- Associated Press - Saturday, May 2, 2015

SALEM, Ore. (AP) - The Oregon Supreme Court decision overturning cuts to public-employee pensions will force tough decisions for state lawmakers and local government officials, who face steep hikes in payroll costs.

More than 900 entities in the state, including city councils, fire districts and school districts, have two years to figure out their plan to manage a cost hike that’s likely to collectively total hundreds of millions of dollars a year. They’re already facing pressure to make changes ranging from new pension cuts to fewer restrictions on businesses.

The court ruled Thursday that the bulk of the 2013 pension cuts, which were supposed to save billions of dollars over the next 20 years, were unconstitutional because they retroactively took benefits promised to workers.

Business and education interests, which lobbied hard for the changes, were apoplectic. Stand for Children called the ruling “devastating.” Jim Green, deputy director of the Oregon School Boards Association, warned of teacher layoffs, larger class sizes and shorter school years.

“Oregon made a generational mistake in public policy, and the court has essentially ruled that we have to live with it,” John Tapogna, president of ECONorthwest, said in a statement released by the Oregon Business Association. “That puts Oregon in a challenging economic position for the next couple of decades.”

Experts at the Public Employees Retirement System were still working out the precise cost. But based on estimates prepared before the court ruling, the price tag is likely to be well above $500 million for the state and school districts alone during the two-year budget cycle that begins in 2017, when the higher costs kick in. The figure excludes costs for cities, counties, fire districts and other local government entities.

So far, Democratic legislative leaders are saying little about how they’ll respond, but they’ve released statements suggesting they have no plans to make another run at pension cuts. They note that the two-year budget now being written is unaffected by the ruling because pension contributions won’t go up for another two years.

Rep. Val Hoyle, D-Eugene, the House majority leader, noted that PERS investment returns have been strong, which may end up limiting the amount of money the government has to contribute.

Lawmakers also could seek to relieve local governments by requiring the PERS Board to spread the increase out over several years, a move known as “collaring” the rate hikes. Actuaries discourage it because it increases the cost in later years since the money invested has less time to grow.

Aside from collaring, lawmakers may face pressure to cut government programs or raise taxes.

Republicans are already pushing Democrats to both cut spending and enact more business friendly policies, saying the state needs a big economic expansion so it can collect more in taxes.

Public-employee unions see it differently.

“Oregon continues to carry the lowest corporate tax burden in the nation,” Greg Hartman, the lawyer who represented workers and unions in the lawsuit, said in a statement. “The state needs to find a way to honor its contracts, so that means it’s time to have a meaningful conversation about real economic solutions that will help protect all vital services and build a better Oregon.”

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