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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.  


Kolbs said...

Excellent post and very informative. The legislature would be foolish to take the risk of a COLA change being overturned and then having to make up the lost revenue or cut the additions, such as new teachers, that they made with the money.

Thanks for your research and making complex issues understandable.

RKS said...

It might be a good idea to include this information when contacting your legislators.
It should let them know that we are considering all aspects of this issue and plan to use them as needed to make our case.

Will said...

It's not clear how this will play out. Courts don't stray too far out of the political mainstream for too long, and the mainstream is moving against public employees on pension costs.

Keep an eye on what's going on in Rhode Island. Very high powered attorney arguing the employee position.


mrfearless47 said...

Actually the high powered attorney is arguing the pension system and executive side. I don't think the Rhode Island case will have much bearing on what happens this time around because the timing is wrong. But if it reaches the Rhode Island Supreme Court and from there gets bumped to the Federal Level, it might be eye-opening. Nevertheless, if the Rhode Island case somehow gets handled in the Federal judiciary, not only will state-level public employees be at risk, so will Federal Employees, including the federal judiciary. Any pension system whose ultimate source of funding comes in large part from the taxpayers suddenly is exposed to grave risk. Who do you get to rule when the US Supreme Court has an inherent conflict of interest. I don't see where this can go without conflict of interest at nearly every level. Sure, the Rhode Island case may be an isolated example that might set a legal precedent, but it is only the tip of the potential conflict iceberg. I have a hard time seeing how or why anyone would ever want to see this decided in a federal court. The oxen would be gored from coast to coast.

Andrew said...

It is true the Strunk opinion only asserts that retirees must be provided a COLA under ORS 238.360
(1), so that it is conceptually coherent to deny that the amount of the COLA has to conform to ORS 238.360 (2). Nonetheless, such a denial requires a tortured reading of the statute. If it were the case that it were obligatory under the statute merely to provide some COLA, the state could meet its obligation by giving a COLA amounting to a few cents a year for each retiree. This in itself seems to suffice as a reductio ad absurdum of the AG's claim. The COLA clearly needs to provide something more than a totally negligible sum in order to serve as a "cost of living adjustment." By definition, it needs to be an amount that has some reasonable connection to cost of living increases. This is what 238.360(2) defines. And this is why it is problematic to try to conceptually separate sections 1 and 2 of the statute. The Strunk opinion implies as much when it states that 238.360(1)"evinces a clear legislative intent to provide retired members annual COLAs on their service retirement allowances,whenever the CPI warrants such COLAs." The last clause - "whenever the CPI warrants such COLAs" - strongly suggests that the court was understanding both sections of the statutes as of a piece, so that the amount of the COLA specified in section 2 should properly be interpreted as contractual under Strunk.

mrfearless47 said...

Andrew. I think the reason the AG pointed to section 1 in the Strunk ruling goes back to the original COLA begun in 1971 as a gratuity. If you allow yourself to be deluded by THAT line of thinking, it becomes easier to defend the Governor's proposal by arguing that something saving employers $810 million per biennium has gone far beyond a mere gratuity. Of course, it also ignores what the 1973 Legislature did to clarify tge COLA statute and set into statutory concrete what we and other retirees have been receiving for the past 40 years. It also then conveniently ignores the words in the Strunk ruling that tie part 1 to part 2. I think that might be the reason that the AG's office provided a possible escape hatch to alter the proposal in another way that would undermine, while still complying with Strunk.