This appeal involves two competing interpretations of a statute. The legislature enacted ORS 238.364, which provides some retired public employees with an additional retirement benefit to offset their state income tax liability. There is no dispute that that was the purpose of the law. Petitioner contends, however, that what the legislature actually enacted is a formula that entitles him to far more— thousands of dollars per month more — than is needed to offset the state income tax on his pension benefit. As explained below, we reject petitioner’s interpretation and affirm the judgment of the trial court.
Petitioner retired in 2011 after 30 years of service as a state employee. He obtained a determination of his monthly retirement allowance from the Public Employees Retirement System (PERS). Believing PERS’s calculation to be incorrect, petitioner requested an audit. PERS upheld its benefit calculation in a written order. Petitioner sought judicial review pursuant to ORS 238.450(4), alleging several defects in the order. The trial court granted summary judgment to PERS. On appeal, petitioner challenges only one aspect of the trial court’s decision: its ruling that PERS correctly calculated the portion of petitioner’s retirement benefit attributable to ORS 238.364. Specifically, petitioner argues that PERS, in applying that statute, wrongly increased petitioner’s benefit by only four percent instead of 36 percent.
The Supreme Court discussed the history of ORS 238.364 in Vogl v. Dept. of Rev.,
For many years, Oregon exempted state pension income from income tax but did not similarly exempt federal retirement benefits. In 1991, the legislature repealed the state pension exemption in light of the United States Supreme Court’s decision in Davis v. Michigan Dept. of Treasury,
Following Hughes, the 1995 legislature enacted House Bill (HB) 3349, now codified at ORS 238.364, the statute at issue in this case. HB 3349 stated that its purpose was to provide a benefit increase “in compensation for damages suffered by those members and beneficiaries by reason of subjecting benefits * * * to Oregon personal income taxation.” Or Laws 1995, ch 569, § 2. In other words, HB 3349 established a mechanism by which the affected public employees would receive an additional benefit to remedy the breach of contract described in Hughes. As the Supreme Court later noted in Vogl, HB 3349 “expressly state [d], in a variety of ways, that the increased benefits are provided as full and final payment of damages for any claim arising out of the repeal of the previously existing exemption” for state pension benefits.
The relevant parts of ORS 238.364 are as follows:
“(l)(a) Upon retirement of an employee who is a member of the Public Employees Retirement System and computation of that member’s service retirement allowance * * *, the Public Employees Retirement Board shall add to the amount of the allowance, * * * the greater of the percentage increase calculated under ORS 238.366 or a percentage increase calculated under subsection (4) of this section.
“(4)(a) The Public Employees Retirement Board shall calculate a multiplier for the purposes of this section equal to the percentage produced by the following formula:
1 /.91[1 ]
“(b) Upon the retirement or death of a member of the system, the board shall determine the fraction of the member’s retirement allowance or death benefit, including any refund or lump sum payment, that is attributable to service rendered by the member before October 1, 1991. The board shall then calculate a percentage that is equal to that fraction multiplied by the multiplier determined by the board under paragraph (a) of this subsection. The percentage so calculated shall be used to determine the amount of the increase in benefits provided to a member, if any, under this section.”
In plainer terms, subsection (4)(b) directs the board to determine what portion of a member’s overall retirement benefit is attributable to service prior to October 1, 1991. The reason for that is that October 1,1991, was the effective date of the tax law change that repealed the exemption; the statute entitled members to the state tax exemption through October 1, 1991, but not after that date. Vogl,
The parties focus their arguments on how PERS calculated petitioner’s “multiplier” described in subsection (4)(a). The multiplier is the number that, according to subsection (4)(b), must be multiplied by the fraction of a member’s overall service that occurred prior to October 1, 1991. The result of that calculation is then used to
The figure of .0989 (or 9.89 percent) is derived in the following manner: Oregon’s highest marginal income tax rate in 1991 was 9 percent; thus, to be made whole as required by Hughes, members must receive a net HB 3349 benefit that offsets the 9 percent tax that they paid. That cannot be achieved, however, simply by multiplying the pre-October 1991 benefit by 9 percent, because the additional benefit under HB 3349 is itself subject to a 9 percent tax. Thus, to achieve a net benefit increase of 9 percent (that is, after imposition of a 9 percent income tax), the benefit increase must be 9.89 percent. This is illustrated by the following example, which, for the sake of simplicity, assumes that a member’s benefit amount attributable to pre-October 1991 service is $100:
1. Base benefit amount (pre-1991 service): $100
2. Oregon tax: $9 ($100 x 9% rate)
3. Base benefit after tax: $91
4. HB 3349 benefit: $9.89 ($100 x 9.89%)
5. Oregon tax on HB 3349 benefit: $.89 ($9.89 x 9% rate)
6. HB 3349 benefit after tax: $9
As noted, the objective of HB 3349 was to ensure that PERS members would be placed in the position that they would have enjoyed if the 9 percent tax had never been paid. To achieve that, the member in the example above must receive a net HB 3349 benefit of 9 dollars. The use of a 9.89 percent multiplier achieves that result and is, therefore, consistent with the undisputed goal of HB 3349.
In this appeal, petitioner concedes that PERS’s use of the 9.89 percent multiplier fully compensates him for the income taxes he paid on his benefit payments attributable to pre-October 1991 service. Petitioner also concedes that that was the outcome that the legislature hoped to achieve when it enacted HB 3349. He argues, however, that the formula for calculating the multiplier that the legislature actually put into law requires a different result. Petitioner interprets HB 3349 to require PERS to use a multiplier of 109.89 percent. That is so, according to petitioner, because subsection (4) (a) of the statute directs PERS to “calculate a multiplier for the purposes of this section equal to the percentage produced by the following formula.” The formula is 1 divided by .91. That computation produces the number 1.0989. When converted to a percentage, 1.0989 becomes 109.89 percent.
Petitioner’s argument then goes further. He argues that, once PERS employs the proper multiplier, he is entitled to a large benefit increase. To explain petitioner’s point, we return to the same example:
1. Base benefit amount (pre-1991 service): $100
2. Oregon tax: $9 ($100 x 9% rate)
3. Base benefit after tax: $91
4. HB 3349 benefit (petitioner’s version): $109.89 ($100 x 1.0989)
5. Oregon tax on HB 3349 benefit: $9.89 ($109.89 x 9% rate)
6. HB 3349 benefit after tax: $100
In petitioner’s view, the $100 from line 6 is the “amount of the increase in benefits” under HB 3349. That number must be added to the amount in line 3. That would give petitioner a total benefit of $191, and a windfall of $91.
Petitioner makes no pretense that the legislature intended such generosity. He acknowledges that the legislature surely intended that the formula in HB 3349 would achieve the result of providing the tax remedy required by Hughes, no more. But, petitioner argues, the legislature actually enacted a different formula than it intended, and that is the formula that PERS must apply.
PERS makes two arguments in response. The first is that petitioner’s reading of the statute has already been foreclosed by the Supreme Court’s decision in Yogi. The second
We first consider whether Yogi is controlling. Yogi is, of course, binding on us as the decision of a superior court. See State v. Westlund,
In Vogl, plaintiffs in two consolidated cases argued that HB 3349 violated the “‘equal tax treatment’ requirement that is inherent in the federal doctrine of intergovernmental tax immunity.”
“First, unlike the flat percentages employed in the 1991 statute, the 1995 statute increases benefits by way of a formula that is fairly closely matched to the task of replacing PERS income that will be lost to taxes. In theory, that formula will leave PERS recipients with an after-tax amount that roughly approximates what they would have received, had their pension (or that portion of it that vested before 1991) been tax exempt. *** Although, in any individual case, the formula can only approximate the amount needed to offset the effect of 1991 repeal, the formula is as close as the state can get to replicating the effect of the repealed tax exemption without delving into individual tax circumstances.
“On the other hand, as with the 1991 increase, entitlement to the 1995 increase is not conditioned on actual liability for an equivalent amount in state taxes. PERS recipients receive the increase even if they pay little or no state income tax on their PERS benefits. Again, although the increase generally replicates the effect of a tax rebate, it may or may not have that effect in individual cases.
“The upshot of the foregoing discussion is that, although the 1995 statute is similar to its 1991 predecessor in that it does not purport to offset, dollar for dollar, the amount lost to the exemption repeal in every individual case, its design and effect far more closely match such a purpose. Clearly, as the state moves closer to replacing the lost net income on a dollar-for-dollar basis, the fact that the increase is in fact a tax rebate, rather than a general increase in compensation to ‘make up’ for lost net income, becomes more apparent. That is particularly so in view of the fact that the increase is available only in those years when PERS benefits are not tax exempt. Although that fact, by itself, does not transform the increase into a tax rebate, Ragsdale [v. Dept. of Rev.,321 Or 216 , 231,895 P2d 1348 (1995)], it is a relevant consideration where, as here, other suggestive factors are present.”
Vogl,
As that language clearly demonstrates, the Supreme Court has construed ORS 238.364 as providing a remedy meant to approximate a rebate of income tax paid. Petitioner’s construction of ORS 238.364, in contrast, would provide a windfall far in excess of what he would have received, had his “pension (or that portion of it that vested before 1991) been tax-exempt.” Vogl,
Petitioner, however, argues that the Supreme Court in Vogl did not address, and probably had no reason to consider, any other possible interpretations of the statute, including the different interpretation that petitioner advances. It is difficult to know from
Nevertheless, to the extent that there is any doubt as to whether this case is controlled by Vogl, we proceed to consider petitioner’s interpretation of ORS 238.364 on its merits. Our approach is guided by two main considerations. First, we apply the familiar framework for statutory interpretation established in PGE v. Bureau of Labor and Industries,
The second consideration is that, when interpreting a statute, we are “simply to ascertain and declare what is, in terms or in substance [.] ” See ORS 174.010. That is, when a statute clearly and unambiguously says one thing, we cannot simply conclude that the legislature meant something entirely different. See Gordon v. Hall,
Petitioner’s theory is that, notwithstanding the undisputed purpose, legislative history,
We disagree. Petitioner is correct that the statute directs PERS to use a multiplier
Implicit in petitioner’s argument is the contention that the amount generated by using the 109.89 percent multiplier is what PERS is required to award him as the “increase in the amount of benefits” for purposes of the statute. What the statute actually provides is that “[t]he percentage so calculated shall be used to determine the amount of the increase in benefits provided to a member, if any, under this section.” ORS 238.364(4)(b) (emphasis added).
In other words, the real issue posed by this case is not, as petitioner argues, “how the math works,” but how PERS is to apply the results of the mathematical equation set forth in the statute. Given that the legislature’s undisputed goal in enacting ORS 238.364 was to place PERS members in the position they would have been in if the 9 percent tax had never been paid, the answer is apparent. To explain, we return one final time to the example from above, in which we assume that $100.00 of a member’s benefits are attributable to service rendered prior to October 1, 1991. Under that scenario, the calculation required by HB 3349 is $100 x 109.89 percent, which equals $109.89. That is the amount that the member must receive, in total, in order to be held harmless from state income tax. What petitioner’s argument overlooks is that, of that amount, $100.00 was already paid to the member. Contrary to petitioner’s theory, the statute does not direct PERS to add the HB 3349 amount to the original benefit. Rather, to “determine the amount of the increase in benefits” to pay the member, PERS must subtract from the HB 3349 amount ($109.89) the base benefit that was already paid ($100.00), yielding a benefit increase of $9.89. With that understanding, petitioner’s complaint that PERS used a multiplier of 9.89 percent instead of 109.89 percent simply misses the point. Multiplying the base benefit ($100.00) by 109.89 percent and then subtracting the amount that was already paid ($100.00) produces $9.89. That is precisely the same outcome that PERS achieves by multiplying the base benefit by a multiplier of 9.89 percent. Either method yields the “amount of the increase in benefits” necessary to fulfill the legislature’s intent.
In short, we conclude that PERS correctly generated a “multiplier” in accordance with the provisions of HB 3349 and correctly used that multiplier to further the undisputed purpose of the dispute. Accordingly, the trial court did not err in granting summary judgment to PERS.
Affirmed.
Notes
Prior to 2009, the denominator in that formula read: 1 / (1 - “the maximum Oregon personal income tax rate”). Oregon Laws 2009, ch 868, § 1. For our purposes, we view that change as immaterial. We do note, however, that the original bill’s reference to the “personal income tax rate” is additional evidence that the legislature intended the multiplier to be tied to the top Oregon income tax rate that existed in 1991.
An extended discussion of the legislative history is unnecessary because, again, petitioner makes no argument that the legislature intended the result that he desires. Nonetheless, two pieces of legislative history that make the legislature’s intent perfectly clear are the floor statement by the carrier of HB 3349, see Tape Recording, House Floor Debate, HB 3349, Jun 5, 1995, Tape 225, Side A (statement of Rep Schoon) (referring to the “9.89% benefit increase”), and the summary prepared by the Legislative Fiscal Office, see Fiscal Analysis of Proposed Legislation, Legislative Fiscal Office, HB 3349, Jun 15, 1999 (“All retired members and beneficiaries as of the effective date of the bill would receive a 9.89% benefit increase.”).