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By Williams J. Bonville
2, 2002

Oregon courts ruled that the Public Employees' Retirement System (PERS) embodies a contractual obligation to all public employees, active or retired, who participate in the system. On that contractual basis, downscaling of benefits in response to a recessionary economy is not permitted, nor may the legislature tinker with the rules on which that contractual obligation is based. The result is a large unfunded liability that must be paid by taxpayers rather than by the participants in the PERS. The position of the court is justified by the Oregon Constitution, Article 1, section 21, which clearly states, "No ex post facto law, or law impairing the obligation of contracts, shall ever be passed..."

Section 21, however, offers an exception to the above provision. The section continues, "....nor shall any law be passed, the taking effect of which shall be made to depend upon any authority, except as provided in this Constitution..." In other words, if a law is passed which is inconsistent with any part of the Constitution, that law is null and void.

Another provision of the Oregon Constitution, in my opinion, in fact nullifies the PERS and its contractual accouterments. Article 1, Section 20 of the Oregon Constitution, states: "No law shall be passed granting to any citizen or class of citizens privileges or immunities which, upon the same terms, shall not equally belong to all citizens." PERS, per that section, is unconstitutional not as a public employee retirement system, but in the way it has been implemented.

The PERS ought to be challenged on two Constitutional grounds:

1. The question of privileges. Article 1, Section 20, clearly stipulates that no class or group of citizens shall have privileges not available to other classes or groups. The privilege of a retirement program is available to all citizens of Oregon, and so PERS in that regard presents no problem; but within the PERS itself several classes or groups of government employees --- citizens --- have been established who enjoy different treatment or privileges as opposed to others. Thus while the PERS, considered simply as a retirement system, presents no Constitutional issue,the PERS as implemented, providing more favorable treatment to only some of its participants, is clearly unconstitutional. This inequality extends beyond the Tier 1 and Tier 2 participants. There are various groups of participants who also share unequal privileges according to the various rules that have been promulgated. Section 20 forbids that.

2. The question of immunities. The courts held that the PERS participants, because of contractual obligation, are immune to the effects of economic factors which led to the wholesale revision of retirement programs in the private sector. I believe that immunity for that group of citizens known as PERS participants is unconstitutional, because while it is based on Article 1, Section 21 provisions cited above, it ignores that same section's reference to "other" Constitutional sections which might negate that provision, specifically Section 20.

In sum: Section 21 was no doubt the key to previous court rulings. That is, no law may be passed which would "impair the obligation of contracts." Since PERS is regarded by the courts as a contractual device, the only way to deal with the prospective fiscal problems resulting from the PERS contracts is by a priori contract nullification on Constitutional grounds. In other words, while it cannot be argued that PERS itself is unconstitutional, it can be argued that its fundamental provisions and operations are unconstitutional and thus null and void dating from the time they were established. In consequence, PERS rules must be entirely rewritten to abide by the provisions of the Oregon Constitution --- and meanwhile make PERS fiscally viable.

There are two alternate approaches that might be selected to open the way for PERS reform:

1. File for PERS nullification in the U.S. District Court in Eugene, which covers Salem and the seat of government. This is allowed because there are rules such that when the state itself has an interest in a suit, it may be brought before the federal court to assure no conflict of interest. Oregon court personnel, as participants in PERS, have a conflict of interest.

2. Under the separation of powers natural to the Constitution, the Legislature may enact statutes designed to correct actions by any other branch, agency, or creature created by the Legislature (such as the PERS) which have breeched the Constitution by misapplication of the enabling legislation. There are also civil rights statutory prohibitions for unequal treatment of citizens which could be brought to bear. Oregon courts would probably object, but if the legislature drew up and passed legislation voiding past unconstitutional action by the PERS, and if the governor signed it (or his veto was overridden), then the PERS Board would have no alternative but to go back to square one and draw up a system that would abide by the new "constitutional" rules. Indeed, the Legislature would be wise under those circumstances to have one of its committees oversee the restructuring to assure a favorable outcome that, among other things, dispenses with unfunded liabilities dumped on the taxpayers.

Would there be a constitutional crisis? Certainly. But if the legislature had gutsy leadership and honest support from a citizen-friendly governor, it could be done. After all, under our form of government, the legislative arm is the most powerful, so given the proper motivation and leadership, and a governor not ready to axe whatever the legislature accomplishes, it would be more likely to act.

Either way could succeed. Probably it would be best to do both. Federal judges are very leery of anything that might interfere with the function of government --- or one of its creatures. Legislatures are subject to tremendous pressure by special interests who find PERS as a cash cow. But if the pending fiscal crisis becomes everything I expect, and we have a governor supportive of such legislative action, legislators may be ready to say damn the torpedoes, full speed ahead.

 2002 William J. Bonville- All Rights Reserved

William J. "Bill" Bonville is a long-time member of the Board of Directors of Three Rivers School District in Josephine County, Oregon, where he has resided for more than twenty years after retiring from the aerospace industry as a manager of technical training and documentation. He may be contacted at  or through his web page, at