The Special Master in this case, Court of Appeals Judge Brewer, issued his Findings of Fact for utilization in this case when it is argued before the Supreme Court.

In the 120 page report, Judge Brewer made findings similar to that of Judge Lipscomb in the City of Eugene case, which is that the failure of PERS to fund a thirty month reserve at once when it was recommended that it do so (PERS only funded about 70% of it in the first year) was unreasonable and imprudent. He also found that there was no explanation for PERS’ failure to fund the contingency fund. Judge Brewer also concluded that the PERS system was flawed and accepted expert testimony that it was going to end up being under funded no matter what given the combination of the PERS crediting practices, the guarantee of the eight percent return, and the poor returns in the stock market. The report may be found at: www.publications.ojd.state.or.us/PERS report.pdf. (Hot button on Web Page.)

While Judge Brewer only made factual findings and did not make legal rulings, his recommended finding that PERS acted unreasonably and imprudently when combined with the findings of Judge Lipscomb in the City of Eugene case, certainly gives us an up hill battle. It will take an extraordinary amount of courage for the Supreme Court not to uphold the new legislation.

Oral argument in this case is set for July 30 th. It is my prediction that the Supreme Court will rule on this case before the Legislature convenes in January.

THANKS!

I would like to thank the Bend Police Association for contributing $1,000 towards the expenses that I have incurred in this matter.

Some of you have read about the “settlement” in the City of Eugene case. What happened is that the State of Oregon and the local government jurisdictions, at the direction of the Governor, agreed to “settle” the case by complying with the 2003 legislation. The other part of the settlement was that the Gary Law Firm will get paid for “partial reimbursement of attorney’s fees, $750,000” from PERS, i.e. members’ money.

In conjunction with Daryl Garrettson, we filed a Motion requesting judicial review of that “settlement” on the grounds that there was an expenditure of trust funds. Because we only had an Amicus status in that case, i.e. Friend of Court, the Court denied the Motion. However, that may be pursued by the PERS Coalition which is a named Intervenor in the case. However, given Judge Brewer’s “findings,” I expect these cases to be decided when the Court rules on the challenges to the 2003 legislation later this year.

SWITCHING EMPLOYERS AND LAYOFFS

I have been asked whether switching employers would result in a break in service which would cause a person to go into the new retirement system. It would not. A break in service is defined as six months (with a couple of exceptions) where an employee performs no work for a participating employer. ORS 238A.025(3)(b). The PERS Web Site also has the same advise. However, a layoff of more than six months will cause employees to into the new program. Friday, I filed a lawsuit with that provision on behalf of the Josephine County Sheriffs’ Association.

The case continues to move along at breakneck speed. I have spent much of the last few weeks in depositions in Salem and Portland . By the time you receive this letter, the parties will have exchanged detailed expert witness reports and will be in the process of exchanging and finalizing exhibits and witness lists and final witness statements.

The Plaintiffs' attorneys have divided up the workload responsibility. Not surprisingly, my responsibility is dealing with state and local government witnesses who will testify that due to inadequate financial resources, paying projected increases in PERS rates would cause them not to meet essential services to the public. If that sounds close to an inability to pay defense in an Interest Arbitration, it's because it is.

The case is supposed to start with a hearing on the 23 rd of February and go for the next two weeks or whenever it's completed. The location of the hearing will be at the Multnomah County Courthouse, 6 th floor, “Commissioners Courtroom,” in Portland . It will be open to the public.

The Supreme Court has indicated it is going to set an extremely tight briefing schedule with the initial brief due on May 17 th , and oral argument on the case on July 30 th . While these dates may be changed, my guess is that they will not. I have offered to bet all the other Plaintiffs' attorneys that there will be a decision by the Supreme Court this year. No takers.

The main arguments of the State of Oregon and local government attorneys is that the PERS Board did not follow the statutes by giving over-generous annual credits to members' accounts and failing to adequately reserve the gains on good years to provide for deficits in years of bad investment returns. I expect the defense to also be that the rates are projected to go so high that if this legislation had not passed, local governments would be unable to provide adequate services to the public.

The Plaintiffs' contentions will be that while no human being is perfect, the agents and employees and Board members in PERS did the best they could with the information they had, and that the economic downturn cannot to be viewed with 20-20 hindsight. In addition, we will argue that in spite of increased PERS rates, state and local government does have the ability to meet essential public services and pay their contractual obligations. The parties have agreed that the whole record from the City of Eugene case will be admitted into this case to avoid duplication. From my review of that record, there were no significant facts that were in dispute. I expect almost no facts to be

in dispute in this case, but the issue will be what legal conclusions can be drawn from the record. Therefore, I do not believe that either side will be able to realistically predict the outcome of the case when the two-week trial to make a factual record has been concluded.

Last and not least, some clients have made verbal promises of financial assistance with the costs. Now is a good time to come through with those promises. Two weeks in a hotel in Portland adds to the expenses.

FUTURE LITIGATION OVER THE “REFORMS” TO THE RETIREMENT SYSTEM

Public sector layoffs are inevitable given the failure of Measure 30. Some of my clients who were concerned about being laid off asked if it was a fact that if the new retirement system, OPSRP (Oregon Public Service Retirement Plan) has a provision that if an employee is separated from a participating public employer for six consecutive months that the employee will go from PERS into the OPSRP system. The answer is: Yes. I have briefly discussed this matter with Greg Hartman the attorney for the PERS Coalition. He agrees that the problem exists and indicates that his client will work through the rule making process, i.e. the development of Oregon Administrative Rules, to try and take care of some of the problems with this statute. However, it will take legislation or a court decision to eliminate this problem. Some of the legislators are apparently now indicating sympathy for fixing the problem. However, they were warned that the problem existed when the statute was passed.

I see no alternative but to file a Declaratory Judgment action to get a ruling that the statute will not apply to those employees who are involuntarily separated from employment through layoffs, and that are able to then rejoin their or another public sector employer. The only question seems to be the timing of the lawsuit and whether to wait for the Administrative Rules to be adopted and work with the PERS Coalition on the litigation, or simply go ahead and file it as soon as possible.

Editorial comment: But not before the “trial” over the changes in the PERS system is over.