IN THE SUPREME COURT OF THE STATE OF OREGON

EVERICE MORO, TERRI DOMENIGONI, CHARLES CUSTER, JOHN

HAWKINS, MICHAEL ARKEN, EUGENE DITTER, JOHN OKIEF,
MICHAEL SMITH, LANE JOHNSON, GREG CLOUSER, BRANDON
SILENCE, ALISON VICKERY, and JIN VOEK,
Petitioners,
v.
STATE OF OREGON, STATE OF OREGON by and through the
Department of Corrections, LINN COUNTY, CITY OF PORTLAND, CITY
OF SALEM, TUALATIN VALLEY FIRE & RESCUE, ESTACADA SCHOOL
DISTRICT, OREGON CITY SCHOOL DISTRICT, ONTARIO SCHOOL
DISTRICT, BEAVERTON SCHOOL DISTRICT, WEST LINN SCHOOL
DISTRICT, BEND SCHOOL DISTRICT, and PUBLIC EMPLOYEES
RETIREMENT BOARD,
Respondents,
and
LEAGUE OF OREGON CITIES; OREGON SCHOOL BOARDS
ASSOCIATION; CENTRAL OREGON IRRIGATION DISTRICT; and
ASSOCIATION OF OREGON COUNTIES;
Intervenors.
S061452 (Control)
PETITION FOR DIRECT JUDICIAL REVIEW OF SB 822 AND SB 861
MORO PETITIONERS COMBINED REPLY BRIEF
____________________________________________________________
WAYNE STANLEY JONES,
Petitioner,
v.
PUBLIC EMPLOYEES RETIREMENT BOARD, ELLEN ROSENBLUM,
Attorney General and JOHN A. KITZHABER, Governor,
Respondents.
S061431
September 2014
September 22, 2014 04:29 PM


____________________________________________________________
MICHAEL D. REYNOLDS,
Petitioner,
v.
PUBLIC EMPLOYEES RETIREMENT BOARD, State of Oregon; and
JOHN A. KITZHABER, Governor, State of Oregon,
Respondents.
S061454
____________________________________________________________
GEORGE A. RIEMER,
Petitioner,
v.
STATE OF OREGON; OREGON GOVERNOR JOHN KITZHABER;
OREGON ATTORNEY GENERAL ELLEN ROSENBLUM; OREGON
PUBLIC EMPLOYEES RETIREMENT BOARD; and OREGON PUBLIC
EMPLOYEES RETIREMENT SYSTEM,
Respondents.
S061475
____________________________________________________________
GEORGE A. RIEMER,
Petitioner,
v.
STATE OF OREGON; OREGON GOVERNOR JOHN KITZHABER;
OREGON ATTORNEY GENERAL ELLEN ROSENBLUM; OREGON
PUBLIC EMPLOYEES RETIREMENT BOARD; and OREGON PUBLIC
EMPLOYEES RETIREMENT SYSTEM,
Respondents.
S061860


Gregory A. Hartman, OSB 741283
Aruna A. Masih, OSB 973241
Bennett, Hartman, Morris & Kaplan, LLP
210 SW Morrison St., Suite 500
Portland, OR 97204
Telephone 503-227-4600
hartmang@bennetthartman.com
masiha@bennetthartman.com
Of Attorneys for Moro Petitioners


AG Ellen Rosenblum #753239
SG Anna M. Joyce #013112
AAG Keith L. Kutler #852626
AAG Matthew J. Merritt #122206
Michael A. Casper, # 062000
Oregon Department of Justice
1162 Court Street NE
Salem, OR 97301-4096
Telephone: 503-378-4402
anna.joyce@doj.state.or.us
keith.kutler@doj.state.or.us
matthew.merritt@doj.state.or.us
michael.casper@doj.state.or.us
Of Attorneys for State Respondents

William F. Gary, #770325
Sharon A. Rudnick #830835
Harrang Long Gary Rudnick PC
360 E. 10
th
Ave., Suite 300
Eugene, OR 97401
Telephone: 503-242-0000
william.f.gary@harrang.com
sharon.rudnick@harrang.com
pete.simons@harrang.com
Of Attorneys for Respondents Linn
County, Estacada, Oregon City,
Ontario, West Linn School Districts
and Beaverton School Districts,
and Intervenors Oregon School
Boards Association and
Association of Oregon Counties


Harry Auerbach #821830
Office of the City Attorney
1221 SW 4
th
Avenue, Ste 430
Portland, OR 97204
Telephone: 503 823-4047
harry.auerbach@portlandoregon.go
v
Of Attorneys for Respondent City of
Portland

Daniel B. Atchison #040424
Office of City Attorney
555 Liberty Street SE Rm 205
Salem, OR 97301
Telephone: 503 588-6003
datchison@cityofsalem.net
Of Attorneys for Respondent City
of Salem
Eugene J. Karandy II #972987
Office of the County Attorney
Linn County Courthouse
104 SW Fourth Avenue, Room 123
Albany, OR 97321
Telephone: 541 967-3840
gkarandy@co.linn.or.us
Of Attorneys for Respondent Linn
County

Edward F. Trompke #843653
Jordan Ramis PC
Two Centerpointe Drive, 6
th
Floor
Lake Oswego, OR 97035
Telephone: 503 598-5532
ed.trompke@jordanramis.com
Of Attorneys for Respondent
Tualatin Valley Fire & Rescue
Lisa M. Frieley #912763
Oregon School Boards Association
PO Box 1068
Salem, OR 97308
Telephone: 503 588-2800
lfreiley@osba.org
Of Attorneys for Respondents
Estacada, Oregon City, Ontario, and
West Linn School Districts and
Intervenor Oregon School Boards
Association
W. Michael Gillette #660458
Leora Coleman-Fire #113581
Sara Kobak #023495
William B. Crow #610180
Schwabe Williamson & Wyatt PC
1211 SW 5
th
Ave Suite 1900
Portland, OR 97204
Telephone: 503-222-9981
wmgillette@schwabe.com
lcoleman-fire@schwabe.com
skobak@schwabe.com
bcrow@schwabe.com
Of Attorneys for Intervenor League
of Oregon Cities


Rob Bovett #910267
Association of Oregon Counties
1201 Court St. NE Ste 300
Salem, OR 97301
Telephone: 971-218-0945
rbovett@aocweb.org
Of Attorneys for Linn County
Michael D. Reynolds (Petitioner
Pro Se)
8012 Sunnyside Avenue N.
Seattle, WA 98103
Telephone: 206-910-6568
mreynolds14@comcast.net
Petitioner pro se

George A. Riemer (Petitioner Pro
Se)
23206 N.Pedregosa Drive
Sun City West, AZ 85375
Telephone: 623-238-5039
george.riemer@azbar.org
Petitioner pro se
Wayne S. Jones (Petitioner Pro
Se)
18 North Foxhill Road
North Salt Lake, UT 84054
Telephone: 801-296-1552
wstanmgt@gmail.com
Petitioner pro se


i

INDEX OF CONTENTS

I. INTRODUCTION ..................................................................................... 1
II. UNILATERAL STATUTORY CONTRACT ARGUMENTS ....................... 4
A. COLAs and SB 656 benefits were legally accepted by both
current employees and retirees. ............................................... 7
B. The offer of COLAs and SB 656 benefits is consistent with
constitutional requirements for unambiguous intent to create a
contract and with all the other provisions of the PERS Act found
by this court to be a term of the PERS Contract. ...................... 9
1. The 1971 COLA statute did not regularize a series of
legislative ad hocs. ........................................................ 13
2. The 1971 COLA statute did not provide a lesser benefit.
...................................................................................... 14
3. The 1971 COLA statute was not enacted to reduce
financial risk. .................................................................. 15
4. The 1971 COLA statute as amended is much more than a
direction to PERS; it is promissory. ................................ 16
5. SB 656 Benefits also evince a legislative intent to create a
contract.......................................................................... 18
III. STATUTORY CONTRACT INTERPRETATION ARGUMENTS ........... 19
A. The 2 percent maximum and CPI Bank are part and parcel of
the COLA promise. ................................................................. 20
B. ORS 238A.470 does protect COLA attributable to prior service.
............................................................................................... 21
C. The SB 656 Exemption language was intended to cover
exemption of PERS benefits as a whole. ................................ 23
IV. FEDERAL CONTRACTS CLAUSE ARGUMENTS .............................. 24
ii

A. Reserved Police Powers. ........................................................ 26
B. Substantiality. ......................................................................... 30
C. Public Purpose. ...................................................................... 38
D. Balancing. ............................................................................... 44
V. TAKINGS ARGUMENTS ...................................................................... 48
VI. PROCEDURAL ARGUMENTS ............................................................ 48
VII. PORTLAND & TVF&R ARGUMENTS ................................................ 50
A. There is a justiciable controversy between Petitioners Custer
and Ditter and Respondent TVF&R. ....................................... 50
B. The local employers are bound by the PERS contract. ........... 52
1. Respondent Portland. .................................................... 52
2. Respondent TVF&R. ..................................................... 53
C. Failure to pay pension benefits constitutes a violation of ORS
652.200 because such benefits are wages. ............................ 54
VIII. CONCLUSION .................................................................................. 56


iii

INDEX OF APPENDIX
Index to Legislative History Provided to Strunk Court (Excerpt) .... APP-16


iv

INDEX OF AUTHORITIES


Cases
Adams v. Schrunk,
6 Or App 580, 488 P2d 831, rev den (1971) ...................................... 4
Allen v. County of Jackson,
191 Or App 185, 82 P3d 628 (2003), affd 340 Or 146 (2006).......... 56
Allied Structural Steel Co. v. Spannaus,
438 US 234, 98 S Ct 2716, 57 LEd2d 234 (1978) ............................ 34
Arken v. City of Portland,
351 Or 113, 263 P3d 975 (2011) ....................................................... 8
Baltimore Teachers Union v. City of Baltimore,
6 F3d 1012 (4
th
Cir. 1993) ................................................................ 47
Brown v. Oregon State Bar,
293 Or 446, 648 P2d 1289 (1982) ................................................... 50
Campbell v. Aldrich,
159 Or 208, 79 P2d 257 (1938) ..................................... 11, 24, 26, 28
City of La Grande v. Pub. Employes Ret. Bd.,
281 Or 137, 576 P2d 1204 (1978), on reh'g, 284 Or 173, 586 P2d
765 (1978) ....................................................................................... 54
Contl Illinois Nat. Bank & Trust Co.,
696 F2d 692 (9th Cir. 1983) ............................................................. 46
Crawford v. Teachers Ret. Fund Assn,
164 Or 77, 99 P2d 729 (1940) ........................................................... 4
Cummings Constr. v. School Dist. No. 9,
242 Or 106, 408 P2d 80 (1965) ....................................................... 50
v

Eckles v. State of Oregon,
306 Or 380, 760 P2d 846 (1988) ........ 9, 11, 19, 25, 26, 28, 34, 48, 57
Farmers Ins. Co. v. Mowry,
350 Or 686, 261 P3d 1 (2011) ....................................................... 2, 3
Fisk v. Police Jury of Jefferson,
116 US 131, 6 S Ct 329, 29 LEd 587(1885) ..................................... 32
Harryman v. Roseburg Fire Dist,
244 Or 631, 420 P2d 51 (1966) ......................................................... 4
Hekker v. Sabre Construction Co.,
265 Or 552, 510 P2d 347 (1973) ..................................................... 54
Hickey v. Chicago Truck Drivers, Helpers & Warehouse Workers Union,
980 F2d 465 (7th Cir 1992) .............................................................. 22
Hughes v. State,
314 Or 1, 838 P2d 1018 (1992) ... 9, 10, 11, 13, 19, 20, 25, 28, 31, 49,
53
Johnson v. City of Pendleton,
131 Or 46, 280 P 873 (1929) ........................................................... 53
Kantor v. Boise-Cascade Corp.,
75 Or App 698, 708 P2d 356 (1985), rev den, 300 Or 506, 713 P2d
1058 (1986) ............................................................................... 54, 55
La Grande/Astoria v. PERB,
281 Or 137, 576 P2d 1204, affd on rehg 284 Or 173, 586 P2d 765
(1978) .............................................................................................. 52
Lornsten v. Union Fishermans Co-Op Packaging Co.,
71 Or 540, 143 P 621 (1914) ..................................................... 25, 29
Morgan v. Sisters School Dist. # 6,
353 Or 189, 301 P3d 419 (2013) ..................................................... 50
Mugler v. Kansas,
123 US 623, 8 S Ct 273, 31 LEd 205 (1887) .................................... 29
vi

Oregon State Police Officers Assn. v. State of Oregon,
323 Or 356, 918 P2d 765 (1996) ............................................... 12, 16
Pendleton School Dist. v. State of Oregon,
456 Or 596, 200 P3d (2009) ............................................................ 50
Ragsdale v. Department of Revenue,
321 Or 216, 895 P2d 1348 (1995) ................................... 8, 18, 23, 24
Shaw v. International Ass'n of Machinists and Aerospace Workers Pension
Plan,
750 F2d 1458 (9th Cir.), cert den, 471 US 1137, 105 S Ct 2678, 86
LEd2d 696 (1985) ............................................................................ 22
Southern California Gas Co. v. City of Santa Ana,
336 F3d 885 (9
th
Cir 2003) ............................................................... 47
State ex rel. Nilsen v. Ore. Motor Ass'n,
248 Or 133, 432 P2d 512 (1967) ..................................................... 54
State of Nev. Employees Ass'n, Inc. v. Keating,
903 F2d 1223 (9th Cir 1990) ............................................................ 46
State v. Ciancelli,
339 Or 282, 121 P3d 613 (2005) ....................................................... 2
Stovall v. State,
324 Or 92, 922 P2d 646 (1996) ............................................. 8, 51, 52
Strunk v. PERB,
338 Or 145, 108 P3d 1058 (2005) . 6, 8, 11, 12, 13, 16, 17, 19, 31, 32,
33, 34, 37, 38, 39, 49, 57
Sturges v. Crowninshield,
17 US 22, 4 LEd 529 (1819) ............................................................ 32
Tadsen v. Praegitzer, Inc.,
324 Or 465, 928 P2d 980 (1996) ..................................................... 35
Taylor v. Mult. Dep. Sher. Ret. Bd.,
265 Or 445, 510 P2d 339 (1973) ................................. 4, 5, 6, 7, 9, 11
vii

U.S. Trust Co. of New York v. New Jersey,
431 US 1, 97 S Ct 1505, 52 LEd2d 92 (1977) ... 26, 28, 33, 34, 36, 44,
47, 53
Vogl v. Department of Revenue,
327 Or 193, 960 P2d 373 (1998) ........................................... 8, 23, 24

Statutes
29 United States Code 1054 ................................................................... 21
Oregon Laws 1963, ch 608 ....................................................................... 13
Oregon Laws 1967, ch 622 ....................................................................... 14
Oregon Laws 1971, ch 738 ................................................................... 7, 14
Oregon Laws 1991, ch 796 ................................................................... 7, 18
Oregon Laws 1997, ch 839 ....................................................................... 23
ORS 237.355 ............................................................................................ 52
ORS 238.035 ............................................................................................ 52
ORS 238.300 ............................................................................................ 16
ORS 238.350 ............................................................................................ 16
ORS 238.355 ............................................................................................ 16
ORS 238.360 ............................................................................................ 16
ORS 238A.025 ............................................................................................ 7
ORS 238A.125 .......................................................................................... 22
ORS 238A.180 .......................................................................................... 22
ORS 238A.470 ................................................................................ 5, 21, 22
viii

ORS 652.140 ............................................................................................ 55
ORS 652.190 ............................................................................................ 55
ORS 652.200 ...................................................................................... 55, 56

1

MORO PETITIONERS COMBINED REPLY BRIEF
I. INTRODUCTION
Moro Petitioners
1
present this Combined Reply Brief to the Answering
Briefs filed by the Respondents
2
and Intervenors
3
in this matter. All of the
Answering Briefs urge the court to overrule, ignore, or otherwise distinguish
some or all of the courts prior cases relating specifically to PERS and to
pensions in general. The LOCs brief even reviews virtually all of the
courts prior pension and PERS decisions, pointing out those areas of the
courts analysis with which the LOC now disagrees.
Two conclusions should be obvious from the Answering Briefs. First,
a straightforward application of the courts existing pension cases and
methodology for analyzing PERS contract issues will result in a decision in

1
The term Moro Petitioners is used in the same manner as in the
Opening Brief. See Opening Brief, p. 1.
2
Respondents filing Answering Briefs include: (1) State of Oregon,
State of Oregon by and through the Department of Corrections, and the
Public Employees Retirement Board (State Respondents); (2) Linn County
and Estacada, Oregon City, Ontario, Beaverton, West Linn and Bend-
LaPine School Districts (County/SD Respondents); (3) City of Portland
(Portland); and (4) Tualatin Valley Fire & Rescue District (TVF&R). City
of Salem is also a Respondent but only submitted a letter on August 26,
2014 joining in the Answering Briefs filed by others.
3
Intervenors filing Answering Briefs include: (1) the Oregon League
of Cities (LOC) and (2) the Oregon School Boards Association (OSBA)
and the Association of Oregon Counties (AOC). The latter joined in the
Answering Brief filed by the County/School District Respondents.
2

favor of Petitioners. Respondents and Intervenors would not make such a
vigorous attack on the courts prior cases if it were not necessary to
overturn some or all of them in order for them to prevail.
The Answering Briefs fail, however, to satisfy the burden this court
places on parties seeking to change precedent. See e.g. Farmers Ins. Co.
v. Mowry, 350 Or 686, 698, 261 P3d 1 (2011), and State v. Ciancelli, 339
Or 282, 290, 121 P3d 613 (2005). The burden is on Respondents and
Intervenors to not only persuade the court that the constitutional rule they
attack was not formulated by means of the appropriate paradigm or by
some suitable substitute, but also that application of the appropriate
paradigm establishes that the challenged constitutional rule is incorrect.
Ciancelli, 339 Or at 291. Even if they make this showing, they must still
persuade the court that, when the passage of time and the precedential
use of the challenged rule is factored in, overturning the rule will not unduly
cloud or complicate the law. Id. Such is the case because stability and
predictability are important values in the law; individuals and institutions act
in reliance on this courts decisions, and to frustrate reasonable
expectations based on prior decisions creates the potential for uncertainty
and unfairness. Farmers Ins. Co., 350 Or at 698. Here, Respondents and
Intervenors call upon the court to upset reasonable expectations built up
3

over more than 40 years, with little to no explanation of how they have
satisfied the above standards for reversal of precedent.
4

Second, if the court accepts this invitation, it will render meaningless
the concept of a PERS contract, as there would appear to be no section
of the PERS statutes which would meet the standard that Respondents and
Intervenors propose for finding a statutory contractual commitment.
5

Alternatively, if there is any remaining PERS contractual commitment, the
State and local employers can still escape it by claiming that their actions
are reasonable and necessary for an important public purpose.
In this reply, Moro Petitioners will resist LOCs invitation to stroll down
memory lane and re-analyze all prior pension and PERS cases but will
instead focus on those factors specifically relevant to the issues currently
before the court. They will point out the flaws and weaknesses of the major
arguments raised by the Answering Briefs. Since it is not possible to
address every argument and sub-argument within the word limitations set

4
In fact, other than a passing reference to Mowry, at page 25 of State
Respondents Answering Brief, Respondents and Intervenors do not even
cite to these cases.
5
Respondents and Intervenors do not clearly articulate the precise
language or standards necessary to formulate a PERS Contract. Rather,
they simply argue that in all instances at issue, the current language is not
sufficient.
4

by the court, to the extent that certain arguments are not covered here, the
court should not assume that Moro Petitioners accept them.
II. UNILATERAL STATUTORY CONTRACT ARGUMENTS
Relying on this courts announcement of the unilateral contract
theory of pensions in Taylor v. Mult. Dep. Sher. Ret. Bd., 265 Or 445, 451,
510 P2d 339 (1973), Respondents and Intervenors make a multi-level,
bootstrap argument about what the legislature could or could not have
intended in 1971, when it first provided Cost of Living Adjustments (COLAs)
to both retirees and active members. They argue that the legislature could
not have intended COLAs to be contractual because under the unilateral
contract theory retirees were not in a position to provide any additional
service subsequent to the passage of the statute to accept such a
contract.
6
Stated differently, the legislature in 1971 and 1973 when it
adopted and improved COLAs must have anticipated this courts decision
in Taylor (decided May 17, 1973), reading the unilateral contract theory
into Oregons older pension cases.
7
They do not explain, however, why if
the legislature were so prescient it did not intend to create contractual

6
State Brief, pp. 21-22; County/SD Brief, pp. 23-24.
7
Crawford v. Teachers Ret. Fund Assn, 164 Or 77, 99 P2d 729
(1940); Adams v. Schrunk, 6 Or App 580, 488 P2d 831, rev den (1971);
Harryman v. Roseburg Fire Dist, 244 Or 631, 420 P2d 51 (1966).
5

rights in those PERS members who were capable of providing service
following their enactment. As this court clarified in Taylor, 265 Or at 451,
We conclude from the above authorities that Oregon has adopted not only
the contractual concept of pensions, but, also, the concept that contractual
rights can arise prior to the completion of the service necessary to a
pension. The adoption of a pension plan, the court explained, was an
offer for a unilateral contract which can be accepted by the tender of part
performance. 265 Or at 452. Moreover, by the time the legislature
adopted SB 656 benefits and OPSRP COLA, it was clearly aware that as to
those PERS members who provide service after the enactment dates, the
courts would be applying the unilateral contract theory of pensions. That
is why the legislature included ORS 238A.470 in the OPSRP statutes,
expressly preserving to itself the right to make changes prospectively to
OPSRP so long as benefits attributable to prior service are protected. As
explained further below, the vast majority of retirees and members are
protected by the unilateral contract theory. Those who are not are
protected under other contractual theories.
6

Recognizing the weakness of their reliance on the unilateral contract
theory for the vast majority of the PERS population,
8
Respondents and
Intervenors argue alternatively that Taylor left unanswered the question of
how specific the terms of a statutory pension plan needed to be to make it
an offer for a unilateral contract, and, other than in its analysis of the
diversion of the six percent contribution to the IAP in Strunk v. PERB, 338
Or 145, 183-193, 108 P3d 1058 (2005), this court has not followed faithfully
the special rules for statutory contracts in its PERS cases.
9
Therefore, its
COLA analysis in Strunk was flawed and should be disavowed or limited.
10

As explained further below, however, this courts prior PERS cases,
particularly Strunk, have applied correctly the special rules for statutory
contracts. Moreover, these cases have created decades of reasonable
reliance and expectation in PERS members and retirees, weighing heavily
in favor of upholding precedent.

8
A finding that pre-1971 retirees could not accept the COLA contract
would at most impact a handful of retirees and would not help Respondents
preserve the billions of dollars of savings effected by SB 822 and SB 861.
9
LOC Brief, p. 14; State Brief, p. 24; County/SD Brief, pp. 38-39
10
State Brief, p. 35; County/SD Brief, p. 40; LOC Brief, pp. 47-48.
7

A. COLAs and SB 656 benefits were legally accepted by
both current employees and retirees.
There is no denying that when COLAs and SB 656 benefits were
enacted, they were offered not just to those already retired. COLAs were
made available to any person who has retired or who will retire as a
member of the system on and after July 1, 1972. ER-1 (Oregon Laws
1971, ch 738 11)(Emphasis added). Similarly, SB 656 benefits were
offered to an employee who is a member of the system (ER-32) and to
any person who has retired as a member (ER-34). Oregon Laws 1991,
ch 796 2, 3(6). Finally, OPSRP COLAs were offered only to active
members who joined the system after August 29, 2013. ORS 238A.025(2).
All Moro Petitioners provided service after the effective date of these
legislative enactments. Moreover, PERS By the Numbers (ER-140) makes
clear that the vast majority of current retirees and PERS members (like
Moro Petitioners) have provided service after 1971, and therefore, were
capable of accepting the COLA offer through part performance within the
meaning of Taylor. Those who were already retired by 1971 would now be
in their 90s or older, representing a miniscule portion of the total PERS
retiree population, and those who retired before 1991 are also older and
decades into retirement. Id. These older retirees suffer from the greatest
loss of purchasing power. ER-130 (2013 Purchasing Power Study).
8

In Arken v. City of Portland, 351 Or 113, 138-39, 263 P3d 975 (2011),
this court recognized that promissory estoppel can bind the government
to a promise reasonably relied upon by PERS retirees. If there were ever
circumstances to which this substitute for consideration were applicable,
Moro Petitioners assert, it is to that limited group of older PERS participants
who retired before the enactments at issue and have been receiving
COLAs for over 40 years and SB 656 benefits for 20 plus years pursuant to
the express instruction of the legislature and the reassurance of this
court.
11
See Ragsdale v. Department of Revenue, 321 Or 216, 895 P2d
1348 (1995)(recognizing SB 656 not dependent upon individual tax liability
or state of retiree residence); Stovall v. State, 324 Or 92, 124, 922 P2d 646
(1996)(finding legislature acted reasonably when it imposed cost of SB 656
and HB 3349 benefits on retirees former employer, whether the employer
be a local government or the state); Vogl v. Department of Revenue, 327
Or 193, 212, 960 P2d 373 (1998)(We do not overrule Ragsdale or its
analysis of the 1991 law); Strunk, 338 Or at 224 (confirming that an annual
COLA in ORS 238.360(1) is a term of the PERS Contract).

11
Moro Petitioners also adopt by this reference the arguments made
by Petitioner Reynolds that pre-1991 retirees provided consideration for the
SB 656 and HB 3349 benefits by accepting them as part of the settlement
of the Chess/Stovall litigation. Reynolds Brief, at pp. 12-19.
9

In light of all these factors, the court should find that COLAs and
SB 656 benefits were legally accepted not just by employees through part
performance, and but also by retirees through their reasonable reliance.
Moreover, as explained further below, the offer of COLAs and SB 656
benefits is consistent with constitutional requirements for unambiguous
intent to create a contract and with all the other provisions of the PERS Act
found by this court to be a term of the PERS Contract. In contrast, the
alternative standard (if any) proposed by Respondents and Intervenors
would render the PERS contract meaningless.
B. The offer of COLAs and SB 656 benefits is consistent
with constitutional requirements for unambiguous intent to
create a contract and with all the other provisions of the
PERS Act found by this court to be a term of the PERS
Contract.
In Hughes v. State, 314 Or 1, 838 P2d 1018 (1992), this court applied
the unilateral contract theory announced in Taylor to the PERS Act. The
court commenced its analysis correctly with the so-called additional rules
for statutory contracts,
12
noting that the states power to tax was not a
reserved police power which could not be contracted away. 314 Or at 14-

12
Briefly, those rules are: (1) a state contract will not be inferred
from legislation that does not express an intention to create a contract;
(2) the Contract Clause does not limit the states power of eminent domain;
and (3) the state may not contract away its police power. 314 Or at 14
citing Eckles v. State of Oregon, 306 Or 380, 397-99, 760 P2d 846 (1988).
10

15. On the issue of unambiguous intent to create a contract, the court
recognized correctly that it was not writing on a blank slate because [t]he
contractual nature of such pension schemes was settled in Taylor. Id. at
18. It declined the States invitation to revisit the issue of the contractual
nature of PERS and similar pension plans. Id. Nevertheless, it did
undertake a thorough review of the manner in which the legislature re-
enacted the 1953 PERS Act, following advice from the Attorney General to
Governor Patterson about the creation and protection of vested benefits, to
confirm that, the legislature intended and understood that PERS
constituted an offer by the state to its employees, for a unilateral contract.
Id. at 19-20.
Next, the court turned to the tax exemption statute itself explaining
that:
In determining whether a particular statute is of a
contractual nature, we, [***], conclude that the
context in which the [***] statute is enacted is of
primary importance. Specifically, in this case, the
context and purpose of the entire PERS contract
[***] and the fact that former ORS 237.201 was
enacted as part and parcel of the Public Employes
Retirement Act of 1953 lead to a conclusion that
former ORS 237.201 is a term of the larger PERS
contract. Only by looking at the statute in isolation,
as the state asks us to do, could one escape this
conclusion. Such an exercise, however, is not
analytically proper or helpful. Consequently, we
hold that PERS was intended to be and is a contract
11

between the state and its employees, and that
former ORS 237.201, enacted as an essential part
of and within the context of that contract, is a term
of that contract.
314 Or at 25. Finally, turning to the text of the tax exemption statute, the
court found that, former ORS 237.201 is, if anything, more promissory in
its language than the rest of the PERS scheme that, independently, this
court has held to be a contract (id. at 26), that nothing in the 1969
amendments to the statute detracts from that conclusion (id. at 27) and
that the only benefits expressly exempted from taxation in former ORS
237.201 are those accrued and accruing. Id. at 28.
Contrary to the contentions of LOC (Brief, at p. 31), there was nothing
glib about the courts analysis in Hughes. It was consistent with this
courts recognition in Taylor that Oregon had rejected the gratuity theory
and adopted the unilateral contract theory of pensions. It was also
consistent with the additional rules for statutory contracts recognized in
Eckles, 306 Or at 397-99, citing Campbell v. Aldrich, 159 Or 208, 213-14,
79 P2d 257 (1938). Even the State and County/SD Respondents accept
this, citing with approval to the courts analysis in Hughes. See State Brief,
pp. 20-24, 28-29; County/SD Brief, pp. 14-16.
However, citing Justice Balmers concurrence in Strunk, 338 Or at
239, they all argue that the court subsequently lost sight of the polestar of
12

statutory contractual analysis: clear, unambiguous, and umistakable
promissory intent in Oregon State Police Officers Assn. v. State of
Oregon, 323 Or 356, 918 P2d 765 (1996)
13
and even in Strunk, did not
apply the standard correctly to its review of the COLA statute.
14
They give
varying reasons for how and why the court got it wrong on the COLA
question in Strunk. The State blames the dearth of briefing and lack of
participation by the Department of Justice. Brief, p. 25. The LOC argues
the court was not presented with the pre-1971 history of COLAs (i.e., the
13
th
check system). Brief, p. 48 n 29. Finally, County/SD Respondents
argue that the courts analysis was short and superficial. Brief, p. 39.
Moro Petitioners reply that the courts analysis in Strunk (including
the COLA analysis) was mindful of the unequivocal intent requirement for
a finding of statutory contracts. Indeed, Justice Balmers concurrence cited
with such fervor by Respondents and Intervenors makes that clear. See
also Strunk, 338 Or at 171(discussing special rules to bind successive
legislatures). Also, the court was provided with legislative history regarding
all the statutory changes at issue in Strunk. APP-16-18.
15
Moreover, as

13
LOC Brief, p. 50; State Brief, p. 24; County/SD Brief, at pp. 18-19.
14
State Brief, p. 35; County/SD Brief, p. 40; LOC Brief, pp. 47-48.
15
Moro Petitioners request leave of the court to submit these
additional pages of Appendix.
13

explained further below, even if the court had reviewed the history of the
13
th
check system in conjunction with the COLA enactment, it could only
have reached the conclusion that the legislature went from a permissive
may-based 13
th
check system to a mandatory shall-based system with
a permanent increase to the base for pre-1972 retirees and COLAs adding
to the base going forward for all, supporting its conclusion in Strunk that
COLA was intended to be a contractual term of the PERS Contract based
on a proper application of the text in context approach laid out in Hughes.
1. The 1971 COLA statute did not regularize a series of legislative
ad hocs.
Contrary to the contentions of Intervenor LOC (Brief, p. 48), the pre-
1971 system was not a series of legislative ad hoc increases which were
regularized through the 1971 enactment. Rather, the pre-1971 system was
based on a 1963 legislative enactment which authorized but did not
mandate PERS to provide a 13
th
check. The 1963 enactment (Oregon
Laws 1963, ch 608 9) stated in full:
The Board, by means of a dividend system, may
distribute annually to retired members of the system
the net interest received through investment of the
fund in excess of the assumed rate of interest.
Excess interest received for calendar years
commencing after December 31, 1959 may be
distributed under this section.

14

Use of the word may suggests that the legislature did no more than
authorize PERS to make the 13
th
check payment. In 1967, the legislature
amended the statute (Oregon Laws 1967, ch 622 20) to limit the benefit to
those who retired before 1968; again, an indication that the legislature did
not perceive the 13
th
check system to be contractual in nature. Finally, the
additional amount did not become a part of the base of the monthly
retirement allowance to be increased in any subsequent year. It was just
an additional or 13
th
check.
2. The 1971 COLA statute did not provide a lesser benefit.
Intervenor LOCs argument (Brief, p. 60) that somehow the 1971
enactment provided a lesser benefit and that the failure of any member to
challenge that reduction indicates an understanding of lack of contractual
intent is also without merit. Even a cursory review of Oregon Laws 1971,
ch 738, which was presented to the Strunk court, would have made clear
that, in addition to adopting COLAs in Section 11, in Section 9, the
legislature provided a permanent 25 percent increase to the base monthly
service retirement allowance for pre-1968 retirees and a permanent 12
percent increase to the base monthly service retirement allowance for
those retiring between 1968 and 1972 to which the COLA would be applied
going forward, increasing the base annually for their lifetime. Given these
15

increases, even if the 13
th
check system were deemed to be contractual,
no reasonable argument could be made that any retiree or active member
was disadvantaged by the 1971 enactment.
3. The 1971 COLA statute was not enacted to reduce financial
risk.
The court should also reject Respondents and Intervenors
arguments
16
that the 1971 enactment was meant to lower overall financial
risk of the system to paying COLAs. As explained above, the existing 13
th

check system was based on a direct examination by PERS of the financial
condition of the PERS system resulting in a single payment made on a
yearly basis based on the systems ability to afford that payment (i.e.,
earnings in excess of the assumed rate). There can be no question that
this type of payment, based on a direct examination of the condition of the
system and limited to a single payment, is perhaps the lowest-risk method
of providing some COLA.
In contrast, the 1971 enactments, which provided for an ongoing
COLA based on a measurement of the cost of living rather than on an
analysis of the financial health of the PERS system, and including the
COLA amount in a retirees base pension, increased the financial risk to the
system. It is for this reason and with the realization that it was making a

16
LOC Brief, p. 8; County SD Brief, p. 27.
16

long-term financial commitment to both active and retired members that the
1971 legislature engaged in extended discussion of the actuarial analysis
of the costs of the proposed COLA benefits. Had the legislature been
considering a COLA system which could be adjusted as the legislature
deemed appropriate every few years, there would have been little reason
for this extended discussion. The emphasis would not have been on the
question of what this is going to cost over the long term, but whether the
system can pay this in the short term, because the legislature could always
make an adjustment if necessary.
4. The 1971 COLA statute as amended is much more than a
direction to PERS; it is promissory.
Finally, the court should reject Respondents and Intervenors
invitation to relegate the valuable COLA benefit to the realm of a mere
direction to PERS.
17
The language of ORS 238.360 is certainly as
promissory as the language used in ORS 238.300 (service retirement
allowance) acknowledged by this court to be contractual in Strunk, 338 Or
at 192, and cited with approval by Respondents and Intervenors. The
language is also similar to ORS 238.350 and 238.355, which direct PERS
to use sick leave to enhance benefits, found by this court to be contractual
in Oregon State Police, 323 Or at 378-79, and graciously conceded to be

17
State Brief, p. 36; LOC Brief, p. 63; County SD Brief, p. 21.
17

correctly decided by Intervenor LOC. LOC Brief, p. 38. Adding to the
promissory intent of the move from the may-based 13
th
check system to
the shall-based COLA system was durational language in the text of
Section 11 such as each year and accumulated from year to year. In
the context of a lifetime annuity as provided by ORS 238.300, these
words have clear long-term intent. As noted above, further supporting a
long-term commitment is the legislatures careful consideration of the future
actuarial costs associated with the increases and COLAs. Finally, nothing
in the 1973 amendments detracts from the promissory intent because,
based on inflationary trends at the time and inclusion and retention of the
COLA bank, the increase of the maximum from 1.5 percent to 2 percent
was only a gain for PERS retirees and members.
18

Therefore, this court can and should find that its prior PERS and
pension cases and the text, context, and legislative history of COLAs all
support its conclusion in Strunk, 338 Or at 221, that, ORS 238.360(1)
evinces a clear legislative intent to provide retired members with annual
COLAs on their service retirement allowances, whenever the CPI warrants
such COLAs.

18
Indeed the COLA bank has grown over the years since its
enactment so that those who retired in 1971 and 1973 have current CPI
banked in the amount of 97.04 and 95.98 percent respectively. ER-40.
18

5. SB 656 Benefits also evince a legislative intent to create a
contract.
Applying the same analysis to the offer of SB 656 benefits, the court
should find it equally promissory. It is a mandatory service based benefit
increase placed in the heart of the PERS Act itself. ER-34-37. The benefit
was enacted after this court issued its decision in Taylor. Moreover, it is
provided to every state retiree who qualifies for benefits (based on years of
service), *** regardless of the state retirees residence. Ragsdale v.
Department of Revenue, 321 Or 216, 230, 895 P2d 1348 (1995). The fact
that the legislature intended to provide a long-term benefit is supported
further by its express retention of the right to stop the benefit in any tax
year in which the retirement benefits payable under the Public Employes
Retirement System are exempt from Oregon personal income taxation.
ER-36 (Oregon Laws 1991, ch 796 12(1)). Further supporting a finding
that the legislature understood this language to be a reference to
reinstatement of tax exemption for PERS benefits as a whole as opposed
to individual retiree tax liability is this courts recognition in Ragsdale, 321
Or at 228, that, [t]he amount of increased benefits are based on the PERS
members years of service, not on their state income tax obligations.
(Emphasis in original).
19

Therefore, like it did in Hughes, this court should decline the invitation
implicit in Respondent and Intervenors arguments, to look at the offer of
COLAs and SB 656 benefits in isolation (314 Or at 25) and to revisit the
issue of the contractual nature of PERS and similar pension plans, an issue
that was first decided against the state nearly [four] decades ago in Taylor,
314 Or at 18, a decision that has generated four decades of reliance and
expectation in PERS members and retirees.
III. STATUTORY CONTRACT INTERPRETATION
ARGUMENTS
Recognizing that they may not succeed in convincing the court to
reverse precedent, Respondents and Intervenors next argue that the court
should, nevertheless, interpret the statutes at issue so narrowly so as to
read any promise out of them. These arguments should be rejected by the
court as contrary to its well-established rules for interpretation of statutory
contracts. For example, in Eckles v. State, 306 Or 380, 397, 760 P2d 846
(1988), the court recognized that the unambiguous intent rule is concerned
with the existence of the contract, rather than with the extent of the
obligation. Similarly, in Hughes, 314 Or at 14, it noted that general
principles of contract law normally will govern. Finally, in Strunk, 338 Or at
183 n 34, the court applied the usual rules for determining legislative
intent and reiterated that it will not construe statutory provisions in
20

isolation but rather will view the wording of all statutory provisions at issue
in the context of their collective operation. (Emphasis added) citing
Hughes, 314 Or at 23.
A. The 2 percent maximum and CPI Bank are part and
parcel of the COLA promise.
Specifically, with regard to the ORS 238.360 COLA promise,
Respondents and Intervenors call upon the court to find that only the
concept of a COLA is contractual and not the mechanics of how it is
calculated, such as the 2 percent maximum and CPI bank.
19
If this court
construes the COLA sections as required by Strunk and Hughes, however,
it must conclude that the collective operation calls for an annual
adjustment up to a 2 percent maximum with the right to bank any CPI
above the maximum and to use banked CPI to get to the 2 percent
maximum in any year when the CPI is below the maximum. That these
sections were intended to operate collectively is supported by the
legislative history cited by Moro Petitioners at pages 53-55 of their Opening
Brief. In 1973, when the legislature changed the maximum from
1.5 percent to 2 percent, it left the CPI and CPI bank intact. ER-19-20. As
noted above, the CPI bank is a valuable benefit which has grown over the

19
State Brief, p. 36 (referring to these parts of the COLA statutes as
mere nuts and bolts); County/SD Brief, p. 40; LOC, p. 63.
21

years and assures members that they will receive the 2 percent maximum.
For example, the CPI bank for those who retired in the 1970s is between
62 to 90 percent. ER-40. The court should refuse Respondent and
Intervenors invitation, therefore, to read this valuable component of the
COLA benefit which has remained unchanged since the adoption of the
COLA in 1971 out of the statutory promise.
B. ORS 238A.470 does protect COLA attributable to prior
service.
For purposes of the OPSRP COLA, Respondents and Intervenors
avoid any substantive analysis of legislative intent by arguing generally that
since the legislature intended to provide OPRSP members less than Tier I
and Tier II members and since the 2 percent maximum is not contractual
for Tier I and Tier II members, surely it could not have been intended to be
so for OPSRP members. They argue further that the protections for
contract rights acquired prior to the date of a change provided in
ORS 238A.470 should not be applied to COLAs because they are not
benefits attributable to service performed and salary earned.
20

Respondents provide no citation for this proposition. Federal courts, under
ERISAs similar anti-cutback rule (29 USC 1054(g)(1)), however, have

20
State Brief, pp. 30-35; LOC Brief, pp. 68-69; County/SD Brief,
pp. 57-60
22

recognized that COLAs do constitute accrued benefits protected from cut-
backs because [a] participant's entitlement to his or her normal retirement
benefit include[s], as one component, the right to have the benefits
adjusted pursuant to the COLA provision. Hickey v. Chicago Truck
Drivers, Helpers & Warehouse Workers Union, 980 F2d 465, 469 (7th Cir
1992), citing Shaw v. International Ass'n of Machinists and Aerospace
Workers Pension Plan, 750 F2d 1458 (9th Cir.), cert den, 471 US 1137,
105 S Ct 2678, 86 LEd2d 696 (1985). The PERS Actuary also advised the
legislature that the changes made by SB 822 reduced accrued liability by
$2.6 billion (ER-43) and SB 861 by $1.9 billion (ER-83).
In addition and contrary to the contentions of Respondents and
Intervenors, COLA benefits very much vary from member to member based
on their service provided and salary earned. While set at a 2 percent
maximum, the actual dollar amount in COLA benefit each OPSRP
members will receive is entirely dependent upon the amount of his or her
underlying service and salary. See ORS 238A.180; 238A.125. Therefore,
reviewing the OPSRP COLA statute in context with ORS 238A.470, the
court should find that the legislature only retained to itself the right to
change OPSRP benefits (including COLA benefits) so long as it protected
those benefits attributable to service already provided and salary already
23

earned from cut-back. This the legislature did not do. Therefore, the
change violates OPSRP members contract rights.
C. The SB 656 Exemption language was intended to cover
exemption of PERS benefits as a whole.
Finally, with regard to SB 656 benefits, Respondents and Intervenors
argue that, because SB 656, Section 12(1) (ER-36), provides that the
benefit increases, shall not be paid in any tax year in which the retirement
benefits are exempt from Oregon personal income taxation, this court
should find that there was no promise to pay such benefits to individual
members who are not subject to Oregon tax by virtue of their out of state
residence. As noted above, however, in Ragsdale, 321 Or 216, this court
carefully considered the various SB 656 sections in their collective
operation and found that, [t]he amount of increased benefits are based on
the PERS members years of service, not on their state income tax
obligations, (Id. at 228), and *** regardless of the state retirees
residence. (Id. at 230). That is the case because this court understood
this section to refer to a collective exemption of PERS retirement benefits
and not an individual determination of tax liability. More importantly, by the
time this court considered Vogl v. Department of Revenue, 327 Or 193,
212, 960 P2d 373 (1998), the state had adopted Oregon Laws 1997, ch
839 10, therefore, the court had the opportunity to, but expressly did not
24

disavow its interpretation of SB 656 in Ragsdale. Like it did in Vogl, this
court should again reject any different interpretation of SB 656 benefits.
IV. FEDERAL CONTRACTS CLAUSE ARGUMENTS
Recognizing that they may be unable to convince the court to
interpret the promise right out of the COLA and SB 656 benefit statutes,
Respondents and Intervenors argue that the court should still uphold the
changes made by SB 822 and SB 861 because they fall within the states
reserved police powers or alternatively, do not effect a substantial
impairment and are supported by an important public purpose and
appropriately balanced to address the costs attributable to retirees and out
of state residents.
21
In support of the reserved police powers doctrine they
rely primarily upon Campbell v. Aldrich, 159 Or 208, 213-14, 79 P2d 257
(1938).
22
For the substantiality requirement and public purpose
defense, they rely primarily upon cases under the federal Contracts Clause
and cases from other states which have contracts clause provisions in their
state constitutions.
23

Moro Petitioners agree that this court has recognized that the state
has certain reserved police powers which it may not contract away.

21
State Brief, p. 44-78; County/SD Brief, pp. 71-94.
22
County/SD Brief, pp. 74-78.
23
State Brief, pp. 56-60; County/SD Brief, pp. 45-49.
25

However, those powers are limited to the protection of the public health,
safety, and morals. Lornsten v. Union Fishermans Co-Op Packaging Co.,
71 Or 540, 546-47, 143 P 621 (1914). They do not encompass the states
spending power which may be contracted away. See e.g. Hughes, 314
Or at 14-15. In addition, although this court recognized in Eckles, 306 Or at
380, that based on the similarity of the federal and state contracts clause
provisions, the framers of the Oregon Constitution intended to incorporate
the substance of the federal provisions, as it was interpreted by the
Supreme Court of the United States, into the Oregon Constitution, though
not necessarily every case decided under the federal provision, contrary to
the contentions of Respondents and Intervenors, the early cases under the
federal provision do not support their position. More importantly, even the
later cases under the federal provision, which the court recognized in
Eckles, 306 Or at 380 to be of more limited value, cannot be stretched so
thin as to cover legislative changes which effect a $5.3 billion dollar take-
away of benefits from PERS members unsupported by any financial
exigency and based only on a desire by the legislature to spend the dollars
elsewhere. The State can always find use for extra money and is not free
to consider contractual impairment on a par with other policy alternatives
and objectives.
26

A. Reserved Police Powers.
County/SD Respondents maintain that this court got it right on the
central question in Eckles, about whether the statute creating the Industrial
Accident Fund (IAF) created a contractual promise (Brief, p. 14), but got
it wrong when it came to the reserved police powers doctrine. Brief, p. 80.
They argue that the court in Eckles, 306 Or at 399, was incorrect in
describing the issue as a balancing analysis. Id. It is not a matter of
balancing the constitutional violation against the value of the public good
(Brief, p. 80) but rather, a limit found within the language or history of
Article I, section 21 itself. Brief, p. 82. In support of their reading of the
reserved police powers doctrine, County/SD Respondents cite Campbell,
159 Or 208. Brief, pp. 75-78. They call upon the court to return to this
earlier reading of police powers doctrine (Brief, p. 82) but then, turn
around and equate the doctrine to the federal public purpose defense
which does include a balancing component. Brief, pp. 82-83.
Moro Petitioners reply that County/SD Respondents conflate the
reserved police power doctrine with the public purpose defense
recognized by the federal courts. As the United States Supreme Court
explained in U.S. Trust Co. of New York v. New Jersey, 431 US 1, 22-24,
97 S Ct 1505, 52 LEd2d 92 (1977),
27

Undoubtedly, whatever is reserved of state power
must be consistent with the fair intent of the
constitutional limitation of that power. Blaisdell, 290
U.S., at 439, 54 S.Ct. at 240. Moreover, the scope
of the States reserved power depends on the
nature of the contractual relationship with which the
challenged law conflicts. ***

When a State impairs the obligation of its own
contract, the reserved-powers doctrine has a
different basis. The initial inquiry concerns the ability
of the State to enter into an agreement that limits its
power to act in the future. *** This doctrine requires
a determination of the States power to create
irrevocable contract rights in the first place, rather
than an inquiry into the purpose or reasonableness
of the subsequent impairment. In short, the Contract
Clause does not require a State to adhere to a
contract that surrenders an essential attribute of its
sovereignty.

In deciding whether a States contract was invalid
ab initio under the reserved-powers doctrine, earlier
decisions relied on distinctions among the various
powers of the State. Thus, the police power and the
power of eminent domain were among those that
could not be contracted away, but the State could
bind itself in the future exercise of the taxing and
spending powers. Such formalistic distinctions
perhaps cannot be dispositive, but they contain an
important element of truth. Whatever the propriety
of a States binding itself to a future course of
conduct in other contexts, the power to enter into
effective financial contracts cannot be questioned.
Any financial obligation could be regarded in theory
as a relinquishment of the States spending power,
since money spent to repay debts is not available
for other purposes. Similarly, the taxing power may
28

have to be exercised if debts are to be repaid.
Notwithstanding these effects, the Court has
regularly held that the States are bound by their
debt contracts.

Because the bonds at issue in U.S. Trust were purely financial debts, the
court found that they did not compromise the states reserved powers. 431
US at 25. However, the Court recognized, that if the financial obligation
had gone further for example, to bind the State never to close the facility
for health or safety concerns, the contract may have implicated reserved
policed powers. 431 US at 25. Because the contract at issue in Eckles,
306 Or at 398-99, like the bonds at issue in US Trust, involved only a
financial guaranty, this court correctly concluded that the States police
power doctrine could not be stretched so far as to disregard a financial
guarantee to persons or corporations.
This approach is also entirely consistent with the decisions of this
court in both Campbell and in Hughes. In Campbell, 159 Or at 218-19, the
court was faced with the states reserved police power to set educational
policy which this court found could not be bartered away. In contrast, in
Hughes, 314 Or at 14-16, this court was faced with the states power to tax,
which this court relying upon early decisions of the United States Supreme
Court found could be contracted away.
29

If the contract at issue does implicate the reserved police power of
the state to protect the public health, safety, or morals, and is not a purely
financial obligation based on powers which can be contracted away, then it
is accurate that this court will still subject the exercise of the reserved
power to judicial scrutiny. In Lornsten, 71 Or at 546-47, this court cited with
approval to Justice Harlans decision in Mugler v. Kansas, 123 US 623,
661, 8 S Ct 273, 31 LEd 205 (1887), as noting:
The courts are not bound by mere forms, nor are
they to be misled by mere pretenses. They are at
libertyindeed, are under a solemn dutyto look at
the substance of things, whenever they enter upon
the inquiry whether the Legislature has transcended
the limits of its authority. If therefore, a statute
purporting to have been enacted to protect the
public health, the public morals, or the public safety,
has no real or substantial relation to those objects
or is palpable invasion of rights secured by the
fundamental law, it is the duty of the courts to so
adjudge, and thereby give effect to the
Constitution.

Here, not only are the underlying COLA and SB 656 benefits purely
financial debt obligations which do not implicate any reserved police
power to protect the public health, safety, and morals, but also as
discussed below, the impairment (indeed substantial impairment) of those
benefits is not supported by any public purpose defense under the federal
Contract Clause.
30

B. Substantiality.
On the issue of substantiality of the impairment, Respondents and
Intervenors generally argue that the court should, as part of its analysis of
the Oregon contract clause, impose a requirement of substantiality and
argue further that the impairment here is not substantial. This is a
daunting task given that the States own expert (the PERS actuary)
projected that the present value of the benefits lost to members by the
combination of SB 822 and SB 861 was a total of $5.3 billion. ER-41; ER-
83; ER-193-94. This is the information which was given to the legislature
and certainly was the clear understanding of the legislature about the
financial impact of these measures on PERS members. Id. No alternative
analysis was offered at the fact-finding hearing by any party, and therefore
this analysis and its conclusions are uncontested.
24
Recognizing this,
Respondents and Intervenors argue instead that the legislation reduces
only windfall benefits or that the future impact of the legislation on Moro
Petitioners is lower than that recognized by this court to be substantial in
Strunk or is too speculative for this court to award the relief requested. As

24
Moro Petitioners do not contest the analysis by the PERS Actuary
in calculating the value of the lost benefits from the perspective of the
system. However, the PERS Actuary agreed that if the value of the lost
benefits were to be calculated from the perspective of individual members
that a discount rate of 4 percent would be appropriate, which would
substantially increase the amount of the loss. ER-223 n.117.
31

explained further below, each of these arguments is either unsupported by
the law or the record, and therefore, must be rejected.
First, on the question of whether the court should adopt the
substantiality test, Respondents and Intervenors turn initially to this
courts statement in Strunk, 338 Or at 206, that it has yet to determine
whether substantiality of an impairment of a contractual obligation is
required to show a violation of Article I, section 21.
25
They argue that
because Article I, section 21 was patterned on the federal Contract Clause,
the court should adopt this substantiality standard.
26
State Respondents
maintain that this would be consistent with the approach taken by other
states with a contracts clause in their state constitutions. Brief, p. 59.
County/SD Respondents argue that, in fact, this court already did that by its
reference to a substantial impairment in Hughes, 314 Or at 20. Brief,
p. 48. They argue further that the substantiality requirement was
developed early on in the federal Contracts Clause cases and is therefore,
appropriately applied to Article I, section 21. County/SD Brief, p. 47.
The early cases under the federal Contract Clause, however, are not
as clear as Respondents allege. For example, as late as in Fisk v. Police

25
State Brief, p. 56.
26
State Brief, p. 57; County/SD Brief, p. 46.
32

Jury of Jefferson, 116 US 131, 6 S Ct 329, 331, 29 LEd 587(1885), the
United States Supreme Court was explaining impairment to mean to alter
so as to make the contract more beneficial to one party and less to the
other, it is not a question of degree, manner or cause, *** it cannot be
impaired in the remotest degree, it is where an essential part is annulled
or partially rescinded, and [t]he obligation is impaired by a statute which
authorizes its discharge by a smaller sum, or at a different time, or in a
different manner than stipulated. (Internal citations omitted); see also
Sturges v. Crowninshield, 17 US 22, 4 LEd 529 (1819)(cited by
Respondent). It is this understanding of impairment which would have
been incorporated into the Oregon Constitution and not, the later
substantiality requirement developed by the federal courts.
Second, even if this court were to adopt the later developed
substantiality requirement, the impairment here is substantial as
supported by actuarial expert testimony. ER-224-36. In support of their
position that it is not, Respondents and Intervenors argue that the
percentage adverse impact on Moro Petitioners is somewhat less than
what the court noted for Strunk petitioners.
27
In Strunk, 338 Or at 206, the
court discussed this issue only in the context of those portions of the 2003

27
State Brief, p. 65; County/SD Brief, p. 49.
33

enactment which amended the guaranteed earnings on member accounts.
The court indicated there were two primary reasons for its decision not to
decide whether a showing of substantiality was necessary. First, benefit
projections showed losses for the Strunk petitioners between 12 and 20
percent of benefits; and second, these potential reductions at least in part
had a retrospective effect or earnings accrued for work already
performed. Id.at 206-07.
While the general statement may be true that when confined to the
somewhat limited view of a handful of PERS participants the percentage
adverse impact on Moro Petitioners is somewhat less than what the court
noted for the petitioners in Strunk, it is clear that the overall adverse impact
of the 2013 COLA changes ($4.9 billion) is somewhat in excess of the
adverse impact of the changes in crediting which were projected at $4.6987
billion. Ex. 15, pp. 63-64 (2004 Special Master Report). Even if the
financial impact of the 2013 enactments on individuals (calculated by the
State itself as an average 7.65 percent) is somewhat less than the 2003
enactments, the Respondents provide no authority to support the notion
that these are nonetheless not substantial. For example, in U.S. Trust, 431
US at 19, while the court did not specifically discuss the substantiality
requirement, nonetheless the court pointed out that No one can be sure
34

precisely how much financial loss the bondholders suffered, but that that
would not stop the court from granting relief because the State has made
no effort to compensate the bondholders for any loss sustained by the
repeal. In other words, without even a showing of a measurable loss to
bondholders, in U.S. Trust, the court nonetheless granted relief.
28
Also, in
Allied Structural Steel Co. v. Spannaus, 438 US 234, 247, 98 S Ct 2716, 57
LEd2d 234 (1978), the amount at issue was only $185,000 but the court
found that in combination with the retroactive nature of the legislation to be
a severe disruption of the contract at issue.
Given these low thresholds, there would be little question that if the
court were to utilize a substantiality test, the Moro Petitioners have made
an adequate showing to satisfy that requirement. As explained at page 35
of the Opening Brief, a year-by-year review of Moro Petitioners analyses
shows that while the benefit losses start at a relatively low amount, they
increase over time so that, for example, by the final year of his retirement

28
In Strunk, this court also voided the 2003 limitations on COLA
benefits despite the fact that the present value analysis showed a mere
$413.7 million loss to members as a whole, and there was no evidence in
the record relating to the impact of this change on any of the individual
Strunk petitioners. Ex. 15, p. 66 (2004 Special Master Report). Similarly,
in Eckles, 306 Or 402, the court found the transfer of $81 million to be a
breach. However, since employers failed to establish individual loss
attributable to that loss, they were only entitled to a declaratory ruling.
35

Petitioner Silence is projected to lose 33 percent of his benefit.
29

Respondents and Intervenors argument that these estimates of future
impact are somehow too speculative for this to court consider is ironic
given that that the only evidence relied upon by Respondents and
Intervenors to support the need for the challenged legislation is actuarial
estimates regarding future employer contribution rates and the resulting
impact on the states ability to provide other services into the future.
Moreover, in Tadsen v. Praegitzer, Inc., 324 Or 465, 472, 928 P2d 980
(1996), this court recognized that the lack of absolute certainty does not bar
even a claim for future damages. It explained that:
Only reasonable probability is required. Expert
testimony may aid the fact-finder ***. In doing so,
an expert may testify to economic assumptions that
necessarily rely on estimates and predictions of
uncertain events. Id.

Even though Moro Petitioners were only attempting to establish adverse
impact instead of damages, they still presented expert actuarial analysis
which used the same assumptions used by the PERS Actuary for the
PERS system itself. See Exhibits 1-14.

29
Moreover, the court can certainly take note that the losses to
retirees in the 2013-15 biennium already total $70-85 million for lost COLA
and $60-70 million for out of state retirees. No additional actuarial analysis
is necessary to derive these numbers. ER-200-201 (Ex. 47, p. 2).
36

In contrast, County/SD Respondents make an extended argument
(unsupported by any expert evidence), that under certain financial
conditions, the new benefits provided by the 2013 statute may for some
participants be better or almost as good as the old benefits.
30
Brief, pp. 53-
54. In the absence of any expert testimony supporting Respondents
position, the court should rely upon the information provided by the PERS
Actuary to the legislature that the statute was projected to reduce accrued
liability and save money going forward. ER-41($2.6 billion reduction in
accrued liability for SB 822); ER-83 ($1.9 billion reduction in accrued
liability for SB 822); ER-193-94. As the court noted in US Trust, 431 US at
28, No one has suggested here that the States acted for the purpose of
benefiting the bondholders, and there is no serious contention that the
value of the bonds was enhanced by the repeal of the 1962 covenant.
The same is true here. The legislature knew it was pursuing a long term
cost-saving measure.
The court should also reject Respondents and Intervenors various
arguments, which relate to elimination of windfalls, reasonable

30
They suggest that in years of no or low inflation, the new benefit
may be better, while conceding that this may not be true due to the COLA
bank. They conclude by pointing out that in the first year even a retiree
receiving $60,000 per year loses only $300. However, this ignores the
progressive nature of year-by-year loss of the benefit discussed above.
37

expectations, and reasonable reliance.
31
None of these arguments are
developed to any sufficient extent. Moreover, for all the reasons discussed
above in Section II.A, reasonable expectations and reasonable reliance
weigh heavily in favor of PERS members and retirees.
Furthermore, as the court emphasized in Strunk, 338 Or at 206-07,
the fact that the 2003 changes in part had an adverse impact on benefits
earned for work already performed supported a finding that the impairment
was substantial. Interestingly, both State and County/SD Respondents
simply announce that the factor has no relevance in this case.
32
In fact, the
2013 changes fall very heavily on benefits already earned for work already
performed. Retirees have fully completed their service, and so all of their
benefits are based on work previously performed. Also, many active
members have already performed many years of service in PERS and
accrued benefits which will be adversely impacted by the changes made by
SB 822 and SB 861. The adverse impact on accrued benefits is not only
supported by the data provided by the PERS Actuary to the legislature (ER-
41; ER-83; ER-193-94), but also the CPI Bank information compiled by
PERS. (ER-40). Just as it did in Strunk, therefore, this factor should weigh

31
State Brief, pp. 62-63; County/SD Brief, p. 48.
32
State Brief, p. 61; County SD Brief, p. 49.
38

very heavily in favor of the courts determination that the 2013 changes do,
in fact, cause a substantial impairment in benefits.
C. Public Purpose.
Finally, even if the impairment is found to be substantial County/SD
Respondents argue at length (Brief, pp. 71-94) that the legislation should
still be upheld as reasonable and necessary for a public purpose. The
same defense was raised and rejected by this court in Strunk, 338 Or at
207-208, without deciding whether Oregon should adopt it for purposes of
its Article I, section 21 analysis. In Strunk, the court noted that the parties
introduced voluminous evidence on this issue, which the Special Master
described as Respondents economic hardship defenses. 338 Or at 207.
The court found that the evidence simply did not rise to the high threshold
that would have to be met for an economic hardship defense to be
successful, even if the court were to recognize that defense. Id. The court
stressed that it was dealing with an alleged impairment to the States own
contract and pointed out several findings by the special master which were
particularly relevant. Specifically, it underscored Oregons relatively low tax
burden, the fact that there was little willingness by the voters to raise taxes,
and that the capital downturn of 2000 through 2002 did not compare in
magnitude to the Great Depression of the 1930s. Id. at 207-08. Finally,
39

acknowledging that the states recent fiscal status is both serious and has
resulted in substantial detriments to the provision of governmental services
across the state, the court still found that, taken together, these findings
did not justify a rewriting of the earnings rate guarantee. 338 Or at 208.
The record evidence presented at the fact-finding hearing before the
Special Master in this case should lead the court to two observations. First,
nothing much has changed. Second, at least in the short-term, things are
about as good as they get in the State of Oregon, given its flawed revenue
system.
Moro Petitioners called former State Economist and current Portland
State University Professor Thomas Potiowsky as an expert witness. ER-
203; 204-209; 221. Among other things, Potiowsky testified that Oregon
remains a low-taxing state. ER-205. Oregon taxes have now dropped to
11.8 percent lower per capita than the U.S. average, Oregon is ranked 33rd
for state taxes as a percentage of personal income, and state taxes as a
percentage of state productivity show Oregon as 14.8 percent below the
national average. Id. Potiowsky attributes this low revenue in part to Ballot
Measures 5, 47, and 50 passed by the Oregon voters in the 1990s, which
not only restricted property taxes but generally shifted the burden of the
support of our public schools over to the states general fund. ER-207.
40

Potiowsky also pointed to the substantial increase in spending for public
safety (caused by Measure 11) and human services, which also negatively
impact the states ability to spend for other purposes. ER-205. Despite
these limits and pressures on revenue, Potiowsky testified that, at least in
the immediate term, things are looking pretty good. ER-206-07. The 2013-
15 General Fund budget increased by 14 percent over the prior biennium
and is projected to show substantial growth through 2021. Id. at 206.
On the issue of school finance, Potiowsky pointed out that Oregon
invests less in education than nearly every other state as a percent of the
total state budget, with only Maine and Wyoming spending a smaller
percentage. ER-209. Nonetheless, in 2013-15, Oregon was able to
substantially increase its allocation for K-12 education by approximately
$836 million, which is $235 million more than the amount necessary to
maintain current services for K-12 education. Id. Potiowsky made clear
that it is Oregons flawed revenue system which makes it difficult for the
state to keep up with its perceived needs, and the PERS system has
neither caused the states financial difficulties, nor will the changes made in
2013 resolve those financial difficulties. ER-221-22.
In support of its public purpose defense County/SD Respondents
called John Tapogna, President of EcoNorthwest, a consulting firm.
41

Tapogna cited various reports and analysis in support of the public purpose
defense. For example, he cited a University of Chicago Forum of
Economists who expressed grave concerns about public pension systems
in the United States. However, Tapogna conceded that these observations
by the economists were not specific to the condition of Oregons public
employee retirement system. ER-211 n. 102. Moreover, the hosts of this
forum expressly cautioned against using the expert opinions as a policy
tool. Id. Tapogna also cited to a 2012 study which provided analysis of the
challenges that would be faced in all 50 states in fully funding their pension
plans in the next 30 years. However, the County/SD Respondents brief
really does not adequately explain that the study was a what-if exercise
based on an assumption that earnings over that entire period would on
average be only 1.7 percent in excess of the cost of living. Ex. 80. The
study then rank ordered the states based on the percent of increase they
would have to make in their contribution rates to fully fund their pension
plans given this extraordinarily bad earnings assumption. Not surprisingly,
those states which were well funded, and currently enjoyed lower rates,
including the state of Oregon, tended to show the greatest percentage
increase, while those states which are already poorly funded and therefore,
42

already had higher rates would see a lower percentage increase.
33

Whatever conclusions can be drawn from this study regarding Oregon are
further compromised by the fact, which Tapogna conceded, that the study
used incorrect data in setting Oregons initial contribution rate. Tr. 233-34.
The concerns expressed in the County/SD Respondents brief at pages 86-
87 that Oregon would have to raise taxes to such an extent that everyone
left the state or, alternatively, that Oregon could not compete with other
states, were based on this flawed report. Moreover, there is nothing in the
legislative history of SB 822 or SB 861 to support the conclusion that the
legislature even considered this factor, let alone passed the legislation to
address this concern. As discussed further below, the court must look to
what the legislature actually said and did, as opposed to what County/SD
Respondents assert after the fact in defense of the legislation.
After the conclusion of the fact-finding hearing, in an initial draft of the
findings, Special Master Judge Bushong described County/SD
Respondents defense of the legislation using the same economic
hardship defense descriptor used by the 2004 Special Master Report.

33
This analysis has been criticized as using an unrealistic
assumption of earnings which is inconsistent with anticipated returns on
investments (Ex. 75). PERS goes through a biennial analysis in setting its
assumed earnings rate. ER-184-85.
43

County/SD Respondents vehemently objected. See Objection to Special
Masters Preliminary Report filed April 25, 2014. They argued at some
length that the defense they were raising was not an economic defense but
was a public purpose defense. After reviewing the County/SD
Respondents evidence in support of its argument on this issue, however, it
is difficult to discern any difference between the defenses raised in 2003
and that being raised in the current case. Indeed, if there is no economic
hardship, the best that can be said for the County/SD Respondents
defense is that the only public purpose is that the state would prefer to
spend the money it saves by not honoring its contractual commitments to
PERS members to provide other services.
It is true that rates are high, and just as in 2003, that has an impact
on the states ability to deliver other important services. There is no
question that the 2008 economic downtown which led to very bad
investment returns has and will continue to have an impact on employer
contribution rates. It is also true that employer contribution rates
immediately prior to 2008 had reached a historic low, at least in comparison
with rates for the last 30 years. ER-182-83. As described in the Special
Masters report (ER-179), PERS uses a rate collaring system which has
allowed increases in rates to be phased in over a period of time during
44

which not only was the system able to earn money (may even have
earnings in excess of assumptions), but also the state of Oregon was able
to substantially recover from the impacts of the 2008 downturn. ER-206-
07. The most recent analysis by the PERS actuary shows that even if the
system is able to earn only the amount of its current earnings assumption
(7.75 percent), employer contribution rates will trend downward over the
next several biennia. ER-197-98 (Ex. 41). Therefore, like it did in Strunk,
this court should find that these factors together with those discussed
further below cannot support the impairment of COLA and SB 656 benefits
effected by SB 822 and SB 861 as reasonable and necessary for a public
purpose.
D. Balancing.
Under the final step of federal public purpose balancing analysis, a
court must inquire whether the adjustment of the rights and responsibilities
of contracting parties is based upon reasonable conditions and is of a
character appropriate to the public purpose justifying the legislations
adoption. U.S. Trust, 431 US at 22. Citing testimony from the Governors
Chief of Staff, County/SD Respondents argue that the problem with PERS
is the payment to current retirees, particularly those who are receiving
benefits on the higher end. Brief, pp. 89-90. They suggest that these
45

beneficiaries are those who are causing PERS employer contribution rates
to rise and that the legislative response was narrowly focused to address
that problem. It is difficult to understand how an argument can be made
that the 2013 COLA reductions are in any sense narrowly focused. Those
decreases impact all PERS members both retired and active, and the
PERS actuarys own study of SB 822 indicated that the financial burden of
that bill fell most heavily not on retirees but, in fact, on active members.
ER-43.
The reality is that this is not a narrowly focused solution to some
PERS problem but, rather, a simple desire to lower PERS employer
contribution rates so that the funds could be spent on other governmental
services. As the County/SD Respondents acknowledges, at the
commencement of the 2013 session, the Governor was concerned with a
budget gap. Brief, p. 90. However, given Potiowskys testimony that the
budget had increased by 14 percent (ER-206-07), one can only conclude
that the budget gap consisted of no more than the Governors desire to
spend money on other services. Indeed, his budget proposal identified
$865 million that he proposed to save by cutting PERS benefits so they
could be spent on other state and local services. ER-69. The legislature
itself was quite open about its intent, as demonstrated by the remarks of
46

Representative Buckley, co-chair of the Ways and Means Committee
charged with review of the Governors budget (ER-59):
Weve given our word as a state in two different
directions, and we cant keep both those promises.

Weve promised retirees and workers a certain
benefit package that theyve worked for, many of
them decades. Weve promised our kids
educational opportunities at least as good as the
ones that we had when we were growing up.

The State is not free [however] to consider substantial contractual
impairments on a par with other policy alternatives. State of Nev.
Employees Ass'n, Inc. v. Keating, 903 F2d 1223, 1228 (9th Cir 1990).
Moreover, although unforeseen circumstances may inform a courts
analysis of reasonableness, they do not justify contract impairments
requiring a large sacrifice from a small group. For example, the court in
Contl Illinois Nat. Bank & Trust Co., 696 F2d 692, 701 (9th Cir. 1983),
agreed there were unforeseen circumstances but did not find the
contractual impairment to be reasonable, stating:
In Blaisdell the State, acting in its sovereign
capacity adopted a balanced and temporary
measure designed to protect broad societal
interests which were threatened by the
unforeseeable collapse of the world economy. In
contrast, Initiative 394 sacrifices the interest of
parties to contracts with the State's subdivision in
order to protect the State's own finances. We
cannot conclude that this imposed sacrifice was
47

reasonable in light of changed circumstances.
Compare United States Trust, 431 U.S. at 3132,
97 S.Ct. at 152223 with El Paso v. Simmons, 379
U.S. at 515, 85 S.Ct. at 587.

Similarly, here, SB 822 and SB 861 are neither balanced nor
temporary to address a crisis, but rather effect a permanent impairment of
the PERS contract to the detriment of a small group to make more funds
available for other programs or services. Respondents have not and could
not possibly cite to any case allowing an impairment of contract simply to
free up public monies to be spent on another fiscal priority without a finding
that the measure was temporary and meant to address an emergency
circumstance. See Southern California Gas Co. v. City of Santa Ana, 336
F3d 885, 897 (9
th
Cir 2003)(finding no such case by the Ninth Circuit or the
Supreme Court); see also Baltimore Teachers Union v. City of Baltimore, 6
F3d 1012, 1021 (4
th
Cir. 1993)(cited by Respondents but finding plan
effected simply a temporary alteration of the contractual relationships to
address breakdown of government). Simply put, even the federal
Contract Clause jurisprudence does not extend so far as to classify a
states desire to spend money elsewhere as a significant and legitimate
public purpose. The Court should, therefore, reject Respondents invitation
to expand the federal Contract Clause analysis beyond its bounds.
48

V. TAKINGS ARGUMENTS
All Respondents and Intervenors contend that Moro Petitioners
acquired no property right in their COLAs and SB 656 benefits for the
same reasons raised in defense of the contract claims. State Brief, p. 81;
LOC Brief, pp. 74-75; County/SD Brief, pp. 94-95. As explained in Moro
Petitioners Opening Brief at pages 80-81, if this court accepts any of the
public purpose defenses of Respondents and Intervenors, it must then
also consider Moro Petitioners claims for just compensation. Eckles, 306
Or at 399, 403 (finding that although, The need to resolve the financial
crisis *** could perhaps be described as a vital interest of the state, no just
compensation was owed due to a failure of proof on damages). Unlike the
employers in Eckles, 306 Or at 403, as noted above, the adverse impact on
Moro Petitioners is supported by expert testimony. Moreover, on system-
wide basis, according to the PERS Actuary $5.30 billion have been taken
by State from PERS retirees and members to fund other services to the
public. Therefore, there is no basis for the court to deny relief.
VI. PROCEDURAL ARGUMENTS
Respondents and Intervenors also raise a procedural as applied vs.
facial challenge argument. County/SD Brief, pp. 40-45; State Brief, pp. 68-
69; LOC Brief, p. 74. This argument simply finds no support in the text of
49

SB 822 and SB 861 or in this courts prior direct review cases. SB 822,
Section 19 and SB 861, Section 11, granted to this court jurisdiction to
determine whether any provision of those acts breaches any contract
between members of the Public Employees Retirement System and their
employers, violates any constitutional provision, *** or is invalid for any
other reason. In addition, the court granted members adversely affected
or who will be adversely affected the right to institute a proceeding for
review of the above claims. Therefore, the legislature granted Moro
Petitioners the right to raise both as applied and facial challenges to the
legislation. In similarly unusual circumstances presented in Hughes, 314
Or at 5-6, and Strunk, 338 Or 225, the court recognized that it was called
upon the legislature to answer the legal question as applied to all affected
members. In Hughes, 314 Or at 33 n 36, the court chose not to exercise its
inherent authority to fashion a remedy for a breach but rather to defer to the
legislature. The decision was supported by the fact that the damage
attributable to loss of the tax exemption varied from person to person. In
contrast, in Strunk, 338 Or at 225, where the loss of the COLA benefit
impacted window retirees equally and could be remedied simply by
invalidating the offending statutory wording, the court declared that part of
the law to be void, returning petitioners to the same position they would
50

have been in had the legislature not enacted the COLA suspension. Given
the changes to COLA and SB 656 benefits can be remedied similarly by
invalidating the offending statutory language, the court should exercise its
inherent authority to do so again.
VII. PORTLAND & TVF&R ARGUMENTS
A. There is a justiciable controversy between Petitioners
Custer and Ditter and Respondent TVF&R.
A controversy is justiciable, as opposed to abstract, where there is an
actual and substantial controversy between parties having adverse legal
interests. Cummings Constr. v. School Dist. No. 9, 242 Or 106, 408 P2d 80
(1965). The controversy must involve present facts as opposed to a dispute
which is based on future events of a hypothetical issue or nature. Morgan
v. Sisters School Dist. # 6, 353 Or 189, 19596, 301 P3d 419 (2013).
Regarding the present facts requirement, this court has held that if the
dispute involves the interpretation of an existing statute that could apply to
a party in the future, that situation itself creates a present fact. Pendleton
School Dist. v. State of Oregon, 456 Or 596, 200 P3d (2009). A justiciable
controversy results in specific relief through a binding decree as opposed to
an advisory opinion which is binding on no one. Brown v. Oregon State
Bar, 293 Or 446, 449, 648 P2d 1289 (1982). All these factors are present
here.
51

SB 822 and SB 861 are legislative enactments which are challenged
on the basis of constitutionality. The present facts are that SB 822 and
SB 861 are actions which have impaired or breached petitioners PERS
contracts. Those contracts are between Respondent TVF&R and
Petitioners Custer and Ditter. See Stovall, 324 Or at 124. PERB is
required to administer the pension fund pursuant to the new legislation until
it is set aside.
The case does not present an abstract inquiry about a possible future
event. Rather, it involves the interpretation of an existing statute that has
already been applied to Petitioners Custer and Ditter and will continue to
apply to them and other Moro Petitioners, unless it is overturned.
Moreover, as noted above, the legislation expressly authorized Petitioners
to bring this direct challenge. Finally, paragraphs 2-4 of the prayer of their
Second Amended Petitioners request an order granting relief against
Respondent employers, including TVF&R. ER-126. Employers are directly
liable for payment of damages resulting from a breach of the PERS
contract, even if the legislation itself is not unconstitutional. Stovall, 324 Or
at 124.
52

B. The local employers are bound by the PERS contract.
1. Respondent Portland.
Respondent Portland acknowledges that Stovall, 324 Or at 120-25,
held that it is a promisor of the PERS benefits and that employees may
enforce their rights against the employer. However, it maintains that
Stovall was wrongly decided because it failed to identify any charter
provision or ordinance by which the Respondent Portland obligated itself.
Portland Brief, pp. 6-10. Respondent Portland does not contest that it has
been a PERS employer for many years.
ORS 237.355 authorizes cities with a population of 100,000 or more
to establish a pension system. Alternatively, ORS 238.035 permits a public
employer to apply to PERS to allow employees to become members of the
system. The terms of entry into the system are reflected in a contract
between PERS and the public employer. ORS 238.035(3). It is enough
that the Respondent Portland entered into a contract to bind itself to the
governance of PERS, without regard to the amount or formula for
determination of individual retirement benefits. As this court recognized in
La Grande/Astoria v. PERB, 281 Or 137, 576 P2d 1204, affd on rehg 284
Or 173, 586 P2d 765 (1978), the PERS Act is a general law addressed
primarily to substantive social, economic, or regulatory objectives of the
53

state and therefore, does not violate whatever rights are reserved by cities
and municipal corporations.
2. Respondent TVF&R.
Respondent TVF&R asserts that there are two lines of cases
regarding the legislative power to enter into long-term financial and other
contracts. Actually, there are no inconsistencies among this courts
decisions; the cases address the distinction between the legislative and
proprietary functions of governments. For example, in Johnson v. City of
Pendleton, 131 Or 46, 280 P 873 (1929), cited by TVF&R, the court held
that a contract requiring the city to levy an annual tax in perpetuity was
legislative.
This courts recognition of the distinction of municipal functions is
completely analogous to its recognition of the difference between the
governmental (police power) functions and the taxation and spending
functions of the state. In Hughes, this court rejected the States contention
that the state could not contract away its sovereign power to tax. See
also U.S. Trust, 431 U.S. at 25-26 (The Court has regularly held that the
States are bound by their debt contracts.).
The municipalities were not required to join PERS, but once they did
they became bound by the benefits promised to their employees. This
54

court has made clear that, a general law addressed primarily to
substantive social, economic, or other regulatory objectives of the state
prevails over contrary policies preferred by some local governments if it is
clearly intended to do so. City of La Grande v. Pub. Employes Ret. Bd.,
281 Or 137, 156, 576 P2d 1204 (1978), on reh'g, 284 Or 173, 586 P2d 765
(1978). The paramount nature of the PERS law controls the terms of the
contract between the employers and the employees.
C. Failure to pay pension benefits constitutes a violation of
ORS 652.200 because such benefits are wages.
In Kantor v. Boise-Cascade Corp., 75 Or App 698, 711, 708 P2d 356
(1985), rev den, 300 Or 506, 713 P2d 1058 (1986), relying upon this courts
decisions in State ex rel. Nilsen v. Ore. Motor Ass'n, 248 Or 133, 432 P2d
512 (1967) and Hekker v. Sabre Construction Co., 265 Or 552, 510 P2d
347 (1973), the Court of Appeals held that:
Pension benefits are deferred compensation for an
employe's service. The policy of aiding employes in
the prompt collection of their earned, but unpaid,
compensation and discouraging employers from
using their superior economic positions to dissuade
employes from promptly collecting their
compensation is as strong in the case of pension
benefits as it is with ordinary wages, vacation pay,
severance benefits and bonuses. Pension benefits
are as important to an employe as those other
forms of compensation. We therefore hold that an
action for the collection of unpaid pension benefits
55

is an action for the collection of wages for the
purposes of ORS 652.200(2).

Respondent Portland argues that the Kantor court should have
looked to ORS 652.140 as context to determine what the Legislature
meant by wages in ORS 652.200(2). It maintains that ORS 652.140
applies to retirees and that the only wages due to Petitioner Arken were the
wages earned and unpaid at the time of termination. However, the Kantor
court correctly recognized that a claim for unpaid pension benefits was not
the same as a claim for unpaid wages upon termination of employment.
Petitioner Arken is not claiming that unpaid wages were owed at the time of
termination; he is claiming that wages were not paid when they became
due, an event that occurred years after termination of employment.
Respondent Portland also cites to ORS 652.190 where wages are
specifically limited to compensation based on time worked or output of
production. However, ORS 652.200(2) contains no such limitation; the
legislature could have similarly defined wages, but did not. In any event,
ORS 652.200 was enacted in 1957 (Or Laws 1957, Ch 242 2). The
definition adopted 40 years later, in 1997 (Or Laws 1997, Ch 52 1),
added to ORS 652.190, is not context for the earlier adopted law. There
is simply no support for Portlands broad assertion that a claim for which
attorney fees are recoverable under ORS 652.200(2) is a claim for wages,
56

as that term is used in ORS 652.110 to 652.200. Portlands attempt to
sweep in definitions contained in later-adopted statutes should be rejected.
Finally, Respondent Portland contends that there is no employer
action that invokes the wage claim statutes for Petitioner Voek because at
retirement, he will have received all compensation Portland owes as his
employer. Again, Petitioner Voeks claim is not based on the compensation
owed upon termination; if he is shorted on his pension payment he has a
claim under ORS 652.200(2). See e.g. Allen v. County of Jackson, 191 Or
App 185, 200, 82 P3d 628 (2003), affd 340 Or 146 (2006).
VIII. CONCLUSION
For all these reasons and those discussed in their Opening Brief,
Moro Petitioners respectfully request that the court reject Respondents and
Intervenors invitation to revisit and reverse its prior PERS and pension
cases. Of those cases, the ones specifically at issue here were correctly
decided and have created decades of reasonable expectation and reliance
in PERS members and retirees. An application of those cases results in a
finding that SB 822 and SB 861 effect a $5.3 billion dollar unconstitutional
impairment, breach or taking of COLAs and SB 656 benefits promised
under the PERS contract. The promised benefits do not implicate the
States reserved police powers, and the impairment or breach effected by
57

SB 822 and SB 861 is not temporary measure supported by a financial
crisis and is also not reasonable and necessary for any public purpose,
even under the federal standard. The purpose of the legislation was purely
budgetary. However, as this court recognized in Eckles, 306 Or 380, the
breach or impairment of state contracts cannot be justified by a legislative
determination that it desires additional funds to spend elsewhere. That is
all that has happened here. The state has simply reallocated moneys
promised to the PERS members and retirees to other purposes. As it did in
Strunk, the court should void SB 822 and SB 861 and return PERS
members and retirees, including Moro Petitioners, to the position they were
in before the legislation was passed and award Moro Petitioners the costs
and reasonable attorney fees they have incurred in this action.
Dated this 22
nd
day of September, 2014.
s/Gregory A. Hartman
Gregory A. Hartman, OSB 741283
Aruna A. Masih, OSB 973241
Bennett, Hartman, Morris & Kaplan, LLP
210 SW Morrison St., Suite 500
Portland, OR 97204
Telephone 503-227-4600
Email hartmang@bennetthartman.com
Email masiha@bennetthartman.com

Representing Moro Petitioners

58

CERTIFICATE OF COMPLIANCE WITH ORAP 5.05(2)(d)

Brief length

I certify that (1) this brief complies with the word-count limitation in
ORAP 5.05(2)(b) and the August 15, 2014 order of the court allowing Moro
Petitioners to file a brief not to exceed 15,000 words; and (2) the word-
count of this brief (as described in ORAP 5.05(2)(a)) is 13,099 words.

Type size

I certify that the size of the type in this brief is not smaller than
14 point for both the text of the brief and footnotes as required by
ORAP 5.05(4)(f).

Dated this 22
nd
day of September, 2014.
s/Gregory A. Hartman
Gregory A. Hartman, OSB 741283
Aruna A. Masih, OSB 973241
Bennett, Hartman, Morris & Kaplan, LLP
210 SW Morrison St., Suite 500
Portland, OR 97204
Telephone 503-227-4600
Email hartmang@bennetthartman.com
Email masiha@bennetthartman.com

Representing Moro Petitioners



APPENDIX

APP-16
APP-17
APP-18


CERTIFICATE OF FILING
I certify that on September 22, 2014, I filed the original of this MORO
PETITIONERS REPLY BRIEF by electronic filing with the Appellate Court
Administrator, Appellate Court Records Section, by using the courts
electronic filing system pursuant to ORAP 16.

CERTIFICATE OF SERVICE
I hereby certify that I served the foregoing MORO PETITIONERS
REPLY BRIEF upon the following individuals on September 22, 2014, by
using the courts electronic filing system pursuant to ORAP 16 or by
regular email on September 22, 2014:

AG Ellen Rosenblum #753239
SG Anna M. Joyce #013112
AAG Keith L. Kutler #852626
AAG Matthew J. Merritt #122206
Michael A. Casper, # 062000
Oregon Department of Justice
1162 Court Street NE
Salem, OR 97301-4096
Telephone: 503-378-4402
Facsimile: 503-378-6306
anna.joyce@doj.state.or.us
keith.kutler@doj.state.or.us
matthew.merritt@doj.state.or.us
michael.casper@doj.state.or.us
Of Attorneys for State Respondents

William F. Gary, #770325
Sharon A. Rudnick #830835
Peter F. Simons #095632
Harrang Long Gary Rudnick PC
360 E. 10
th
Ave., Suite 300
Eugene, OR 97401
Telephone: 503-242-0000
william.f.gary@harrang.com
sharon.rudnick@harrang.com
pete.simons@harrang.com
Of Attorneys for Respondents Linn
County, Estacada, Oregon City,
Ontario, West Linn School Districts
and Beaverton School Districts,
and Intervenors Oregon School
Boards Association and
Association of Oregon Counties


Harry Auerbach #821830
Office of the City Attorney
1221 SW 4
th
Avenue, Ste 430
Portland, OR 97204
Telephone: 503 823-4047
Facsimile: 503 823-3089
harry.auerbach@portlandoregon.go
v
Of Attorneys for Respondent City of
Portland

Daniel B. Atchison #040424
Office of City Attorney
555 Liberty Street SE Rm 205
Salem, OR 97301
Telephone: 503 588-6003
Facsimile: 503 361-2202
datchison@cityofsalem.net
Of Attorneys for Respondent City
of Salem
Eugene J. Karandy II #972987
Office of the County Attorney
Linn County Courthouse
104 SW Fourth Avenue, Room 123
Albany, OR 97321
Telephone: 541 967-3840
Facsimile: 541 928-5424
gkarandy@co.linn.or.us
Of Attorneys for Respondent Linn
County
Edward F. Trompke #843653
Jordan Ramis PC
Two Centerpointe Drive, 6
th
Floor
Lake Oswego, OR 97035
Telephone: 503 598-5532
Facsimile: 503 598-7373
ed.trompke@jordanramis.com
Of Attorneys for Respondent
Tualatin Valley Fire & Rescue
Lisa M. Frieley #912763
Oregon School Boards Association
PO Box 1068
Salem, OR 97308
Telephone: 503 588-2800
Facsimile: 503 588-2813
lfreiley@osba.org
Of Attorneys for Respondents
Estacada, Oregon City, Ontario, and
West Linn School Districts and
Intervenor Oregon School Boards
Association
W. Michael Gillette #660458
Leora Coleman-Fire #113581
Sara Kobak #023495
William B. Crow #610180
Schwabe Williamson & Wyatt PC
1211 SW 5
th
Ave Suite 1900
Portland, OR 97204
Telephone: 503-222-9981
Facsimile: 503 796-2900
wmgillette@schwabe.com
Of Attorneys for Intervenor League
of Oregon Cities


Rob Bovett #910267
Association of Oregon Counties
1201 Court St. NE Ste 300
Salem, OR 97301
Telephone: 971-218-0945
rbovett@aocweb.org
Of Attorneys for Linn County


I hereby certify that on September 22, 2014, I served two true copies
of this MORO PETITIONERS REPLY BRIEF by United States Postal
Service, first class mail with postage prepaid, on:

George A. Riemer (Petitioner Pro
Se)
23206 N.Pedregosa Drive
Sun City West, AZ 85375
Telephone: 623-238-5039
george.riemer@azbar.org
Petitioner pro se

Wayne S. Jones (Petitioner Pro
Se)
18 North Foxhill Road
North Salt Lake, UT 84054
Telephone: 801-296-1552
wstanmgt@gmail.com
Petitioner pro se
Michael D. Reynolds (Petitioner Pro
Se)
8012 Sunnyside Avenue N.
Seattle, WA 98103
Telephone: 206-910-6568
mreynolds14@comcast.net
Petitioner pro se



DATED this 22
nd
day of September, 2014.

s/Gregory A. Hartman
Gregory A. Hartman, OSB 741283
Aruna A. Masih, OSB 973241
Of Attorneys for Moro Petitioners