tax state to create a contractual permanent the required answer to that is that the legislation The exemption. question unambiguous general more than a clear and must evidence contract; to create a specific create a a intent intent term of contract must tax a the permanent unambiguously and clearly intent must be so shown. The legislature for doubt the to leave no room expressed as core one of the away taxing power, to contract intended legisla- and future people reserved to the legislative powers Constitution. IV, 1, tures Article “ way: recently, proposition ‘The Supreme in this More Court restated bargained away regarded if there is power or of taxation is never to be as surrendered ” Phillips, Atlantic Coast Line v. purpose.’ 332 US room for rational doubt as to the Wright Georgia Railroad 168, 172, 67 1584, 91 L (quoting S Ct Ed 2d 1977 (1910)). Co., 420, 438, 242, Banking & 54 L Ed 2d 544 216 US 30 S Ct finding against irre- rule Eckles, this strict with Consistent applica- limiting special exemptions rule pealable is a tax with the in manner consonant a Contract Clause tion of the history language I, section 21. of Article and 1969, 1953, did not and legislature, 2. The create employees contract with intend to exemption. permanent deciding Laws whether

In impairs first must court of a prior amend- 237.201, to the 1991 determine whether the state and PERS legislature, a contract between ment, was a term of question employees. is whether the legislatures 1969, intended to bind itself and future 1953, or permanently statutory contract, voters, exempt all and former state retirement income of current effectively public employees tax, income from state local relinquishing legislative ability core to exercise this authority. enacted the Public (1945 Act),

Employes’ ch Retirement Or Act precursor present 23 of the PERS laws. Section provided: 1945 Act annuity, person pension,

“The of a to a contribution, allowance, the return of retirement itself, any annuity, optional or retirement allowance pension, benefit, or any or death or other accrued benefit act, and the of this accruing any person provisions to under act, money created shall be in the various funds state, and shall county, municipal from all and taxes exempt attachment, execution, any or subject garnishment, not be to any insol- bankruptcy other or the or process operation law, Or Laws ch unassignable.” and shall be vency §23. retirement benefits four attributes of the Section 23 describes (1) they exempt

provided by from all “shall be the 1945 Act: (2) they municipal county, be taxes”; “shall not state, subject and garnishment, attachment, or other execution, to * * * (3) operation subject process”; they to “shall not be (4) they insolvency any bankruptcy “shall be law”; and or unassignable.”

Although the use of the “shall” is mandatory indica- strength legislature’s tive of the of the intent regarding those attributes, four of section language exemption does provision, express not and clearly unambiguously not to or repeal Certainly, intention allow amendment. it is infer exemption that the tax is like other financial plausible derive from petitioners employment benefits their state But the conclusion that the tax exemption contracts. con- must rest more than The upon legislature’s tractual that. must be clear and as to unambiguous intention so leave no room for doubt. The of the section 23 placement exemption have do other little or to with among provisions nothing benefits that be the of a monetary might subject intended not to be suggests exemption contractual.3

There is legislative concerning no available history time, At legislature’s prevailing the 1945 intention. was that government employee pensions pensions view of the given through were beneficence sover gratuities will and could modified or ehminated at the eign Teachers’ Ret. Fund Ass’n, sovereign. See Crawford (1940) (“There P2d 77, 87, 88, 99 is a sound distinction “is ‘annuity’ between a and an the former ‘pension’ always see also control”); Annot, 52 ALR2d 437 subject legislative was that both (notingthat, prevailingview were noncontributory sub contributory public pensions elimination, also ject noting modification or but legislative pension states were vested beginning recognize that some plan’s plans upon completion rights contributory process Exemptions or from taxation and execution other are unusual. See, e.g., sprinkled exemptions. with such ORS Revised Statutes are exempt process); (pensions ORS 316.758 and from execution other 23.170 (workers’ (income severely disabled); 656.234 for the ORS 316.765 process); generally exempt compensation from other ORS benefits execution or (bene execution); exempt (unemployment compensation 748.207 from 657.855 attachment, garnishment, exempt payable fraternal benefit societies fits benefits, Although exemptions, process). like the such other beneficiaries, that fact not make them contractual. value to the does have economic many exemptions noted above those noncontractual Given the similarities between exemptions benefits, are exemptions mere that the PERS for PERS fact and the rights legislation contractual is not sufficient other contained that created respect unambiguous to the tax intent to contract with a clear and establish exemptions. exemption and other

65 are consid- benefits now though pension Even requirements). not clear or unam- contractual, certainly it is to be ered the of the 1945 Act that or context language from the biguous a term of state exemption to make the tax intended legislature contracts. employees’ Act, Or 1953, the 1945 legislature repealed

In the enacted the subsequently §§ ch 2 and Laws Act). (1953 1953 Or Retirement Act of Public Employes’ scheme, PERS the creating ch 200. the present language the 1953 Act a with provision included in legislature 200, § ch to section 23 of the 1945 Act. Or Laws identical the same four attrib- 22. Section of the 1953 Act retained in The next inquiry utes for benefits the 1945 Act. provided in the legislature, creating present whether the 1953 scheme, repeal to contract the state’s away power intended the 1953 Act. the contained exemption Because the operative language exemption in the 1953 is identical to the provision language Act —Act did not a clear and express unambiguous which — to create a for a tax the intention contract elsewhere, if all. existence of such an intent must be found at Attorney relies on an General majority opinion and clearly unambiguously legislature that the concluding for those the income tax to include intended by any not to be modified that as of benefits opinion The General’s Attorney legislature. subsequent status the pre-1953 the tax-exempt no to makes of reference exempt of the tax status legislative preservation The benefits. exemp- for a continued tax and provision benefits pre-1953 the then- given is understandable PERS benefits tion for retirement benefits employees’ prevailing policy state The “shall be local taxation. from state and be free should 237.201, Act, the 1953 of section language exempt” exempt “are way saying a more than shorthand is nothing in effect.” remains while this statute the legislature’s concerning is much doubt There tax exemption. a create, permanent in 1945 or to intent it in 1969 when intent to the legislature’s no doubt as There is 640, § ch 13. 237.201. Or Laws amended ORS further amendment, provided: the statute After the annuity or pension, to a right person “The of a contribution, the allowance, to the return or retirement itself, any optional retirement allowance annuity or pension, or accru- benefit, other accrued any or or death benefit to of ORS 237.001 provisions under ing 237.315, any person to by ORS created in the various funds money and the state, county from all 237.281, exempt be shall 237.271 and shall imposed, or taxes municipal and hereafter heretofore any or execution, attachment garnishment, subject not be or insol- bankruptcy operation or the other process enacted, and or existing law vency hereafter heretofore (1969) (added language ORS 237.201 unassignable.” shall be emphasized). as be read might promising language the additional

Although history legislative and the events exemption, tax permanent a conclusion such contradict 1969 amendment was legislature the conclusion support strongly not to the exemption it clear that to make merely trying silentio. amended sub language that the shows history The 1969 legislative courts to prevent was intended 237.201 added to ORS tax enacted between 1953 and 1969 and statutes interpreting earlier enacted PERS impliedly repealing thereafter as ben- thereby exempt otherwise subjecting tax exemption Rather than an intent provisions. evidencing efits to their the 1969 amendment away taxing power, state’s more appropriately interpreted clarifying scope is nothing income tax There statutory exemption. intended to history suggest legislative tax to all PERS permanent virtually grant employees and retirees. shows that the 1969 amend- legislative history

ment at stemmed from circuit issue a recent court decision that PERS retirement benefits were holding subject state inheritance tax because law had inheritance been enacted in time the retirement law. Max subsequent Manchester, the executive secretary Employees’ Public Board, legislative sent counsel a of proposed Retirement list on the changes. Number 5 list states: says subject 237.201 benefits to

“ORS retirement not subject Circuit court has retirement benefits to tax. said state inheritance tax because inheritance tax is later than retirement law. Make clear retirement benefits exempt that taxes, from local not dependent upon all state and when statutes enacted.”

In order to make clear that retirement benefits would be taxes, exempt from all state and local even the tax law though later, amended 237.201. legislature was enacted Far from that the 1969 amendment was suggesting obligation to create a that would bar intended contractual tax, future of income the 1969 amendments were imposition to that the ORS 237.201 only clarify intended If to that at time it was enacted. not limited taxes existed continuing legislative confirms legislation the 1969 anything, benefits, retirement taxability control the of PERS to power relinquish such irrevocably not a decision legislative power. sessions, partic- in subsequent

3. action Legislative did not legislature shows ularly been contracted to tax had power believe away.

Two after the 1969 years amendment, the legislature amended ORS 237.201 to make PERS retirement benefits subject to the inheritance tax. Or 732, § Laws ch 3'. Eight years that, after the 1979 legislature amended ORS 237.201 to make PERS retirement benefits subject “execu- tions or other process arising out of a support or an order pursuant entered to ORS 23.777 to 23.783.” Or Laws And, § ch 2. the legislature amended ORS 237.201 to make PERS benefits subject to additional support obligations. Or 671, § ch 9. Concededly, actions of 1971,1979, or 1985 do not determine what was the 1969 legislature’s Nonetheless, intent. these changes — — particularly the 1971 changes relevant, are for they show that subsequent legislatures viewed ORS 237.201 as — described above subject amendment or enlarge restrict liability other attributes of PERS benefits legislature decided was appropriate.

Conclusion sum, after 1945, 1953, examining and 1969 legislation concerning the tax exemption benefits, for PERS I conclude that none of that legislation evidences a clear and unambiguous intent to contract away sovereign power taxation of future legislatures and the I voters. do deny that the added in 1969 language evidences a strong legislative at intent that time. regarding However, Rather, not the issue. the issue is whether the legislature ever has clearly unambiguously expressed an intention create a permanent tax exemption. With but one obvious substitution, the conclusion of the Supreme Court of the — United States in Covington v. Kentucky, supra, interpret- ing statute that provided that certain property “shall be and remain, forever state, exempt tax,” county, city — US at 233 is equally apropos here:

“The utmost that can be said is that it be inferred from the in declared, terms which the exemption was that the legislature purpose had no at time [1945,1953, the the act of passed 1969] was to withdraw exemption the from taxa- tion; power not that the reserved exerted, would never be so concerned, far as taxation was if in judgment the of the legislature public the interests to be done.” Id. required at 239. that, argument

I am the persuaded majority’s not the rights exemp- because PERS creates contractual tax statutes, necessarily PERS the exemption tion is within the Granted, a of the with employees. term state’s contracts its tax is some that the argument, given there resonance to like other has economic value to state employees, exemption the and duration of PERS benefits. provisions setting amount a Nonetheless, for finding the standard given heightened mere tax contractual tax the exemption, placement is not a law that creates other contractual exemption rights Taken logi- the necessary sufficient evidence of intent. conclusion, the approach cal the would majority’s require intent affirmatively any disavow to create legislature the contractual to a tax when it included exemption the law, within PERS law. exemption Today, 237.315, fills more than 58 pages 237.001 It has regular Revised been amended at every Statutes. opinion, session since 1945. Given the legislative majority (or must to make it clear that legislatures what future do some) to be changes are intended contractual?

The century Supreme 19th decisions Court exemptions granted corpo- the United States involving contrary. early rate charters are not to In the part Court that the issuance of a charter century, 19th held created a contract between the state Trustees Dartmouth itself of the charter. entity availing (4 Wheat) Woodward, L Ed 629 College US (1819). was The clear and intention required unambiguous days, shown. In those a charter was a contract with easily The tax sovereign. indisputably cases it was the and core of many pith contract. Therefore, the tax withdrawing contract. The Branch the State Piqua contract. See impaired (16 How) 369, 14 L Ed 977 Ohio v. Knoop,

Bank of 57 US (1853) (tax providing exemption granted legislation The Gordon v. repealable); charter for banks not corporate How) (3 Court, 11 L Ed Tax 44 US Appeal (same). sufficiently corpo- is not like a here legislation rule of Perhaps the same construction.

rate charter to justify charters and distinction between significant the most A of the contract at issue. formality PERS scheme is the contract between the state and integrated charter was an and to entities to avail themselves of the benefits choosing The formal legislation. assume the the charter obligations under a assent for charter established required incorporation between the state and the the four corners the contract corporation.

The nature of the accrual of public contractual but clear when the anything legisla- retirement benefits was indicate that ture enacted the 1945 Act. That our precedents to be contractual does not are now considered public pensions concerning public eliminate the lack of the law clarity of the and 1953 Given legislation. at time pensions clarity employ- lack of and the lack of formality there is no either the justification treating ment intent to con- legislature’s presumed general accrual of benefits tract with employees regarding also as intent to contract with for a employees permanent tax because the was enacted as exemption merely exemption the retirement part legislation creating system. I have found no

Finally, although Oregon precedent on a 1979 decision of the directly point factually, Supreme Ohio, 22, 391 Court of Herrick v. 59 Ohio St 2d NE2d Lindley, Ohio had a PERS adopted system apposite. similar to and had also of the same Oregon’s adopted, scheme, a identical version provision virtually pre-1991 exempted of ORS 237.201 that PERS benefits from Ohio state income tax. The withdrew the income Ohio for PERS benefits. Ohio Court Supreme rejected retired claim that the statute created employees’ “a later vested that could not right exemption” [the tax] that, 391 NE2d at 731. The court held changed. although vested, to PERS benefits to a tax did right right not. legislative body grants right “When exemp- a vested taxation, partially

tion from it relinquishes ability to deal changing with fiscal conditions in the power future. The tax being governmental power, a fundamental its impair- ment should not be based a debatable construction of upon statutory language. contrary, every To the reasonable doubt against should be resolved such an impairment. 3307.711, this standard to R.C. 145.561 and

“Applying Assembly hold was not the intent of the General we grant appellees that it to receive their pensions a vested if taxation. It is reasonable to assume that exempt from state it could have legislative body, such had been the desire of the vesting exemptions by appropriate for the ofthe tax provided (citations omitted). language in at 733 these sections.” Id.

If the had intended to create a contractual Oregon legislature a it have intent tax would its right exemption, expressed no doubt. and so as leave room for clearly unambiguously The to that used the 1929 wording might by well be similar in ORS 656.634.4 legislature enacting sum,

In is whether the dispositive question 1953, or 1969 intended to future legislature prevent legisla- subjecting tures the voters from PERS benefits to and/or stated, of the express language taxation. As statute clear, exemption insofar as the income tax itself is crystal concerned. But it is but clear anything legislature bind the in such a legislatures intended to hands future state, A that the has way. by substantial conclusion a class of citizens or any timeless promised exemption in serious way principle generally erodes property amendment of a cannot limit the legislature power “[a] either as to the extent or manner of subsequent legislature, Sands, 1A Construction Statutory its exercise.” Sutherland 1972). (4th Further, would 107, § 22.07 ed such conclusion thwart, to initiate right people the reserved part, such statutes. See Or Laws legislature ch knows how to enact (at Oregon, 380, 392-93, v. States 760 P2d 846 Eckles issue (1989)). appeal creating compensation a workers’ trust dismissed 490 US 1032 reach, provided: beyond legislative be the act fund intended to Oregon hereby industrial accident fund does declare that “The state of Oregon, being chapter compensation by act of created the workmen’s legislature by Oregon, various sessions of the Laws of as amended General

thereafter, purposes for the uses and declared and the same is a trust fund amended, other, to the said fund and that the contributions said act as so and no integral part Oregon of said fund have become an made the state of heretofore fund, catastrophe expended rehabilita- or allocated to and have either been fund, Oregon hereby segregated does and the state of fund or accident tion or in the contributions proprietary interest in said fund it has no declare any right state, hereby does and disclaim heretofore made said thereto use, hereby does any part for its own or thereof said contributions reclaim ” had, reclamation, any any right if it in or to of said fund. ever waive such 1(2), IV, under Article legislation Constitution. clearly did

I would hold that the away an contract intention to unambiguously express taxes. PERS benefits to state income subject power exemption, no for the tax Because there was breach a did not legislature’s the tax repeal of contract in violation impair state contract Further, Contract Clause. of either the or federal had employees state no contractual because retired repeal of that could not exemption, the tax under taking require just compensation result that would or federal constitution. either

I dissent. therefore issued to the of the 1945 Act. The notes prior repeal majority 237.980, that the 1953 enacted ORS 237.950 to legislature which preserved employees, accrued benefits state retirement It process liquidating pre-1953 system. concludes that that legislature pre-1953 believed contained enforceable contract and thus system rights pro- tected to a tax rights, right exemption. those including From that premise, majority legisla- decides intended the tax to continue as a contract ture it system when re-enacted that without substantial 314 Or at modification. 18-20. There is no but that the of the state in question policy it was was that the retirement benefits of should be from state and local taxa- employees exempt tion. But that is irrelevant to the issue before us. The largely is whether the 1953 without doubt question legislature intended to of future away legislatures power declare a be more appro- different taxation policy might different circumstances. Even priate assuming Attorney opinion General’s aware of the that PERS benefits intended generally that basis and on there is no basis than gratuitous, rather would be contractual

Case Details

Case Name: Hughes v. State of Oregon

Court Name: Oregon Supreme Court

Date Published: Aug 6, 1992

Citation: 838 P.2d 1018

Docket Number: SCS38544 (Control) S38549 S38700 S38701

Court Abbreviation: Or.