By CHARLES E. BEGGS of The Associated Press

SALEM - The state's troubled pension system for government employees now is an issue in the Legislature's budget-balancing special session with a panel's approval of a bill to end the system by January 2004.

The committee chairman, Sen. Roger Beyer, said the aim isn't to do away with any retirement plan but to prod the 2003 Legislature toward revamping or replacing the costly Public Employees Retirement System.

"This sets a date out there and says the Legislature needs to do something about PERS," said Beyer, a Molalla Republican and chairman of the Senate PERS Stability Committee.

Beyer said lawmakers should consider creating an alternate benefit plan, such as a 401(k) style program.

The Senate could vote on the measure as soon as today.

Senate President Gene Derfler, R-Salem, long a critic of PERS costs, has said passage of the committee's bill is a condition for him agreeing to raise taxes to help erase the state's $482 million budget shortfall.

Officials estimate the pension system, which covers 294,000 retired and active employees, faces a potential deficit of $7 billion to $8.5 billion.

The situation is due to a combination of declines in the pension fund's stock market holdings and guaranteed returns on employee accounts.

Two task forces also are examining the pension system, one named by Gov. John Kitzhaber and one appointed by House Speaker Mark Simmons, R-Salem.

Lawmakers are in their fifth special session of the year in dealing with budget holes caused by falling tax revenue in the sagging economy.

A proposed ballot measure to temporarily raise income taxes looked more likely to become part of the solution.

Simmons dropped his refusal to consider higher taxes after his no-taxes, bond borrowing budget plan stalled for lack of votes in his own Republican caucus.

An alternative proposed by Rep. Bill Witt, R-Portland, would raise taxes by about 5 percent for three years by increasing rates.

The proposal would boost taxes by about $111 a year for the average taxpayer, said Paul Warner, head of the Legislative Revenue Office.

Witt's plan would raise about $290 million with taxes and close the rest of the budget hole with about $200 million with a combination of borrowing and spending reductions.