Justices of the Oregon Supreme Court

The Oregon Supreme Court

(Oregon Judicial Department)

The Oregon Legislature's cost-cutting reforms to the state pension system are about to get their day in court.

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

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

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

Together, the bills slashed the unfunded liability of the Oregon Public Employees Retirement Fund by some $5 billion and reduced public employers required contributions to the pension system by $810 million per biennium.

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

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

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

Last year's reforms, initially opposed by many Democrats, was one of the signature achievements last year for Gov. John Kitzhaber, who worked with a coalition of advocates and legislative leaders to provide the resulting budget relief for school districts, counties and other public entities around the state.

Without the benefit changes, PERS actuary says employer contribution rates in the 2015 -17 biennium would be 4.5 to 5 percent higher as a percentage of payroll – a collective budget hit approaching $1 billion.

Yet even if the Supreme Court decides to overturn the reforms, public employers will likely receive another two-year holiday on higher pension payments.

Employer contribution rates for the biennium starting July 1, 2015 will be announced this Friday, and will already be baked into their budgets by the time the Legislature meets next year.

Barring another round of reforms, in which Kitzhaber and other legislators have already declared they have no interest, employers would be left with lower rates. But they would essentially be ignoring the minimum payment on their credit card, and rolling the dice on a continuing surge in investment returns to bail them out of even sharper rate increases in 2017.

-- Ted Sickinger