*1 25, 1995, OSPOA, Arguеd judgments and submitted October of the circuit court in Tissue, affirmed; judgment and Morgan SPEU reversed and remanded instructions; 21, 1996 with otherwise June affirmed OREGON STATE POLICE OFFICERS’
ASSOCIATION, Oregon Federation of and Parole Probation Officers Oregon Employees, and Association Corrections
Respondents, v. OREGON,
STATE OF Appellants.
(CC (Control)) 94C-14019; SC S42333 TISSUE,
Richard S. Swann, LaRhette Darrell Wells Garry McCorkle, and Respondents, v. OREGON, OF
STATE by through and Oregon State Correctional Institution Employee and Public Retirement Board,
Appellant, and PORTLAND SCHOOL 1J, DISTRICT NO.
Beaverton School District No. City and School District No. Defendants-Respondents.
(CC 94C-13963) Dawn MORGAN, Logan Michael Cullivan, Ann Ferderber, Paul and Respondents, and Sterling WILLIVER, Bruce Prunk and Hatch, Alice
Plaintiffs, v. OREGON,
STATE OF and Vocational through Oregon Division; through Rehabilitation Corrections; Oregon Department Education, Board of Higher State through Portland, City Appellants, *2 KLAMATH COUNTY and Deschutes County,
Defendants. S42511) (94-12-08563; SC UNION, POLICE EMPLOYEES SALEM Miller, Locke and Jim Terry Respondents, v. SALEM,
CITY OF Appellant.
(CC S42355) 95-C10338; SC
Linda Chief Portland, argued appellant City the cause and filed the briefs for Portland. City Attorney, argued Blair,
William Assistant Salem, G. City appellant the cause for of Salem. With him on the brief Stephanie Smythe, City Attorney, Salem. Daryl Hoag, Garrettson, S. Garrettson, Goldbert & Fen- argued rich, Portland, the cause and filed the brief for respondents Oregon State Police Officers’Association, Fed- Oregon eration of Parole Officers, and Probation Association Employees, Employees’ Corrections Salem Police Terry Union, Locke, and Jim Miller.
Gregory Reynolds Hartman, A. of Bennett, Hartman, & argued Wiser, Portland, respondents the cause and filed the brief for Morgan, Logan, Cullivan, Dawn Michael Ann and Paul Ferderber. With him on the brief were James S. Lory Kraut, Coon and J. Portland. Coon, Swanson,
James S. & Coon, Portland, Thomas argued respondents the cause for Richard Tissue, LaRhette Garry Swann, Wells, S. Darrell McCorkle. With him on Gregory Lory the brief were A. Hartman and J. Kraut, Portland. Hager Osborn, Miller, Nash,
John W. Weiner, & Carl- appearance defendants-respon- sen, Portland, waived 1J, dents Portland School District No. Beaverton Dis- School Oregon City trict No. School District No. 62.
360-a Rosenthal, of & Greene, P.C., Elden M. Rosenthal Portland, filed a on Braun, Richard H. brief behalf of amicus curiae Benefits Committee. J. HOOMISSEN,
VAN Fadeley, opinion. J., concurred and filed an specially part Gillette, J., concurred in and dissented in opinion, and filеd an Carson, J., which C. and Graber, joined. J.,
360-b *6 HOOMISSEN,
VAN J. question presented by appeals these four any part cases is of consolidated whether Ballot Measure 8 (1994)1impairs obligation plaintiffs’ Employes’ an Public (PERS) System Retirement contract with their employers I, in violation of the Contracts Clause of Article 10, section States Ballot United Constitution.2 Meas adding ure 8 amended the Constitution three sec (six tions to Article EX.The percent pick-up), held circuit courts that sections 10 (sick (guaranteed return), 11 Article EX rate and 12 credit) of leave violate federal Contracts agree. 11, Clause. We We hold that sections 12 of 10, Article EXviolate the Contracts Clause of the United States Accordingly, Constitution. we 10, 11, declare sections and 12 void.3 The circuit 11, courts’ declarations that sections (Ballot 8)
and Contracts Clause are and Or of Article EX Measure violate the federal question on a
determinations
of law
Ragsdale Dept.
are
reviewable de novo.See
v.
Rev., 321
(1995);
Oregonian
216, 217,
P2d 1348
v.
Post
Publish
(1974).
ing Co.,
214, 222,
268 Or
These cases were resolved Oregon mary judgment.6 Police In State Association Officers’ (OSPOA), plaintiffs challenged Oregon 10, sections v. State of granted plaintiffs’ The circuit court motions for and 12. 11, summary judgment all three sections on their claims that judgments Contracts Clause and entered violate the federal accordingly. (Tissue), plaintiffs Oregon v. chal-
In Tissue State of granted plaintiffs’ lenged only 12.7The circuit court section summary judgment their claim that section 12 on motion for judgment Clause and entered the federal Contracts violates accordingly. plaintiffs Morgan Oregon (Morgan), v. State of only City
challenged filed a cross- section 10. The of Portland indemnity asserting against state, state claim for city might any liability responsible incur as a result for is granted plain- passage of Measure 8. The circuit court of the tiffs’ motion for tion 10 summary judgment on their claim sec- granted Clause, violates the federal Contracts summary judgment City on its Portland’s motion for judgment indemnity against state, and entered claim accordingly. City Employees Salem Union v. In Salem Public
(SPEU),
challenged
plaintiffs
11, and 12.8 The
10,
sections
summary judg-
granted plaintiffs’
court
motion
circuit
that all three
violate the federal
ment on their claims
sections
judgment accordingly.
entered
Contracts Clause and
constitutional, statutory,
challenged
Measure 8 on various
Plaintiffs
Ballot
opinion
only plaintiffs’
grounds.
claim that Ballot
law
This
addresses
and common
Clause,
the basis for
the federal Contracts
because that was
Measure 8 violates
summary judgment
in each of these cases.
(1996)
Atiyeh
Oregon,
Educa-
323 Or
363 over These of the federal disputes applicability Contracts Clause arise from the different markedly parties’ view of law pension contract that Oregon regarding PERS that state contends the circuit courts represents.9 erred in that declaring 10, 11, sections and 12 the fed violate eral Clause. Contracts the state that Although acknowledges return, six rate of percent pick-up, guaranteed and sick are, leave or been, сredit at least have terms of the PERS con tract, the argues state that those contractual attach promises only for already performed work and that the state may mod or ify unilaterally even eliminate all of entirely any or those terms The state prospectively.10 relies on v. primarily Hughes State 314 1,Or Oregon, (1992), P2d 1018 arguing this court in Hughes construed law Oregon pension by recog nizing concept new and future “accrual” past, present, retirement benefits permits the state unilaterally and to reduce prospectively retirement benefits that it offered and that were its accepted either when employees, they first commenced work at a time thereafter.
Plaintiffs that, respond Oregon law, under pension the state has entered permanent into obligations contractual to them with to the six respect percent pick-up, guaranteed rate return, and sick leave credit. Plaintiffs further argue plan PERS is a statewide benefit defined retirement that is administered Employes’ Employes’ trustee Public Retirement Board. ORS ch 237. The Public (PERF) express statutory fund, separate Retirement Fund is an trust and distinct (“The 237.271(2) from the state’s General Fund. ORS 237.271. See ORS State of Oregon public employers and other that make fund contributions to the have no proprietary them”); interest the fund or in the contributions made to the fund (1969)(the Straub, 507, 521-22, 451 Sprague see v. also 252 Or P2d 49 state has no PERF). proprietary interest The State holds Treasurer the PERF as a mere cus managed by todian. PERS investments are 293.701et tributions of Council. Investment ORS seq. paid by Benefits PERS are funded from three sources: con (either employees’ paid by employers withheld from salaries or on behalf employees); employer contributions; earnings from the investment those adopted, adequate funds. At pay the time Measure 8 was the PERF had in PERS. funds to accruing all retirement benefits accrued Oregon legislature peo The 1995 established a different level of benefits for ple January 1, 1996. begin employment who their on or after Or Laws ch guaranteed higher age, 654. It That level called Tier Two. has a normal retirement no investments, pay benefits, return on no use ofvacation to increase disability by any payments compen offset retirement benefits are from workers’ sation. employed do not The 1995 amendments affect the benefits of PERS members 1, 1996. January before plaintiffs vested when or con- obligаtions accepted that those they may and that not be modified or ter- tinued employment unilaterally during *9 minated detriment the full plaintiffs their service careers.11 Plaintiffs public employment term of a also that the of unilateral contract have prerequisites argue the the already and that state has received benefit of accrued the rely on state’s Plaintiffs promises. primar- their reliance Bd., 445, v. Mult. Co. Sher. Ret. 265 Or 510 ily Taylor Dep. on (1973). P2d 339 the under federal
Analysis parties’ argument first, Contracts Clause this court to determine: requires there is contractual between relationship plain whether state; so, tiffs if the nature of the contractual second, and third, that have been whether a allegedly impaired; promises (here a constitutional of provision) impairs any state law if and, so, contractual whether promises impair those fourth, if the state “substantial”; so, ment is and whether law aby the substantial is impairment justified signifi creating and the method legitimate purpose cant and whether the state to constitutes public purpose used advance unnecessarily an broad of its contractual repudiation obliga Romein, v. Corp. tion to General Motors private persons.12 11 context, of‘Vesting” point concept refers in time which In this after working particular rights, they stop lose even if in a cov cannot benefit position. ered 12 opening The state’s brief asserts: exists, not case if state does in this that if a contract “The contend contract, impairment impairs that does 8 is not substantial. Nor
Measure
the state
light
significant
argue
Hughes
in the
that Measure 8 advances such
that,
legitimate public purposes
should the court conclude Measure 8
rights,
impairment
justified.”
impairs
is
contract
nevertheless
1505,
Jersey,
1, 25-26,
Trust Co.
431 US
97 S Ct
52 L Ed
See United States
v. New
(1977) (“The
subsequent
2d
Contract
is not an absolute bar to
modifica
92
Clause
obligations
obligations.
impairing
tion
private
essary
complete
Aswith laws
of a State’s own financial
contracts,
impairment may
be constitutional if it is reasonable and nec
an
standard, however,
important public purpose.
applying
an
this
to serve
necessity
legislative
deference to a
assessment
reasonableness
entity
governmental
appropriate
self-interest is at
A
because
State’s
stake.
money,
always
especially
a use for
taxes do not have to be
can
find
extra
when
obligations
spend
financial
it wanted to
raised. If a State could reduce its
whenever
regarded
important public purpose, the
money
what it
as an
Contract
all”) (footnote omitted)).
protection
provide no
at
also Richard A.
would
See
Clause
Epstein,
703,
Clause,
the Contract
L Rev
Toward Revitalization
51 U Chi
* * *
(1984)
repudiate
unilaterally
(arguing
“[t]o
allow a state
its contracts
very
is to
of factual coalition
contract clause was
invite
abuses
that the
181, 186, 112
1105, 117
503 US
S Ct
L Ed
328,
(1992);
2d
Assoc,
Bituminous Coal
v.
Keystone
DeBenedictis, 480 US
470, 504,
1232,
107 S Ct
compel payment of an annuity she claimed due her on retirement. The defendant refused to pay the annuity, that, arguing because the by-laws the association had been amended after the retired, teacher had she was required more for the same pay benefit. The defendant that, conceded retired, before she the teacher had the amount paid required under the by-laws. former In court, the trial affirming which had ruled in favor of the teacher, this court recognized “contractual relations” had been created between the parties: there “[W]hen had been full performance on the part * * *
plaintiff, her rights became vested subsequent and no change, by-laws in the could interfere with or impair such rights. Any utterly other rule would destroy stability all security in the plan[.] retirement fund designed prevent, every repudiation provide for we can be that almost sure will others”). groups expense benefits to some at the In personal November the state $157 refunded about million to income taxpayers gave corporate tax $166 credits of about million to income and excise taxpayers respect obligations pursuant with to their 1995 income tax to ORS (2 statute). percent surplus 291.349 “kicker” “** * by continuing teacher, The in the service and making accepted fund, has, effect, contributions to the through governmental agencies, State, the offerofthe its * * * annuity pay upon age. [We an retirement at a certain dealing] rights payment are with the of an annuity provided anof for under the terms of the statute * * * part whichbecamea ofthe contract. it, Aswe view the might mere fact that of the fund consist of contribu- tions the schooldistrict wouldnot refute the idea ofcon- relationship. tractual great opinion expressed ‘While there is a differenceof question the courts relative to the as to whether a plans acquired teacher under similar retirement fund has * * rights authority *, vested we think the trend ofmodern and the better-reasoned cases are to the effectthat contrac- upon performance that, tual relations are created and by by subsequent legislation full rights impaired annuitant, accrue which cannot be * * (citations *[.]”164Or at 86-88 omitted). employer may did not decide whether an unilater-
Crawford
ally
during employ-
alter the terms of the retirement formula
respect
employee already
ment, with
to services that the
has
performed.
question Harryman
This court answered that
Roseburg
District,
v.
Rural Fire Prot.
244 Or
“One Cash *11 Termination.” employer unilaterally
During
employment, the fireman’s
previous
revoked its
authorization for sick leave credit on
employer argued
trial,
retirement. At
that the allowance
gratuity and,
credit on retirement was a
there-
for sick leave
right the fireman had
credit was ter-
fore, whatever
provision.
employer
its sick leave
minated when
revoked
rejected
argument:
This court
“When plaintiff entered
his
upon
employment with defen-
dant he was advised that he would receive an allowance for
accumulated sick
upon
leave
termination of employment.
He accepted employment upon the assumption allowance for sick leave was a part
comрensation
of his
for
services. Since it
was a
of the inducement to accept
employment, it can
regarded
be
as a contractual term of
plaintiffs employment.
not,
Defendant could
therefore,
deprive plaintiff of the allowance after he had earned it.”
(footnote omitted).
In Adams v. Schrunk, 6 Or 580, 488 App P2d rev (1971), den the Court of Appeals applied Harryman. The employer attempted to amend its retirement after the plan plaintiffs had commenced their employment as policemen by altering, plaintiffs’ detriment, an rule existing govern ing the calculation of the period of service for required retire ment. The question in Adams was whether the plaintiffs would credit get for their temporary service before their per manent appointments. The Court of Appeals concluded that the employer could not amend the unilaterally rule after the plaintiffs had commenced service so as to cut off their right have their temporary service included in their eli computing gibility for retirement. The Court of Appeals, Craw citing ford, noted that Oregon rejected had the gratuity theory pension contracts: ‘We conclude therefore city that the could not the adoption of the amendment of 1949 cut off right ofthese
plaintiffs, who were then and at all times since have been permanent officers, to have included the period of their prior temporary service in computing their eligibility for retirement.” 6 Or atApp 587-88.
Thus, Adams, the Court of Appeals as recognized, Craw- not, had that a contractual right could be established ford before the completion service for a necessary pension. Taylor, Or at 450-51, this court specifically approved holding Adams that a contractual right could be estab- lished before the completion of the service necessary pension. *12 the case on which Taylor, plaintiffs primarily rely
In matron asserted that she for inclusion here, jail qualified retirement for sworn County’s plan personnel. Multnomah Multnomah amended its claim, County plan to her response the definition of a covered and to employee, to delete former from the new definition. The sued plaintiff omit matrons jail in the retirement the to include her county original to compel This court stated: plan. theory gratuity to advocate the of
“Somе states continue the the pensions largess came from of pensions. Originally, increasing An recipient and the had no vested interest. king abandoning are this rationale and are number of courts theory upon pension a contract which looks as adopting promised delayed compensation the but part employee’s of job. Today, probably of his it can be said performance for the theory generally accepted compensation that the is that of acquire it for an a ‘vested’ possible employee and that [A]nnotation, right pen See “Vested right pension. to a 2d, McQuillin, 437; Municipal 52 ALR pension,’ sioner ed, 3rd 12.144. Corporations, § rejecting the the
“Oregon
joined
gra-
has
ranks of those
theory
and has held that contractual
tuity
pensions
the
rights
pension
to a
can be created between
employer.” Taylor,
(citing Crawford,
the
“Oregon adopted concept has also, but, concept rights that contractual can pensions, necessary of the to a prior completion arise service * * * course, subject, are to subse- rights Such pension. necessary quent completion of service.
“* * * was an offer for a adoption pension plan accepted by an can be contract. Such offer unilateral performance. tender of
* * * * * “* * accep- s tender of the contributions and [P]laintiff to revoke power terminated defendants’ plan tance offer, would be entitled to the benefits of plaintiff if she continued to plan requisite period work for necessary for retirement.” Id. at 451-54.
The court held that the tender of plaintiffs part performance furnished consideration for the contract. Under Taylor, par- tial performance by employee limited employer’s to revoke the offer of a power retirement plan. Accordingly, because the under that when plaintiff qualified she first plan work, went to she was entitled to be included in the original *13 plan.
The
issue that
legal
Taylor decided was what
employee response was
to make the offer
required
of a retire-
ment
plan binding.
court’s answer was “tender of per-
formance.” After
there
partial performance,
was no question
that a contract existed. Partial performance prеvented the
its
employer
revoking
subsidiary promise not to revoke
the retirement
plan
was offered when performance com-
menced.
In Rose City Transit v. City
Portland,
“[p]ension plans, disability benefits, and health insurance ** extremely important are today to all fact, workers *. In taxes, because of tant than salaries or such benefits impor- could become more
salary
increases.”
“[I]n the situation where the employee has satisfied all con- precedent ditions to becoming eligible for benefits under a plan, the better reasoned is that the employee view has a vested to the right benefits. This employer’s view sees the plan as an offer to the employee which can be accepted employee’s continued employment, employ- such ment constitutes promise.” underlying consideration for the
In Gantenbein v. PERB, 33 Or
309, 576 P2d
App
1257, rev den 282 Or
(1978),
the Court of Appeals recog-
nized that
follows the rule
that retirement benefits
acceptance
employment.
the time
Id. at
become vested at
Taylor).
explained:
(citing
The court
accepts
“Taylorsimply
employe
holdsthat an
who
an initial
rights
plan
contractual
under
retirement
offerhas vested
plan put
offer
cannot be altered
a second
into
which
accepted by
plan
the initial
has been
effect after
original).
employe[.]”
(emphasis
Id. at 316
Bryson
App 27, 30,
v.
Or
“[I]t contractual at any is without has computed right retirement benefits to receive applicable in effect the most favorablerate under laws at judicial Taylor.) during (Citing time his service.” Finally, Hughes, pri the case on which the state marily interpreted tax statute here, relies this court a state impairment challenge I, Article in the context of an under Oregon Constitution, section to determine whether (1989) legislative amendments to ORS 237.201 former 316.680(1)(d) (1989) impaired the state’s contractual former Hughes obligation that, held to members PERS. pension that the amendments affected benefits relat extent *14 existing ing pre-existing at work, the tax statute issue pro obligations impaired contract, the state’s which the of accruing Hughes, 314 Or accrued and benefits forever. tected obligation Hughes held that the contractual at 36. also per to be in that сase did not extend to benefits for work state accordingly, the state could in the future and that formed impairing modify the of those without its treatment benefits Tay Hughes specifically obligation contract. Id. reaffirmed of analysis holding respect Oregon pen earlier with lor’s Id. at 20-21. sion law. wrongly plaintiffs argue Hughes
The Tissue that Although interpretation of this court. this court’s decided open Hughes exemption it is criticism, is the tax statute in of that case. the law Hughes, that PERS is a con- this court reaffirmed employees, and that the state and its
tract between obligations employment gives that rise to certain contractual
371 protected are Id. at state federal constitutions. 17- recognized may Hughes 21. The gate mally, general court that the also state obli- contractually private that, itself individuals and nor- govern
principles inquiry. of law contract Importantly, Hughes recognized, Id. at 14. in dictum, albeit binding obliga- that the state could undertake contractual may tions with its to include benefits that accrue yet performed. in the future work Id. at 28.13 not for running through Oregon The common thread may binding cases cited above is that state undertake obligations employees, including contractual with its benefits may yet performed. accrue the future work not recognize pension plan Moreover, the cases that the PERS is accepted by an offer for a unilateral contract which can be part performance by employee. tender of line majority jurisdictions of cases consistent with of have considered the issue and also is consistent with the pensions. jurisdictions of modern view the nature of Most adhering theory pensions pension to a contract of construe rights acceptance employment proba- on to vest of or after a tionary period, vesting only encompassing per- with not work yet begun.14 formed but also work that has not Having para- examined case relevant and the law Oregon pension provisions meters of law, we now turn to the at issue in these noted, cases. As the state does not contend
13
opening
The state’s
brief asserts:
“Indeed,
knowledge
promises
it is common
that the state makes such
in its
bargaining agreements, negotiated generally every
years,
collective
two
which
yet
promises
performed,
performed during
include
for work
but
to be
period
bargaining agreemеnts.”
of the collective
(1965)
See,
e.g.,
Copins,
(holding
Yeazell v.
98 Ariz
P2d 541
that a
legislative
prospectively
amendment
increased
contributions was
contract);
Omaha,
impairment
City
an unlawful
see
v.
also Calabro
247 Neb
(1995);
Faculty
College
Pennsylvannia,
State
NW2d 541
Assoc
v.
505 Pa
369, 479
(1984);
City
356, 607
Singer
Topeka,
(1980);
A2d 962
v.
227 Kan
P2d
1980)
(D
Dannemann,
Supp
(applying
Marvel v.
490 F
170 Del
Delaware contract
law); Opinion
Justices,
847, 303
(1973); Bakenhus City
364 Mass
NE2d 320
v.
*15
695,
Beach,
Seattle,
(1956);
City Long
48
2d
P2d 536
Wash
296
Allen v.
45 Cal
of
of
128,
(1955);
Washington Department
Sys
765
2d
tems,
287 P2d
Bowles v.
Retirement
of
52, 847
(1993);
Administration,
121
P2d
Wash 2d
440
Betts v. Board
21 Cal
of
Trustees,
859,
(1978);
614
v.
3d
582 P2d
Petras
State Bd.
Pension
that, exists, if a and Measure 8 that con- impairs is not substantial. Nor does tract, impairment the state in the of 8 argue light Hughes Measure advances such that, and legitimate should the significant public purposes 8 impairs rights, court conclude Measure contract therefore, nevertheless Our impairment justified. analysis, are only must focus on two narrow What the con- questions: in tractual contained the relevant statutes and obligations 8 impair obligations? does Measure of those contractual any — SECTION 10 SIX PERCENT PICK-UP Section contribute requires public employees of their to their percent system; six retirement wages prohib or after 1, its the state subdivision political January their six percent from to 1995, contracting pay employees’ contribution; contract prohibits public employers to offset effects on of the ing pay employees to raises grant six contribution. percent 1979,
Before who were members of PERS their salary were contribute a of required percentage (1977).15 ORS The con- plans. their Former 237.071 pension on an ranged percent, tribution from four seven depending monthly The 1979 enacted salary. legislature employee’s 538, in 1979, 3, provided Laws section which chapter part: Employes’ employer participating in the Public
“[A] System may agree, employment a written Retirement July 1, 1979, agreement in effect on or after policy or assume 30,1981, on or terminating ‘pick-up,’ before June required the fund the full amount of contributions to pay or system of or less than all active members all agrees: public employer If a so employed employer. “(1) The rate contribution of each member employer is covered system employed by who six agreement uniformly shall be policy such monthly salary.” Or the amount salary regardless (codified at ch ORS 237.075 § Laws former 1995).16 238.205 (1993); recodified as ORS ORS 238.200 in 1995. Renumbered expressly legislature pick-up, it limited the the 1979 authorized When two-year terminating period 1981. pick-up to a to continue the authorization *16 to that the state contract statute, agreed, response (such as in the case of certain of the charter, other means city herein) the “full amount contribu- to employers pay public employees. tions” for public lengthy enactment of ORS 237.075 followed
The unions, and negotiations during between state employee raise in agreed pay to forego requested which for a right public employers for to with exchange bargain the state to six The enactment allowed percent “pick-up.” what to a six increase pay amounted give employees percent increasing Security. without the state’s Social payments also for the significant had tax benefits agreement employees.
If the state six and stops paying percent pick-up that reduce its PERS plaintiffs, cost is shifted state will costs six Because will have to percent salary. plaintiffs salary, they experience PERS six of their will pay percent more than a in their slightly salaries, six reduction because amounts are not considered as income and pick-up contributed, are when taxed whereas employees pay their contributions from their taxable income.17 that reply brief,
In its the state acknowledges Tay- lor, face, plain- on its susceptible interpretation it, i.e., tiffs once a offers benefits give employer to an as employee, terms those terms remain plan contract as the continues long so employment also that its employer. work for the The state recognizes pro- commitment of its six posed interpretation percent pick-up this may analysis holding Taylor. contradict court’s state court to However, Taylor narrowly. read urges The state modified argues pension promises However, provision. in 1981 to the sunset Or the statute amended remove 10, 373, challenge respect plaintiffs’ pick- Laws 1. With to section § ch agreements up subsequent bargaining until the over into collective was carried passage Measure 8 in 1994. of Ballot plaintiffs’ salary compute Eliminating pick-up used to also would reduce benefits, percent pick-up pension PERS includes the six in the final PERS because 237.075(2) Salary.” salary Average compute a “Final See ORS used to former (3) (1993) (so pick-up plaintiffs’ computa stating). Eliminating the would reduce plaintiffs. resulting salary by percent, in lower retirement benefits tion six thus nothing salary, may Measure 8 are more than which be mod- prospectively. disagree. ified We Measure 8 is not about sal- ary; pensions. may noting it is about caption It bear that the title for ballot Measure 8 states:
“AMENDS
[STATE] CONSTITUTION:
PUBLIC
EMPLOYEES PAY PART OF SALARY FOR PENSIONS.”
Salary
pensions
synonymous.
City
are not
See Rose
City
Transit v.
Portland,
271 Or
595,
Under the
to the sta-
argument
implemen-
here,
te’s
ORS 237.075, and the state’s
authority
promised
tation of the
pension
contained in
statute,
that
a
plaintiffs
only
benefit that
could realize
on retire-
years
ment
rendering
with sufficient
of service,
is,
that
after
accepted
by
labor
working.
for
state. Plaintiffs
that offer
Taylor,
change
by
See
375 expectations plaintiffs’ that were reasonable contractual legal expressly made the state. on commitments based accepted, pension promise made Once offered and mirage (something seen in the distance state is not a retirement). disappears employee reaches before express plaintiffs’ contract term of PERS an Nullification impairment purposes of Contract the state is an with analysis. Spannaus, v. Steel Co. Allied Structural Clause (1978). 247, 2716, 98 Ct 57 L Ed 2d Section 234, US S substantially changes expressly the state’s contractual respect partici plaintiffs promise the cost with of their plan pation they and the in the PERS retirement benefits the cost of receive on retirement. Under section will employee participation the benefits increases while ultimately receive retirement will on Unquestionably, impairs obligation section decrease. plaintiffs’ PERS contract. statutory relationship pension system and the clearly the state and its established between provide obligation to an level of contractual undiminished plaintiffs at a fixed cost. Under section because benefits pay pension more, six of their PERS must value unilaterally. contrary A has been diminished hold contract ing person might on who would serve notice consider embarking prom on a career in service that the state’s employ prove worthless, ises could well be even after given promises form of had consideration for those in the ees *18 performance. purposes partial The most of the Con basic fairness Clause, tracts as well as notions of fundamental princi point simple to these itself, that transcend the clause may depart keep ples: promises, and the state must its it only legitimate public pur significant therefrom for a and significant pose. 26. Co., United US аt No States Trust 431 legitimate impair public purpose present here. The and resulting that We hold ment from section is substantial. concluding the circuit that 10 vio courts did not err in section lates federal Contracts Clause. employee’s pension contribu- requiring amendment that had the effect of percent salary impairment of con-
tion to increase from tract). was an 1.1 to 4.3 cited Cases in full above at note 15. Justice Gillette’s dissent as to section 10 would treat percent pick-up the six ORS 237.075 in isolation, former parties’ outside of the broader pension context of the PERS analysis contract. The fatal flaw in that is that it “errs in fail- ing significance Hughes, consider the of context.” 314 Or at percent pick-up integral part 21 n 27. The six is an of the underlying pension PERS contract. Unilateral termination of percent pick-up pension the six term of the PERS contract materially changes underlying pension contract plaintiffs’ plaintiffs’ and, detriment thus, frustrates reason- able reliance on the offer the state made to them and which they accepted part performance. the tender of Id. at 20-21.
STATE CONSTITUTIONAL DEBT LIMITATION argues any promise by
The state the state to cre obligation currently ate a unappropriated, future debt nonspecial express unambigu monies, funds however ous, Oregon would violate Article XI, 10, sections and of the (debt limitation).19 Constitution argues:
The state “The legally state could not validly promise the state would continue for future periods fiscal pick-up employee contributions, grant or to credit for sick leave. To do so would be to contract pay money in the future from funds not currently appropriated or available for that purpose, which would violate constitutional debt limitations. Contracts agreements ánd should be construed to be valid possible. when Any doubt, therefore, as to XI, Oregon Constitution, Article provides part: section Legislative Assembly “The any shall not lend the credit of the state nor in any manner create singly debt or liabilities aggregate which shall or in the previous fifty with debts or dollars, liabilities exceed the sum thousand except repel suppress case war or to invasion or insurrection or to build * * * permanent roads; every and maintain contract of indebtedness entered into or provi- assumed or on behalf of the state in violation of the sions of this section shall bе void and of no effect.” XI, Constitution, Article section provides: county singly “No shall create debt or liabilities which shall or in the aggregate, previous liabilities, $5,000; with debts or pro- exceed the sum of vided, however, may counties incur bonded indebtedness in excess of such $5,000 carry purposes by statute, limitation to out authorized such bonded indebtedness not to exceed limits fixed the statute.” *19 language promise unambiguous express whether fund dol- general of future the commitment where appears, finding no such resolved in favor [sic], should be lars made.” to have been promise (PERF) Employes’ Fund is Retirement Public
The separate statutory distinct from General fund, trust pay-as-you-go fully on a basis is funded PERF Fund. employee employer and interest on its contributions present, payment is made in Because full investments. pension cases do not create at issue in these benefits acknowledges obligation. Moreover, the state debt future agree- employment has recourse under its that it its brief any separate of the debt before violation ments to XI, sections 7 and Thus, occur. Article limitation would implicated here. are — RATE OF RETURN 11 GUARANTEED
SECTION legislature 237.277, ORS which enacted The 1975 part: provides in
“(2)
employee
for an
member
The individual account
year.
examined
If the individual
each
system
shall be
year in an
previous
for the
earnings
account is credited with
cred-
earnings that would have been
less than the
amount
year
interest
rate for that
to the assumed
pursuant
ited
board,
the difference shall
by the
the amount of
determined
to a
charged
individual account and
be credited to the
purpose.”
for the
account in the fund established
reserve
1995.)
(Recodified
238.255 in
as ORS
guarantee
rate
a minimum
effect of ORS 237.277 was
member.
account of each PERS
on the individual
of return
any political
prohibits
subdivision
or
state
Section
contracting
guarantee
or return
rate of interest
system
plan
law.
established
in a retirement
on monies
agree,
Although
concedes,
state
and we
guaranteed
rate of return became a contractual
minimum
obligation
on the
the state relies
PERS,
of the state under
arguments
10. We
it
in its defense of section
that made
same
reject
arguments
in our
for the reasons identified above
those
employee performs services
of section 10. Once the
discussion
particular
employer’s promise
to afford a
in reliance on
employer
contractually
benefit on retirement, the
bound to
obligation. Taylor,
Harryman,
honor that
As with section justified by any significant section 11 is substantial and not legitimate public purpose meaning within the of federal impairment analysis. argue As noted, the state does not otherwise. We hold that the circuit courts did not err in con- cluding that section 11 violates the federal Contracts Clause. holding
As to section this court is unanimous in grounds. void, that that section is albeit on different — SECTION 12 SICK LEAVE CREDIT legislature
The 1973 enacted ORS 237.153, which provided part: in
“Upon request by employer that its employ- ees be compensated for accumulated unused sick leave with in the pay form of increased retirement upon benefits serv- disability retirement, ice or the board shall pro- establish a cedure adding gross to the salary amount of used in * * * determining ‘final average salary’ monetary value of one-half accumulated unused sick leave of each retiring employee of the requesting public employer and shall establish his benefits on the basis of a average final (Recodified salary reflecting addition.” as ORS 238.350 1955.) in provisions
The sick leave credit of ORS 237.153 unambiguous legislature evince a clear and intention of the contractually obligated for the plaintiffs state to become in requested participation the event that the state in the sick program. leave request credit The state made the contem- plated by prohibits any the statute. Section 12 the state or accumulated, from using employees’ subdivision political to increase retirement benefits for unused sick leave 1,1995. after January retiring and the sick Harryman note a between parallel We at issue rate of return guaranteed provisions leave credit that section 12 nullifies is these cases. The sick leave credit in credit authorization in to the sick leave employer’s akin had a Harryman legal Harryman. Although employer time, at any to cancel its sick leave credit authorization right this court held that the relevant was whether question was in effect at the start of the plaintiffs authorization Partial bound the employment. performance to honor the contractual that was employer obligation at the commencement of the plaintiffs employment, place thus a unilateral preventing change employer detriment of his plaintiffs during period employment. *21 concedes, The state and we that the sick leave agree, credit became contractual of the state under obligation the PERS. The state defends section with same arguments in it made its defense of section 10. For the reasons above, reject stated we those Plaintiffs again arguments. pro- vided labor in faith reliance on the state’s good promise receive enhanced retirement benefits on account they would of accumulated unused sick leave. Section 12 would relieve the state of its contractual to obligation provide prom- benefit, ised even the have though employees already pro- vided consideration for the promise refraining using the maximum sick leave. Section 12 the permissible impairs state’s contractual to obligation plaintiffs.
As with sections 10 and is sub- impairment stantial and not justified by any significant and legitimate within the of federal public purpose meaning impairment noted, As the state does analysis. otherwise. argue we hold that the circuit courts did not err in con- Accordingly, that section 12 violates the federal Clause. cluding Contracts
As to section this court holding is unanimous in void, that that section is albeit on different grounds. —13 SECTION SEVERABILITYCLAUSE provides: Section of Article IX 10,11 “If or 12 part Sections of this Article is held to be unconstitutional under the State Federal or Consti- tutions, remaining parts shall not be affected and shall remain in force and full effect.” University City Policy, See v. Educ. 320 Or Officeof (1994) (discussing severability 422, 885 P2d of a unconstitutional). statute held Because each substantive sec- impairment tion of Ballot Measure 8 is an unconstitutional obligation plaintiffs, a vested contractual of the state to we conclude that no section can be saved. OF
CITY PORTLAND’SCROSS-CLAIM Morgan The state contends that the circuit court City granting summary erred in of Portland’s for motion judgment City’s indemnity. agree. on the for cross-claim We obligated City indemnify The state is not of Portland any damages, attorney including City fees, that the required pay plaintiffs. Morgan legislature has not, outside the context of claim, a tort authorized an indem nity by political against action the state, subdivision empowered expand legislature’s courts are not chosen policies by exposing state, indemnification in its sover eign capacity, expressly it liabilities that has not under Accordingly, taken. we hold that the court circuit erred in Morgan granting City of Portland’s motion for sum the state’s motion for sum mary judgment denying and in mary judgment City’s on cross-claim for indemnification.
CONCLUSION *22 summary, a PERS is contract between the state employees. Hughes, and its Or at 18. The enactment of constitutionally protected the PERS in 1953 scheme created rights in PERS members. PERS an Id. constitutes offer employees may state to its for unilateral contract that accepted part performance by be the tender of those employees. plan pension Id. at 20-21. The PERS becomes acceptance employment. vested in the state’s on pick-up, guaranteed return, rate of and six Id. The plaintiffs’ pen- integral terms of PERS leave credit are sick obligations they also are contractual contracts; sion plaintiffs’ and PERS contracts. The amount of under state of the state in an contributes manner which parcel employee’s pension plan is and PERS binding pension contrac- is, essence, It contract. PERS price anticipated obligation purchase for as tual employees’ completion PERS- on ofthe be received benefits public service. covered IX and 12 of Article
We hold that sections obligations substantially impair contractual the state’s plaintiffs of the federal Contracts Clause in violation any significant justified by impairment is not public purpose. Accordingly, legitimate we declare sections 8) (Ballot 10, 11, and 12 ofArticle IX Measure void. judgments OSPOA, of the circuit courts in The judgment Morgan are on Tissue, SPEU affirmed. City of Portland’s cross-claim is reversed and the remanded to entry judgment
the circuit of a for the court City’s cross-claim; on the otherwise affirmed. State
APPENDIX Measure 8 Ballot provides:
“ANACT by “Be it enacted the People Oregon: of the State of 1. The “Paragraph by Constitution is amended creating new Sections to be added and made part of Article IX, such sections to read: (1)
“Section 10. Notwithstanding any existing State laws, or of employee Federal an the State of Oregon any or of political subdivision the state is a who member of a system or plan by law, retirement established or charter ordinance, or who will receive a retirement benefit from a system or offered state plan political or a subdivision state, system must contribute to the or plan an amount to six equal salary of their or gross wage. “(2) January 1,1995, On or after political state and subdivisions of the state shall not thereafter contract or agree otherwise to make any payment or contribution to a system plan retirement relieving or that would have the effect of employee, regardless an of when employee (1) employed, of obligation imposed by subsection this section.
“(3) On or J anuary 1,1995, after the state and political subdivisions the state shall not thereafter contract or agree any salary, otherwise to increase benefit or other compensation payable to an employee purpose of off- setting or compensating employee an for the obligation (1) imposed by subsection of this section. (1) any
“Section 11. political Neither the state nor ofthe guarantee any subdivision state shall contract to rate on system of interest or return the funds in a retirement or law, plan established charter or ordinance for the benefit an employee of the state or political subdivision of the state. (1) 12. Notwithstanding any existing
“Section Fed- law, or eral State the retirement benefits of an state political retiring or subdivision of state on January 1, any way or after shall not in be increased as a result or due to unused sick leave. any part 10,11 or 12 ofthis ofSections 13. If
“Section the Federal under unconstitutional held to be Article is remaining parts not be shall Constitution, the State forceand effect.” remain in full shall affected approved at the Novem the voters 8 was Measure Ballot date was its effective Election, and General 8, 1994, ber 8, 1994. December *24 concurring.
FADELEY, J., judgment analysis by I in the concur and in the Jus- separately tice Van I Hoomissen. write to detail the nature long-standing system the state’s retirement contracts and to prevents impairing indicate that the state constitution obligations just thereof, not the federal constitution. Oregon
Individuals and the State Policе Officers’ County Association obtained a Multnomah Circuit Court judgment declaring that 10, 11, sections and 12 of an initi prohibition ated measure violate the federal constitutional against impair obligation laws that of contracts. US Employees § Const, Art 10. I, Salem Police and others County judgment holding obtained Marion Circuit Court 10, 11, that sections and 12 that measure violate the same prohibition. Appeals federal constitutional Court cer appeal tified the state’s consolidated four trial those court directly judgments to this I court decision. would hold protection against impair the measure violates the laws that obligation of contracts in Article I, section impairment as Constitution, as well clause ofthe federal constitution.
BACKGROUND *25 Supreme 1989, the United States Court declared Michigan a unconstitutional tax law that taxed retirement government income offederal retirees received from a federal plan govern but retirement ment retirees on that did not tax and state local
payments they from that received state’s plan. Michigan Dept. Treasury, retirement Davis v. US 489 of (1989). 803, 109 1500, 103 S Ct L 2d 891 Ed That Court held intergovernmental that constitutional doctrine immu nity requires equal in treatment taxation between retired government employees state local former mer or and retired for government employees. Supreme federal The Court held a state’s tax treatment of federal state and retirement payments payments plan be the If must same. state are exempt payments from state federal also must be taxes, exempt. Michigan, Oregon exempted
BeforeDavis v. statutes payments state from taxation retirement received benefit (PERS), Retirement System Employes’ Public Oregon’s from tax statutes. enacted in income Oregon also an exemption retirement ben- to federal exemption applied But no similar Davis, in Court’s decision In reaction to Supreme efits. Laws Oregon enacted however, Oregon legislature the 1989 income. A referen- a tax on all retirement 1989, 906, chapter it voters, measure to the where sent tax dum petition That left the situ- in the 1990 election. general defeated was were and local retirement benefits plan as before. State ation federal retirement tax, the state income but from exempt were taxed. payments system plan
This court has held that retirement
a
public employees provided
statutes formed
contract when
Tay
the statutes
in effect.
their labor and services while
were
The 1991 enacted law legislature under statutory rights other the state’s things, promise act be taxed.1 But that of the 1991 PERS never would it the obli- nullity declared void and a because impaired I, of Article section of contracts contravention gation v. 314 Or Oregon, Constitution. State Hughes (1992). 31, 838 P2d 237.201) (former presently provides: ORS ORS 238.445 “(1) annuity right person pension, of a an or a retirement allow- or retirement allow- contribution, annuity ance, pension, to the return benefit, itself, any right any optional accrued or or death or other ance benefit money any person provisions chapter, accruing of this and the under 238.670, exempt funds created ORS 238.660 and shall be the various state, county municipal garnishment imposed, except all taxes or heretofore hereafter taxes], provided chapter [inheritance shall as under ORS execution, any process subject garnishment, or to attachment or other not be insolvency operation bankruptcy law heretofore or hereafter or the existing support except process upon a obli- for execution or other or enacted 25.311, 25.314, 25.060, pursuant gation of notice to ORS or an order entered 110.441,419B.408 419C.600, unassignable. and shall be 110.300 (1) “(2) apply personal to state income Subsection of this section does not added.) paid chapter.” (Emphasis under taxation of amounts this (2) attempt ruling legislature the 1991 in an to avoid was added Subsection of the United Supreme to inheritance States Court in Davis. The cross-reference *26 (1) interesting implies some It that at least in is for two reasons: taxes subsection inheritance; may Oregon property right pass right that is an individual benefit apply cross-reference to to for over a decade. had no inheritance tax for the has 26-27, 314 Or at Hughes, this court held that ORS (1989) was 237.201 been had since 1953 “term the PERS and an contract of the state obligation under that con- * * * I, tract "virtue Article section of the Con- * * * stitution not to subject legislative impairment without the consent PERS beneficiaries.” The Hughes court its holding limited tax-exemption rights in retirement ben- efits that were based on services before performed the effec- tive date of legislative repeal promise of specific in exemption found the public employees’ retirement stat- " Id. utes. at 29. As in a explained separate in supported opinion case, that I would have that held all sections of the act that repealed existing taxation of retire- exemptions ment laws rights impaired were con- obligation of (Fade- Id. at 38 tracts and were unconstitutional. similarly J., concurring That ley, part dissenting part). separate made it clear that opinion any repeal of the statutes existing a tax would granting exemption impair obligation of con- under state tracts and federal constitutions. The Hughes however, majority, went on conclude that ORS 237.201 “benefits” that have accrued or are protected accruing performed work before the unconstitutional attempt repeal ORS 237.201. The Hughes majority concluded that the is state’s no than to obligation greater those accrued and pay benefits but as to that accruing that, the consti- obligation, tution that the “are benefits from state and required exempt added). Id. at 29 local taxation I (emphasis continue forever! that, to adhere to the view to the extent that Hughes pension yet taxation PERS benefits for work approved to be performed, Hughes decided. Id. at 36. On wrongly it point, retirement case decisions contrary countrywide. Hughes
The court did decide the expressly mean- of the words “hereafter ing imposed” described the taxes statutory from which the contract PERS exempted benefits. Those words are found in ORS presently 238.445. The the legislature’s Hughes court struck down effort to tax state local benefits based on the pension 1945 and 1953 enact- statute, of a exemption ment tax without regard to the “here- tofore or hereafter imposed” Hughes language. court *27 removing tax-exemption promise legislation the the declared nullity a under Article statutes void and from the retirement prohibiting Constitution, the laws I, 21, section of My obligation concurring impair in the of contracts. dissenting part opinion Hughes have also in would and repeal exemption the income that the of a similar within held nullity and a based on the tax statutes was likewise void provisions parallel and on the federal same constitutional provision against impairing obligation the constitutional Hughes wrongly I continue to believe that was contracts. repeal exemption tax and that no of the contractual decided permissible. persons responded Hughes 1993, In interested by filing and its state constitutional basis the initia- decision Qualifying petition for Measure 8. for the that ini- ballot, tive tiative was approved general at the election 1994. As we provisions see, shall the ofthat measure further modified the obligations. pertinent state’s retirement I first turn to the promises plan they and facts state retirement as impact existed before Measure 8 so of that measure may be made clear. Thereafter, discussion the effect of separate provisions of Measure 8 on those facts and promises will be conducted.
THE STATE’SRETIREMENT PROMISES understanding A detailed statutes, various PERS timing necessary and the of their enactment, is to our consid- constitutionality eration of the effect and of Measure 8. Exempt 1. Retirement Taxation Benefits from legislature public employ- In 1945, established a system. legislature retirement In 1953, ees’ enacted a statutory system plan public employee mature ment. Those statutes and retire-
provided rights pension that the to a successfully period working would become vested after a government. They expressly provided for the state or local rights subject that those should not be to taxation at level any government political in the state or its subdivisions. legislature changed strengthened concerning statutory “rights” wording promise plan system subject under the would never be to state or promise exemption only appli- The local taxes. of tax was not imposed, cable taxes “heretofore” but was extended to imposed by govern- all taxes cover “hereafter” state or local exemption, § ment. Or Laws ch 640, 13. The 1953 tax as language, pres- refined the 1969 has thus continued to the 238.445(1) day, (formerly ent and is now found in ORS num- 237.201), placed by reorganization ORS it bered where was renumbering public employee system retirement legislature.2 statutes Pays Employer Annuity 2. Purchase Amounts provides As established in 1953, PERS benefits length separate annuity pur- based on ofservice and also on a during employment. portion chased of the benefits based *28 length public employee applies percentage on of service as a a year employee’s factor for each of creditable service. The highest salary years public employment level for the final by multiplied portion thеn is the “service credit that factor. This is referred to as
portion” of retirement benefits. The employer, government paid a state or local unit, has to the system percentage gross wages PERS retirement a of all its portion in order to finance the service credit of retirement benefits. portion type
The other of retirement benefits is a annuity. “money-purchase” refund Sometimes called a con- annuity purchased money paid tract, the with that is to the system employee by money as an works month month. That paid Principal in is invested and earns interest. and interest pay invested, continue to be and the amount available to the annuity grows in the future in relation to the rate of invest- length ment return and the of time over which interest is principal received and contributions continue. Initially, public employees govern- of state and local paid percentage ments a of their individual salaries to PERS. legislature membership The 1995 also established a new within class of 1, membership system January PERS. Persons who first establish in the after 1996, separate membership are a class from those who before that established 1995, 654, person system date. Or Laws ch 2. No § who was a before member of the opinion that date is included the new class. This the effect of does not consider rights. that classification or its members’ in the annui- establish and invest those funds to PERS uses example, person publicly For employees. ties of individual of his or her in six during July paid employed trust, the PERS, money which received gross salary annuity an then used PERS to by purchase the was money in the money in the form of a promise pay for the employee described, However, just during as to the employee future. the funds to for pay the source of of employment period was annuity of the employee’s purchase employee’s the governmental an between by agreement changed agreement and the That contractual employee. employer to save the designed taxpay- authorized and was statutorily ers money. the legislature provided state, could contract to assume or including
employer, to the funds to an contributions employee’s purchase pay the statutes had previously contributions annuity, Thus, to PERS its members.3 by to be required paid as or well as annuity money-purchase portion plan, credit could be for portion plan, paid the service had been whereas the annuity portion previously employer, employee. to be required paid 237.075) (former provides: ORS ORS 238.205 subject “Notwithstanding any provision chapter, of this other system may section, public employer participating provisions in the of this July 1, agreement employment policy in effect on or after agree, a written or pay fund ‘pick-up,’ the full amount of contributions assume *29 by system employed the required of all'or less than all active members public employer agrees: employer. If a so “(1) system of active member of the The rate of contribution each policy agreement employer such or shall employed the who is covered salary monthly salary. uniformly percent regardless of of the amount of be six “(2) employee ‘picked-up,’ required contributions full amount of employer employees paid on behalf of its shall be considered or assumed 238.005(11) only purpose comput- meaning of ‘salary’ of ORS for the within the 238.005(15), salary’ meaning average of ORS ing ‘final within a member’s ‘salary’ advantages’ or ‘other within the and shall not constitute additional 238.005(11) purpose. meaning for other of ORS “(3) ‘picked-up,’ required employee contributions The full amount employees paid by employer shall be added to on behalf of its assumed or employees for their annuities and shall account balances of the the individual chapter.” employee purposes of this contributions for all other be considered double-digit present annual inflation was economy. very the national At time, substantial base-pay necessaryjust increase in the number of dollars was stay purchasing power every person’s to salary even terms employees,
or income. Public thus, could and did make very good increasing base-pay case for their rate. However, pressed response the state also was for funds. In to reason- requests base-pay governor able increase, the and other government agreed money-saving plan. leaders on a To partially keep pace increase escalating salaries to with the price using consumer index but to do so fewer tax dollars, governments promised pay state and local to PERS the money purchase needed to annuities on behalf of state and government emplоyees. local employees purchased thereto,
Prior those the same by monthly annuities contributions to PERS made from their Previously, salaries after taxes. therefore, it had cost the employees eight percent gross salary buy to nine of their annuity, they using their because were after-tax dollars to purchase. purchase make the Because the state’s was with subjected funds that had not been to state or federal income annuity purchased taxes, the same amount of could be for six percent wages eight that otherwise would have cost to nine percent paid money had the employee state first to each employee paid and the had then state and local taxes on the money purchased annuity received and thereafter had government bought annuity with the net. If the instead of paying base-wage government increase, the saved two to wage three ity of all its costs but the same level of annu- acquired. annuity “pick-up” plan, benefit Under the public employees would continue to receive the lower number base-wage dollars rather than a raise, but would receive annuity they the same value in benefits as would have annuity received had the base rate been increased and the purchase money paid by salary them out of net, after-tax, wages. taxpayer
Thereafter, in order to save funds, a statu- torily government authorized contract between the and its required gov- was entered. The contract that the employer pay annuity ernmental for the individual instead of employee’s purchasing it with dollars that the *30 only paying percent use after taxes on them. Six of could gross wages,
paid by employer, brought the same amount annuity required eight percent benefit as had to nine of when purchased the after-tax net. with government tax-saving
The an received additional plan many, payroll benefit the 1979 if all, because by payable employers percent- taxes are owed and based on a age annuity gross wages employees. By paying of of their giving employees
contribution rather than their governmental employer payroll money raise, the saved tax payroll paid because wages. Examples taxes were on a total lower amount of payroll percentage unemploy- taxes аre security, compen- insurance, ment social workers’ state mutually sation insurance. beneficial contract has bene- participating governments by fited the state and other payroll savings hundreds of millions of dollars in since 1979. adopted authorizing the state When the statute agreements public employee pay “pick- bilateral for a to —or up” percent salary formerly paid by six —the public employee purchase annuity a future for the employee, arrangement it entered that contractual to obtain a substantial and, benefit for the state therefore, for its tax- payers, just explained. public employers as Other who arrangement entered that contractual authorized statute taxpayers also did so because of the substantial benefit government thereby Taxpayers ofthat level of obtained. were saved hundreds of millions of dollars since 1979, because the salary base all remained lower because purchased annuity percent state of the same amount of with six gross wages eight that would have cost to nine gross wages recognizing of the individual after spendable wages represented by reduction in taxes on such wages. Savings Average
3. Sick Leave Credited to Increase Final Salary. legislature provision compen- made
sating for unused sick leave in the form of retirement bene- compensation adding fits. The took the form of one-half ofthe government’s savings value of the from unused sick leave to gross salary average amount of used to determine final salary against percentage which a factor for the number of years multiplied. of creditable provision service is to be This subsequent is, with amendments, codified as ORS 238.350, formerly and was numbered ORS 237.153.
4. Minimum Annuity Rate Return Guaranteed on *31 Investments. legislature
In 1975, the enacted what was then num- bered 237.277, ORS and has now been renumbered ORS by legislature 238.255 the 1995 as it includes an amendment by Oregon chapter Laws 1993, 177, section 31. legislation
The 1975 that, established as to the annuity purchased employees’ with the contributions, an money paid assumed interest rate of return on the in would provide be used to an annual minimum floor for the rate of investment return. That assumed rate of return was set Employes’ the Public Retirement Board. If the actual earn- ings required earnings, were less than the assumed then the law surplus moneys be transferred from other years earnings where the actual had been at a rate of return higher earnings than the surplus assumed rate. The thus up year would shore the deficient return for the and cause year’s earnings to meet the assumed rate of interest earnings. “surplus” acquired by The placing earnings was years where the rate of return on investment of the employees’ funds exceeded the assumed rate of return estab- statutory program, rolling lished the Board. Under the a five-year average performance of investment return surplus used to establish the reserve or account from which deficiency up, thereby keeping an annual was made statutory promise provide employee annuity state’s portion specific Any surpluses assumed rate of return. up above the assumed rate not needed to shore deficient earnings annual were available to PERS to meet its other obligations plan. under the foregoing obligation, oper-
The state contract, plan rights, ation continued until 1989. PERS whether accruing, exempt. employer paid accrued or still were tax necessary purchase annuity por- the dollars the individual plan. tion of the retirement A minimum interest rate on the annuity year. investment was realized and assured for each Unused sick leave benefits could be saved and one-half to increase final applied years’ salary used compute service credit portion retirement benefits. Measure 8 erased all of those contract obligations, as we shall see aby review of that measure.
MEASURE 8 PROVISIONS Measure initiative measure declared invalid the lower courts, adds three4 separate new sections to Article IX of the Oregon Constitution, an article dealing with taxation and government finance. One section of the measure itself contains three subsections. one Although may group the different amendments under a general of reduc- heading ing public employees’ vested rights and thereby reducing gov- ernment obligations from the arising state and local public retirement employees’ plan, three constitutional amend- ments each accomplish different and distinct purpose. Measure 8 added expressly them to the constitution with but a single vote on all amendments lumped Under together. Measure three of the new sections added to Article IX of *32 the Oregon Constitution are: (1)
“Section 10. Notwithstanding any existing State laws, or Federal employee an of the any Stаte of or political subdivision of the state who is a member of a system retirement or plan by law, established charter or ordinance, or who will receive a retirement benefit from a system plan or offered political state or a subdivision state, of the must contribute to system or plan an amount equal to six percent salary of their gross or wage. “2. On and after January 1, 1995, the state political subdivisions of the state shall not thereafter contract or agree otherwise to any payment make or contribution to a system retirement plan or that would have the effect of relieving an employee, regardless when that employee was 4 Measure 8 10, 11, added four sections to Article IX. Sections and 12 are the substantive sections severability provision discussed herein. Section 13 is a separate meaning has no unless one of the substantive sections is found constitu tionally wanting. any part “If of section 11 or 12 of this Article is held to be unconstitu- tional under the Federal Constitution, or State remaining parts shall not
be affected shall remain in full force and effect.” (1) this imposed subsection obligation employed, section. 1, 1995, political January state On and after
“3. contract or of the state shall subdivisions thereafter any salary, benefit or other com- agree to increase otherwise employee purpose to an payable pensation of offset- for imposed obligation an compensating or ting (1) this section. by subsection (1) any political Neither the state nor 11. “Section any rate guarantee shall contract to of the state subdivision system or on the in a retirement interest or return funds the benefit by law, charter or ordinance for plan established political or a subdivision of employee of the state of an state. (1) any existing Fed- Notwithstanding
“Section 12. employee of law, of an the retirement eral or State benefits retiring of the state on subdivision political the state or any way be increased January 1, shall not or after (Emphasis to unused sick leave.” a result of or due as added.) 1. Section (1) 10, added to constitu- of section Subsection salary percent special tax of six 8, enacts a
tion Measure only public employees. wages applicable gross Because to belong required by employees PERS, ORS are law 237.011), (former law mandates the initiated ORS 238.015 salary. public employees of their be taxed six belong all PERS,5 all must statutes, our Under government specifically pay, and the of PERS must members put. That must be the new revenue directs the use which government it benefits, because one from which use is previously government payments replaces made from other purposes accomplish to be accom- the identical tax funds to plished *33 wages. public employees’ levy our Under on all precedents, that is a tax. 5 only if the employee may escape of the PERS statutes public the reach A historically public very retirement distinct
employee
member of one of the
few
is a
systems
there,
integrate
into
distinct
systems.
the recent trend has been
Even
PERS.
In Automobile Club v. State
Oregon, 314 Or 479,
485,
“[I]t does not destroy the character of a tax on exaction imposed by statute merely because it applied only ato cer- tain class.”
And, as this court stated 90 years in Reser v. ago Umatilla (1906): 48 Or County, 326, 86 P 329, “Generally speaking, a tax charge is a or burden imposed on persons or property for the support government of the or for specific some purpose object authorized it. Its is to raise Bouvier, revenue: Law Die.”
Under the doctrine of
School Dist. v.
Roseburg
City Roseburg,
316 Or
379,
Subsection of section both employers employees. pro- individual ernmental and their It government any relieving from hibits state and local any employee from that tax means of contract. That govern- of contract of the state restricts the freedom and local employees. contract of the ment and the freedom of may by government repealed tax never or result is that the be employee. One clear effect of sub- otherwise avoided (2) annuity prevent buying the state from an for is to section employees’ compensation employees as a not- withstanding government’s paid-for, statutorily based contrary. contract to the (3) provides that state and
Subsection of section employees, prohibited government, and their are local making any agreement compensation to increase contract or prohibited to offset the six tax. Likewise is in order employees any agreement compensates in some law or they pay. example, way ing For reimburs- for the tax that must (2) pre- is subsection them for that tax forbidden. While annuity employee, buying an for the sub- vents the state from (3) prohibits salary wages a current raise in under section (3)performs a Thus, the conditions stated therein. subsection function and restricts a different kind of contract different employees. government is, to its That sub- as to as both (3) constitutionally restricts contracts but does so section also (2). provi- differently Those different than does subsection government. as as of section 10 restrict individuals well sions 2. Section ability 11 restricts the of the state to enter
Section wholly type guarantees a rate contract, different one retirement trust funds interest or return on invested public employees are involved as the beneficiaries where differing from section is directed section, the trust. This payroll compensatory tax, relief from Measure 8’s not at guaranteeing specific prohibiting rate the state from but at annuity PERS on investments made of return on employees. behalf
3. Section sick leave and the serv- Section 12 relates to unused prohibits comрensating portion ofPERS benefits. It ice credit days employees that those for extra ofwork when that perform payment takes the form of increased investments in their retirement trust funds. Neither service credit portion PERS benefits nor unused sick leave of either section 10 or compensation subject 11, but it is of section 12. only subject Without section law present some, all,7 but public employers permits who has worked extra rather than days, time off taking leave, from work for sick to receive a contribution in lieu of one-half of the for the pay extra as days, dis- previously cussed.
Section 12 also restricts It government. prohibits government for the additional contracting work unless it for it pays directly at the time rather than later paying one- half of its value to the system to fund an additional service credit benefit amount for the employee who did not use allot- ted sick leave.
That relates to provision those who retire on or after 1,1995. January Thus, those who persons may have worked additional days and have not used sick leave from 10, 15, or years ago, on a relying contract at binding time, are of the benefit deprived earned already by working pursuant to the obligation stated aby contract authorized by statute. Section 12 retroactively takes all of away their accrued rights under the untaken sick leave statute agreement.8 addition, section 12 prevents future accrual of enhancements to that Their contract right. to that right benefit is impaired Measure which takes the valuable from them. right 10(1)
Two separate sections, section and sec- tion expressly to purport nullify any law, federal as well as law, state any that has in the contravened or that past presently contravenes the provisions of those sections.
The foregoing provisions most, would cancel if not all, of those tax-saving provisions discussed above in “The example, apply For because sick leave judges, credit statutes do not to elected they are not affected section 12. provision precipitated early January 1, 1995, It is that retirement before of a number of administrators and law enforcement officials. opinion. State’s Retirement Promises” section of this Fur- money-saving plans those carried out and thermore, deliv- statutory obligation pen- of the state that ered on a contract statutory should The sion benefits never be taxed. contract county, imposed state, that no or local tax shall be hereafter expressly on PERS benefits is a contract in relation to: pension, “The to annuity an right person or a pen- contribution, allowance, to the return of retirement any optional sion, itself, annuity or retirement allowance benefit, or death benefit ing accrued or accru- right other any person provisions [the under the retirement money statutes], and the in the various funds created * * 238.445(1) (former 238.660 and 238.670 ORS ORS 237.201) added).9 (emphasis ORS and, statute has mandated under Hughes, That contractual money exemption only presently mandates tax for bene- paid presently accrued fits when but also for the “right” money right payment benefits, later may of such an accrued “accruing” add-ons to it now and the future. have mandatory “right” plan from the are not to be to such benefits by any imposed.” tax “heretofore or Measure taxed hereafter merely statutory erase the contracts under which 8 does not annuity employer agreed pay governmental agreed guarantee return, and benefit, a rate ofinvestment *36 salary by agreed average one-half ofthe sav- to increase final through ings prohibits The measure also untaken sick leave. achieved prohibits any wages and also increase in base compensation purpose or as a means off- of, of, for the other mandatory pay accomplished setting reduction in rate by 10. section analyze against impact 8 the next the of Measure
I statutory foregoing Measure 8 contracts to see whether obligation government unconstitutionally impairs the of the Although the courts ruled on the basis of the lower contracts. rulings impairment a clause and their are correct federal 9 impair statute, wording the law on from the as well as can be seen As someday contracts, decided, Hughes wrongly must be was and that error ment of impair against protections stated in our constitutions to conform corrected obligations governmental by laws. contracts later-enacted the ment of application with clause, below, of that see note 11 I start state guarantees. constitutional by methodology
The followed this court decides a possible, reaching if law, case on the of state before fed- basis finality achieving Moreover, case, eral law. in this now govern- requires law for the Otherwise, a state basis decision. by prolong appeal ment the the can case efforts United Supreme States Court. operation, provisions the Measure mandate very
that the state retain the benefit of the gains contractual bar- requires impair. that Measure also the state to base-wage quid measure retains the lower rate that the pro quo payment pick-up, savings the for from untaken surplus annuity. sick leave, and investment return on the keep government Measure 8 would for the all bene- bargain wages, pay- fits on its side of the base lower —lower payment costs, roll tax and no of sick lieu leave. The meas- guarantees government ure those benefits to in the future placement public employees its in the constitution. But lose they they all of the benefits contracted to receive for which performed. They only have lose, not all future benefit from long-standing bargain, but also what otherwise would base-wage they gave have been rate, increases in increases up part bargain. provi- as Thus, fundamental only deprive public employees sions of Measure of the of the obligations formerly benefit of due to them on side their annuity bargain wages but also further reduce real their though, pointed previously, six even as out those wages already bargain prior were lower because of the on renege. canceling which Measure 8 would The feature of employees paid by per- contract benefit after the have for it present, formance their contract is also in indi- vidually varying degrees, as to the unused leave, sick final years’ salary, portion and service credit of retirement.
By prohibition constitutional Measure base-wage are stuck with lower rate that was agreement based on the authorized statute in 1979 that government buy pick up, would them, annui- *37 wages ties. measure, Their base are frozen at an 400 eight percent lower than the base- that is or nine
amount probability wage in all without the have been rate would contract entered into and without the bilateral 1979 statute government pursuant retains the hun- statute.10 The to that already savings gained, dollars of and millions of dreds of gain in the future because of millions that it will other scores base-wage rate. frozеn of the expressly applies, aspect 8 accord
This
of Measure
“regardless
ing
of when” an
measure,
terms of that
in relation to the measure’s
entered
service
impair
language
the intent to
date. That
indicates
effective
Inability
obligation
of contract on a retroactive basis.
wage
recoup
the lower base
under
for
they
agreed
wage
had
8,
to which
of Measure
a lower
terms
bargain,
pay-for-annuity
clear that
makes
of the
as their
obligation
impairs the
retroactive law that
Measure 8 is a
given
existing
amounts, that the
and,
the dollar
an
contract
11
impairment is substantial.
promised
exemp-
237.201
an
Because former ORS
right
person
past
on the
of a
and future taxation
tion from
annuity,
annuity,
just
payout of that
on the final
an
prom-
for its
has received the consideration
the state
because
many
tax-savings
money-saving form of
ise in the
237.075)
1979,
adopted Oregon
chap
(former
as
Laws
ORS
ORS 238.205
538,
ter
section 3.
Romein,
Corp. v.
Supreme
of the United States in General Motors
The
Court
(1992),
1105, 117
three-question
181, 186, 112
uses a
test
Ct
L Ed 2d 328
S
503 US
against
impairing
prohibition
laws
whether
the constitutional
to determine
relation
there is a contractual
obligation
contracts has been violated: Whether
relationship,
impairs
and whether
ship,
change in
that contractual
a
law
whether
established,
may
a state
impairment
Where a violation is thus
is substantial.
demonstrating
legitimate
constitutionality
offending
law
of its
rehabilitate the
law,
remedying
social or
public purpose
such as
broad
general
served
cases,
present
showing
present
problems.
is
in the record
No such
economic
Group
showing
Energy
v.
See
Reserves
that no such
can be made.
and it is conceded
(1983)
400, 411-13,
697,
L
2d 569
Light,
103 S Ct
74 Ed
&
459 US
Kansas Power
(under
per
adjustment
rights
public purpose,
of contract
is
legitimate
some
state
missible).
ground
complete
adequate
hold Measure
Although
as a
I would
constitution,
fed
courts relied on the
the state
the trial
based on
unconstitutional
question
as well. United States
no
but that it is violated
provision. There is
eral
92,
Jersey,
On the facts for the stated, stated and reasons the of Measure 8 a six levy the provision exacting against wages state local government who had employees been already that an be promised annuity purchased would governmental funds, with and who their work by for paid not promise, may be of the deprived the obligation undertook to That government provide annuity. obliga- tion law may impaired by be later without passed vio- the lating that, state constitution I, Article section pro- vides in part: * * * impairing obligation “No law the of contracts shall * passed*
ever be *.” 10(1) (2) (3) void Section is and a nullity. Subsections section 10 compound the impairment contract accom- (1) by subsection and serve no other plished purpose. They are void.
The same result —substantial of con- impairment tract under either to the two other applies sep- constitution — arate action sections added Measure 8 to the by constitution, sections 11 and 12. As to the rate of investment guaranteed return it must first be noted that the state prohibition, also substantially from the gains ORS 238.255.12 The operation 237.277) (former provides: ORS ORS 238.255 “(1) section, As in this used ‘individual account’ means individual system account for each active and member of inactive the Public Employes’ provided 238.250, Fund Retirement for under ORS but not the indi- Annuity by vidual account of in the Variable Account established ORS 238.260. surpluses guar- uses of future fund the state first rate surplus, is antee. If there unused as has been case in segregated periods, longer are no recent these funds to or by by fulfilling obligation imposed the rate encumbered promise. may guarantee surplus Instead, the use the state earnings fulfilling purposes other investment eg., obligations See, within PERS. ORS state’s interests expenses paid (system to be 238.610 administrative are from earnings earnings or, insufficient, if are investment contributions). employer impairs obligation 11 ofMeasure 8 ofthe
Section promise statutory prohibiting guarantee contract rate change plan. All of the of that in the contract burden prohibition who, law, fаlls on section system. must remain members of the the The state relieved of *39 greater degree obligation and receives an even control process. employees fund Public over the trust experience investment balancing any obligation or no relief from detri- quid pay pro quo guar- to the loss of ment or other for the a interest rate as result of Measure 8. anteed assumed literal the that all Besides, the words of measure state by mandates, are the new no matter when covered government. they That their service state- commenced retroactively implies that the measure was intended ment remove or implication, guarantee. By erase the interest rate assumed statutory con- section 11 thus eradicates accrued thereby rights, unconstitutionally impairing the obli- tract gation contract under each constitution. “(2) system for an active member of The individual account or inactive the year. earnings each If the individual account is credited with
shall be examined
year
earnings
previous
in
less than
that would have been
for the
an amount
year
pursuant
rate
assumed interest
for that
determined
credited
board,
be
to the individual
the amount of the difference shall
credited
account
purpose.
charged
in the fund
for the
A
to a reserve account
established
deficiency
may not be
on a
basis for
account so established
maintained
reserve
years. Earnings in
the assumed
period of more than five
excess of
interest
a
year
charge
years following
made to
for which
is
the reserve
rate for
applied
first be
to reduce or eliminate
amount of
account shall
deficiency.”
1975,
333,
by Oregon
chapter
originally
sec-
as
enacted
Laws
The section remains
1993, chapter 177,
that an
except
tion
Laws
section
clarified
members,
including
for all
inactive
account
is
be maintained
individual
members.
of one-half of
Application
the value of unused sick
leave to increase final salary and thus increase the
portion
benefits
on
predicated
service
is
years
impacted differently
than the annuity portion benefits. As to the increase of final
years’ salary
compensate
one-half of
leave,
unused sick
the effect of the provisions of Measure 8
the sick
prohibiting
leave contract from
carried out is to
being
cancel
of all
part
retirement
employees’
benefits, even though
earned
already
who
employee
has already
her
performed
or his side of
the contract
sick leave.13
using
The cancellation is ret-
roactive because it is after the fact and after the employee
has
performed
employee’s
of the
part
agreement. Thus,
after the
has
given the required consideration to
the state to pay for the state’s return promise, Measure 8
irrevocably would cancel and void that return
promise.
measure
impairs
obligation of that contract by canceling
the obligation to
perform
already paid-for return promise.
314 Or at
Hughes,
43 (Fadeley, J.,
concurring
and dis-
senting
part); Taylor,
Measure 8 thus impairs both major parts stat- utory system for calculating retirement benefit amounts, and the annuity service credit portion. The impairment after imposed those benefit-calculation provisions became vested rights as to almost all state and local government employees, including school district employees.
Sections 11 and 12 are void under the state consti- tution, because they impair obligation of contract in the form of the state’s promises mandated or authorized by stat- ute and from which the state has realized and retains bene- fits conferred by its employees, who in turn have conferred those benefits in reliance on the contract that provisions Measure 8 impairs. January is, except employees That all who were able to and did retire before
1, 1995, right credit, before cancellation of except the earned to sick leave judiciary and, thus, for the who have not been accorded sick leave benefits have apply years’ salary. accumulated none to increase final nullity. The state and local and a
Measure 8 is void governments and must now their contracts remain bound unconstitutionally employees disgorge from funds taken Measure 8. under concurring specially and dis-
GILLETTE, J., senting part. of various consti- cases arise out
These consolidated against challenges the sub- that have been mounted tutional provisions the voters of Ballot Measure which stantive approved general election. That 8, 1994,
at the November and 12—to 10,11, added three new measure ballot sections — requires Section 10 Constitution. IX of Article (1) public oftheir sal- contribute all that (2) public system, pension ary that the retirement to their way system employer in a that to the same not contribute required employee contribution, relieve would (3) required employer offset the not otherwise that the any public 11 forbids Section contribution. guaranteeing employer or interest on a a rate of return any respect to pension with that, 12 directs fund. Section January retiring public employee 1, 1995, retire- or after on by any attributable increased amount not be ment benefits sick leave. unused brought cases is: in these combined to us
The issue provisions Clause violate the Contracts ofthe above Do opinion concludes The lead States Constitution?1 the United Measure of the Ballot sections substantive all three follow, I the reasons that For Clause. the Contracts offend analysis conclusion, reject the basis of that analysis ignores that this the rules I believe because As I in cases of this kind. for itself has set heretofore court agree explain, 11 and 12 I that sections however, also shall concerning the rules on well-settled invalid, based are opinion’s the lead impairment I dissent from of contracts. 10. of section invalidation provides: I, of the United States Constitution section Article * * * * * * pass any impairing Obligation Law shall “No state Contracts!.]”
405
the present
with a
observation about
I begin
general
employees’
statutory
concerning public
arrangement
a
that provides,
contains
contract
chapter
ORS
273
pensions.
the
will
a
for
pension
receive
alia,
public employees
inter
v.
See,
State
Hughes
have
they
performed.
e.g.,
work that
of
(so
(1992)
1,
holding).
activemembersofthe a If employer agrees: so “(1) The rate ofcontributionof each active member of system employedby employer who is covered policy agreement uniformly such shall be six salary regardless monthly salary.” amount *42 added.) (Emphasis meaning The of ORS 237.075 is former central this case. to statutory the demonstrates, As context the rule public employee required pay before 1979 was that a to a system. to contribution the retirement Then, in legislature foregoing require- 1979, the fit saw to relax the by enacting ment ORS 237.075. Under that statute, a former public employer was authorized in its discretion in course bargaining process, agree otherwise, collective or to pick-up employees’ required ofits contribution; it was not agree pick-up. to such
Subsequently, many public employers entered into bargaining agreements pick-up pay collective in lieu of raising employees’ wages. Invariably, pick-up was lim- bargaining agreements, ited to the life of the collective but it negotiated two-year has continued to be into successive agreements. employees typically Non-union were extended pick-up arrangement through policy the same informal practice.
The effect of of the enactment section 10 thus was to place Oregon specific in the Constitution a constitutional requirement pertinent part that mirrored the ORS former prohibiting practice permit- 237.071, while that had been theory ted since 1979 ORS 237.075. Plaintiffs’ former pension per- that, law, as a matter of traditional once pick-up employees, perma- cent was extended to it became a nently right vested of those that could not be away, respect employment taken even with to future and the solely employ- benefits that were reflection such future providing offsetting ment, without Plaintiffs benefits. further argue provisions although that, in various collective bar- gaining agreements by right definition extended the to the two-year pick-up only underlying over the life of those labor right pre- expiration periodic of that did agreements, the plaintiffs argue, being permanent. Therefore, it from vent impaired impermissibly contract, their PERS section right existing pension eliminating the 6 contractual an plaintiffs percent pick-up. seek to transform words, In other right express limited dura- best, an contractual is, at what right by implied virtue of absolute contractual into an tion traditional opinion performs pension law. The lead transformation. governing question law can be no as
There theory pension ben follows the contract this case. pensions portion deferred of the con it treats as a efits, i.e., by public employees. compensation See, earned tracted-for citing (summarizing Hughes, e.g., 314 at 17-21 law cases). problem there is a con Thus, the here is not whether system. Apparently, that is one: the PERS tract — there is majority. enough today methodology until was far more
But our precedents, demanding. appropriate inquiry, under our (1) steps: question proceed in three Was statute the should a of the (2) specific nature so, the contract? If what was *43 (3) prom- promise that Whatever the made statute? statute, the was its duration? In order ise contained in what (1) prevail plaintiffs that the the must demonstrate here, to part question, of the PERS 237.075, in ORS was a statute contract; (2) promised the that the six statute part employee’s pick-up pension program be a of an that it discusses would employee’s PERS, under once that (3) promise employer agreed pick-up; that that subject perpetuity, at a not to modification i.e., was in later time. opinion that the contract does
The lead concludes plain- enough promise, meet one that is broad contain a tiffs’ desires. only by opinion ignoring the But that does so long ago principle created to assure that this court cardinal legislative contracts enactments would be deemed to be legislature only intended in in those circumstances which recently reiterated that This most them to be such. principle Hughes:5 court in 5 factually. plowed course, Hughes distinguishable But that case no new Of precedents. simple compilation
ground. of rules derived from our earlier It was a 408 determining exists,
“[I]n
whether a contract
because this
legislation
case involves state
a
alleged
contract,
abe
contract will
be
that legislation
it
unless
inferred
expresses
unambiguously
an intention to create a contract.
Oregon, [306
Eckles v. State
380, 390-91,
Or
I shall
for the
of this
plaintiffs
hurdle,
can overcome the first
i.e., can show that
part
237.075 is a
of the PERS contract. But,
ORS
as I shall
plaintiffs
get past
they
show,
hurdle,
cannot
the second
i.e.,
promise
that the
cannot demonstrate
made ORS 237.075
prevail.
as it needs
is as extensive
to be in order for them to
already
statutory
I
have
reviewed
relevant
text
again
and context above
need
set that
review out
at
summary
length
general
here. A fair
is that there is a
statu-
tory
public employee
rule that a
must contribute 6
employee’ssalary
employee’s pension,
toward the
former
employer may
exception
237.071,
ORS
but that an
make an
(in
general
by agreeing,
formally
rule if it wishes
either
(with
bargaining agreement)
informally
a collective
respect
unrepresented employees),
“pick up”
to
that it will
employee’s percent obligation.
Former ORS 237.075.
wording
Where, in
of that
statute,
latter
is there
plausible interpretation
room for a
that transforms the afore-
statutory permission
promise
pick up
mentioned
into a
to
all
public employees’ 6-percent
And,
contribution? Nowhere.
plausible
statutory
because there is no such
construction of
simply may
context,
text and
the statute
not be read to do
(and
plaintiffs
opinion)
what the
the lead
wish to have it do.
(citing
PGE,
The lead
an
devotes
enormous amount of its
energy
proving, through
prec-
an exhaustive review of our
possible
legislature
promise
edents, that it is
for the
bene-
public employees
fits to
that continue to be available into the
nobody
questions
power
leg-
future. However,
here
promise
public employees perpetuity;
make a
islature to
in
specifically recognized Hughes
prom-
this court
that such a
possible.
establishing
ise would be
legislature
the utory the collective became of the stat- two-year promise, express agreements durational limitation ofthose nec- essarily kept promise becoming permanent. *45 opinion gets only by pre-
The lead
as far as it does
statutory
tending that the PERS
scheme is monolithic, with
being part
provision
single promise.
each
ofit
of a
However,
(and
illustrates)
precedents
Hughes
earlier
demand
our
statutory provision must be examined on
each
its own terms
legislative
particu-
intent
to determine
and that this is true
statutory
larly
provisions
of later-enacted
like
ORS
former
Hughes,
237.075.
“The enactment of ORS 237.075 followed [former] between the lengthy negotiations employee state and unions, during employees agreed which forego requested pay exchange bargain raise in for a with right public employers percent ‘pick-up.’ for a six The enactment give employees allowed the state to what amounted to a six percent pay increasing pay increase without the state’s Security. agreement signifi ments to Social also had employees. cant tax benefits for the stops “If the state the six paying percent pick-up and plaintiffs, that cost is shifted to the state will reduce its percent salary. plaintiffs PERS costs six Because will pay percent salary, they have to PERS six of their will expe- slightly rience more than a six reduction in their salaries, because amounts are not considered as pick-up contributed, income and are not taxed when whereas their from their taxable employees pay contributions income.”
(Footnote omitted.) opinion
So what? Those statements the lead are are analysis. they any anything, If not a relevant expressions consequences policy of concern over people adopting Ballot Measure 8. It choice made may opinion’s musings imply, that true, well be as the lead wrong-headed, represents public policy is Measure 8 short-sighted, mean-spirited. any all of those But if qualify legislation this characteristics for invalidation changed utterly that which the court, our work has pursuant made to it allo- and the laws Constitution cate to us. weighs justifica- opinion in with a
The lead
further
that is a flat misstatement: “That conse-
its actions
tion for
allowing
permit
stand]
[of
quence
10 to
would
Section
plaintiffs’
labor,
the benefit of
but relieve
to retain
state
state of
promised
paying plaintiffs what it
the burden of
argument
specious.
The state
The
also strikes down
guaranteed
section,
12,
rate of return
and section
sick
analy-
opinion
provision.
utilizes an
each,
As to
the lead
leave
I
invalidate section 10. As have
sis similar to that used to
disagree
opinion’s
approach
explained,
the lead
entire
does not extend
I
with
my disagreement
problem.
However,
to the
by
opinion
highlighted
inappropriate
role assumed
the lead
[Con
opinion’s
that “notions of fundamental
fairness that transcend
assertion
opinion
at
the lead
reaches. 323 Or
Clause]
tract
itself’ dictate the conclusion
court’s)
(or any
juris
approach
has
a
of this court’s
375. That novel
never
been
Clause,
prudence.
apply
not to “transcend” it in some
Our role is to
the Contract
to be “fundamen
quixotic
to arrive at what some members of the court deem
effort
tally fair.”
opinion’s holding
to the lead
as to either section. The lead
opinion
applying retrospectively, i.e.,
reads both
as
sections
rights
affecting
employees already
as
for which
have
performed
requisite
agree
I
labor.
that those sections
fairly may
way
impermis-
read
and,
read,
be
as
are
so
impairments
e.g., Hughes,
See,
sible
(retrospective
of contract.
abrogation exemption pensions tax contract); impairment Harryman Roseburg of PERS v. Fire (1966) (invalidating District, 634-35, 244 Or P2d 51 retrospective application decision fire of a district that rule). terminated an accrued sick leave I therefore concur specially those as to two sections.8 charged writing
If we were in this case with aon subject concerning clean slate matter addressed sec- might policy 10,1 tion well set in line with that which results opinion. policy from the lead But the in this choice area is government people, entrusted exercising another branch of —the legislative power IV, their under Article section opinion oversteps The lead Constitution. proper scope authority policy of our to overrule that choice.In doing, opinion good so suffers, the lead not from want of diligence, temporary perspective, will or of but loss of apparently subject pensions—that due we are matter — addressing. join I cannot it. join specially
Carson, C. J., Graber, J., in this concurring dissenting opinion. *47 it, opinion prospective application As I lead read would not allow of sec 12, either, respect public employees already
tions 11 and at least with who were job view, error, my on the when Ballot Measure 8 went into effect. In that is for the (in view) ruling my same reasons on that the section 10 error. But that error does disposition not affect the of this case toas sections 11 and 12.