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Sunday, February 17, 2013

Ghosts That We Knew

I had intended for this post to be longer and more complex than it will end up.  For reasons that I prefer not to go into, I'm going to summarize what I had intended to say, and I will decide someday soon whether I need to elaborate on the information presented.

Since 2010, the idea of capping the retiree COLA at some amount other than the retiree's full benefit has been floating around in the weeds.  I think the original idea came from the Portland City Club, but I am not certain of that fact.  Nevertheless, capping the COLA at $24,000, $30,000 and $32,000 indexed or not indexed for inflation has been a ghost for at least three legislative sessions.  Everytime the idea pops up, like whack-a-mole, it gets batted away because virtually everyone who investigates the idea bumps into the reality that the COLA, in its current form, has been part of the retirement "deal" all PERS retirees get since 1973.  And since the Oregon Supreme Court, first in the Hughes decision, then in OPSOA, and finally in Strunk keep referencing the PERS "contract", the idea of modifying the COLA loses steam almost as quickly as it gets proposed.

Any actuary will tell you that the COLA is expensive even if retirees never see more than 2% maximum per year.  The PERS COLA is extremely modest compared with the COLA found in many other state retirement systems.  Many states with higher COLA have successfully lowered, suspended, or eliminated the COLA provisions in their retiree agreements, but none had the contractual force that Oregon's has.  For every example of a successful attempt to alter the retiree COLA, Oregon has already been there, done that, and has found out that the statutes associated with many elements of the retiree agreement are legally interconnect, sound and hard, if not impossible, to change.  Oregon's courts have plumbed the depths of PERS and have found most elements inviolate under contract law. Prior to 1971, whenever the retirees suffered a significant loss of purchasing power, the legislature granted ad hoc increases in benefits.  These might be 10% increases, 25% increases, a 13th (monthly) check.  From the founding of the retirement system in 1946 until 1971, there were many examples of these ad hoc increases.  In 1971, the Legislature sought to reduce the number and the impact of these periodic increases.  Late in the 1971 session, the Senate introduced a bill to provide an annual COLA for retirees.  The COLA would be tied to the Consumer Price Index (the measure of inflation), would never be less than zero (even in years where deflation occurred), and initially was pegged to be 1.5% of the retiree's benefit.  In addition, the Legislation provided that in any year the rate could not exceed 1.5% and any excess inflation would be banked for the future so that in years where the cost-of-living rose less than 1.5%, retirees (PERS) could draw on their "banked" surpluses to bring the annual increase up to 1.5%.  In the same year the COLA was instituted, PERS retirees also received an ad hoc benefit increase of either 12% or 25% depending on the amount of the monthly retirement benefit.  The annual COLA was scheduled to begin on July 1, 1972.  In 1973, the Legislature revisited the COLA proposing that the ad hoc increases be diminished even more and proposed an annual COLA of to 2.5%.  Everything else about the COLA remained unchanged in Senate Bill 411.  There were a number of revisions made to PERS in 1973 and all those provisions seemed to drive up employer costs.  While there was only small opposition to the changes to the COLA, there was enough that at some point near the end of the session, OSEA, which represented state employees, proposed to help diminish the cost increases to employers and suggested a retiree COLA of 2% rather than 2.5%.  This reduced employer normal costs by 0.3% of payroll.  This did the trick.  The Legislature agreed and ORS 237.060 with all its revisions was enacted by a significant majority in both houses and signed by the Governor.  The changes, like the original COLA itself, were set to be retroactive to July 1, 1972.  Aside from editorial changes, mostly later to eliminate the reference to the July 1, 1972 starting date, and numeric changes brought about by expansion of the PERS statutes, the COLA section of the Oregon Statutes (ORS 238.360) has remained unchanged for the past 40 years.  In that time, the COLA has only been challenged legally once.  After the 2003 Legislative reforms of PERS, the Legislature determined that retirees would see their COLA frozen at 0% until the 1999 overcredit was fully recovered.  Martha Sartain and OPRI challenged the Legislature as part of the comprehensive Strunk case.  In 2005, the Oregon Supreme Court ruled that the COLA was part of a retiree's benefit and that the Legislature could not  define a new benefit structure to which no COLA attached and then impose it retroactively and unilateral on retirees who benefited from the overcredit.  

Efforts to cap the retiree COLA at some fixed dollar amount would assuredly be challenged by the same forces that aligned against the 2003 reforms.  The history of the COLA argues against any idea of a dollar cap.  At no point in the history of enacting the COLA did the legislature ever consider setting an arbitrary benefit level beyond which no COLA would apply.  Indeed, such a limit would be arbitrary no matter what level was used.  Moreover, the mere fact of picking an amount would expose the Legislature to charges of economic discrimination.  The court system dislikes legislation that is arbitrary and discriminatory.  When the Legislature enacted the COLA in 1971 and revised it in 1973 there was never talk of any limit on the amount of benefit eligible.  The language of the COLA provision is clear and unambiguous.  The COLA shall be applied to the member's benefit.   Note that it doesn't say the first $24,000, $30,000, $32,000 or any other number.  The only way that a COLA can be fair and non-discriminatory is to pay it on the entire benefit.  Regardless of what anyone may think about the benefit, it is earned, it is what was promised, and the COLA is part of the promise.  The Legislature alters that promise at its peril.

I've been writing about PERS issues for more than 13 years now.  I started out writing for just my PSU colleagues and it has grown into a widely-read blog.  Lest anyone doubt the reach, look at the page view counter on the left side.  I'm not mentioning this to be a braggart, or to suggest that I am more important, more wise, or somehow more connected than anyone else.  I mention this primarily because most all of those people who read my blog seek the same thing I seek.  I'm closing in on being retired for 11 years.  Since retiring in 2002, my benefit has been under attack nearly constantly, having been reduced on three different occasions.  I know of no other group anywhere that has seen the level of abuse that those of us employed in the public sphere have received.  I didn't make a lot of money when I worked in a job that demanded no less than 8 years of college preparation.  I never griped about my salary - perhaps I should have, in retrospect - and my employer, like those of all the rest of you probably communicated the same thing.  We appreciate that your salary is not as high as either we or you think it should be.  Unfortunately, Oregon is not an affluent state and so we must defer some of your compensation until you retire.  OK, I accepted that promise and went on the have a successful and productive career in higher education.  I got large grants, small grants,  I published books and papers, I won teaching awards, taught tens of thousands of students, and I served as one of the longest tenured Department Chairs in the University.  When I retired, my Department threw me a nice retirement party, people thanked me for my years of service, I got a nice pen and pencil set, and I started drawing my PERS benefit 6 months after I relinquished my tenured position at PSU.  And since then, I and many tens of thousands of public employees have been savaged daily, weekly, monthly, and annually by politicians, gadflies, charlatans and crooks.  Political careers have been made and lost over PERS.  The public cannot seem to grasp the fact that our retirement benefits were both promised and earned, contractual and required.  With few exceptions, no one I know has gamed the system (it really isn't possible to tell you the truth), or in any way has taken benefits to which they were not entitled.

So, given this history and my own personal appeal, I think it reasonable to inquire of the Legislature and Legislators - when will I get to enjoy my retirement?  When will you all stop blaming every public catastrophe, every economic meltdown, and every employer failure to actual husband the savings that come from making me pay, on the people drawing PERS benefits?  We did not cause the problems.  PERS makes a convenient scapegoat, but few, if any,  of us had anything to do with the form of the retirement system we were offered (it was non-negotiable).  Furthermore, none of us has done anything wrong, except possibly to be foolish enough to believe the earnest promises from our employers.  Most of us PERS retirees are not young enough to find employment to backfill our income when the citizens of the legislature decide that we are both the problem and the solution, alters our benefits at the same time we find our health insurance premiums, our drugs, and gasoline prices continuing to inflate far beyond the official inflation rate.  We all made our decision to retire based on the promises and contractual elements provided in a document we all received called a Notice of Entitlement. We made our budgets on the promises outlined in the document, and on the details provided by PERS and our Human Resources Departments in their prep sessions for imminent retirees.  I retired expecting to enjoy the fruits of 32 hard and long years of full-time work with a reasonable, but not excessive benefit.  Little did I know that I'd still be fighting to receive what I was promised 11 years ago.   I really would like to spend my final years NOT writing this blog, not attending most PERS Board meetings, not being on a first name basis with a lot of people in PERS, in the media, and the Legislature, not spending time analyzing tedious documents so that I can report that  the emperor wears noclothes.  I'd really like all of the strum und drang of PERS to be behind me, to be a ghost that I knew, not a ghost in the windscreen. Is that really too much to ask?

Sunday, February 10, 2013

The Divide

The dueling reports on the COLA cap proposal have been issued and reported.  On the one hand, the Governor's office requested a legal analysis from the Attorney General on the COLA cap, while House Speaker Tina Kotek asked for legal advice from the Legislative Counsel on the same general proposal.  (Do keep in mind that at this time, there is no formal bill that I'm aware that has hit the pipeline for this COLA Cap, so all of this is speculation based on the Governor's proposal that the Legislature pass such a cap in the current session).  The documents appear to be contradictory, but, in reality, they are not.  On the one hand, the Governor's office got an analysis of how the AG's office would defend the COLA Cap in the Supreme Court, while the Legislative Counsel provided a legal opinion to the Legislature on the proposal in the first place.  The AG's analysis was that they "could" defend the COLA Cap in court - as if they had a choice - but it would be easier if they changed a few things around.  The Legislative Counsel concluded that he didn't think the COLA Cap would pass contractual muster with the Court.

So, who is right?  Well, it is hard to offer an opinion on how a highly charged issue like PERS will be decided in a legal setting.  Presumably, the Oregon Supreme Court, like all other Supreme Courts, rules on the basis of something called the "rule of law".  They also tend to follow a legal principle called stare decisis, which means that subsequent courts try, so far as possible, to respect earlier rulings by the court.   If these two principles hold, the COLA Cap does not have a prayer, based on the history of rulings the the Oregon Supreme Court has issued in previous PERS cases.  I will discuss this history, and provide a brief overview of the Legislative history of the PERS COLA in another post later in the week.  Unfortunately, our Supreme Court is elected, not appointed, and the fact that all members of the Court are also PERS members means that their opinions are subjected to more than the usual amount of scrutiny by the media and by the public.  

The conflict issue has driven a Bend attorney, Daniel Re, to crusade for empaneling a group of Judges, not in PERS, to hear and rule on all future matters pertaining to PERS.  Re has roped Representative Jason Conger (R, Bend) into sponsoring a bill that would require "outside" judges (outside of what?) to rule on any matters of PERS.   Re acts like this is a problem unique to the Oregon Supreme Court.  In fact, it is not, and another legal principle "the rule of necessity" states that there are some issues that present conflicts of interest to the court.  The presumption under the "rule of necessity" is that sometimes these things happen and that the legal principles trump the conflicts and that judges can put their personal situations aside.  Re talks about assembling a panel of judges who are not PERS members (not in Oregon) to hear the PERS cases and to rule on them.  Where would you find such judges?  How would you deal with the constitutional issues that gives the Oregon Supreme Court final jurisdiction over actions taken by the Legislative and Executive Branch?  What about State's rights, a favored principle of Conservatives used to try to circumvent many inveighs from Washington, DC?  I sincerely doubt that the Conger/Re proposal will get much traction in the Legislature.  Some have suggested that perhaps a Federal Court could rule on PERS issues.  It will be a cold day in hell when the Federal Court System gets involved in problems unique to a particular state.  So, I expect that all PERS issues now and in the future will continue to be resolved in the Oregon Supreme Court.

The Oregon Attorney General offers the Strunk case as an illustration of how the Court chose only to rule on Section 1 of ORS 238.360.  Section 1 deals only with the fact of a COLA for PERS retirees, and the Strunk Court basically said that you cannot offer a PERS retirement benefit to which a COLA does not attach.  Since the issue there was the temporary suspension of the COLA as a method of repayment for the alleged (then) 1999 over crediting, the Court could limit its attention only to the questions at hand.  Therefore, the Court ruled that the Legislature cannot, for any reason, eliminate the COLA in any year to recoup a debt.  To do so would be to define a new benefit form, after the fact, to members who retired before the change.   So, it is true that the Strunk court did not rule on the question of the COLA Cap, or offer any opinion as to future changes to the COLA statutes in the ORS.  But, to be double-dog sure, the AG said that one strategy might be to get the Strunk ruling on the COLA overturned.  If they were to overturn the Strunk ruling on the COLA, then a great deal of mischief might be possible.  The AG also suggested that the concept of a COLA Cap might fly better with the Court if it were applied equally to all members.  Since the Governor's proposal sets an arbitrary cap on the dollar amount subject to the COLA, it affects members unequally and discriminatorily (the AG didn't use those words, but the implication was there).  Courts don't like discriminatory measures.  The AG suggested that the Court might be more favorably disposed to view a cap on the percent paid out.  The existing cap is 2% (indeed, the existing cap has been 2% since 1973, retroactive to 1972).  Limiting the COLA to 1%, for example, would meet the requirement of being non-discriminatory and might pass muster with the Supreme Court.  Of course, the Governor's proposal tried to insulate about 50% of current PERS retirees from the impact of the COLA Cap.  However, given enough time, all of the people unaffected NOW by the cap, would eventually exceed the cap and would then suffer the way the other half suffered.  And, of course, changing the current COLA cap from 2% to 1% might run afoul of another set of rulings, namely the Hughes ruling in 1991.

The Legislative Counsel offered a formal opinion on the legality of the Governor's proposal.  In a short, but concise, legal opinion, the LC wrote that the combined weight of Hughes and Strunk, coupled with several other rulings, as well as the history of the COLA implementation through the Legislature, makes it unlikely that the Court would view the Governor's proposal favorably.  The LC did not offer any opinion on other variants that might meet with the Court's approval.  

So, for now, we leave the question until next week when a concise review of the Legislative history might prove instructive to see how the Legislature viewed the COLA when it first became part of the PERS retiree benefit array.