By PETER PRENGAMAN
The Associated Press

SALEM — After the Legislature passed a sweeping package of pension reforms in May, Sen. Tony Corcoran asked five people to list which measures they thought the Oregon Supreme Court would overturn.

The listmakers represented a cross section of people connected to the Public Employees Retirement System, or PERS: union representatives fiercely opposed to the major reforms, state employers pushing for pension changes to lower skyrocketing payroll costs and a lawyer.

Each list was different, Corcoran said, but everyone agreed the courts would overturn some of the reforms. And that could break the state budget and bring the Legislature back in special session.

"The majority of people understand the system was out of whack and needed to be fixed" to avoid collapse, said Corcoran, a Cottage Grove Democrat who led reform efforts in the Senate. "But I don't doubt that some of what we did will be deemed illegal by the courts."

A coalition of unions representing teachers, firefighters, policemen and other state workers filed lawsuits in July in both the Oregon Supreme Court and federal court, claiming that the reforms break contract rights. Lawmakers expect the courts to rule within 18 months.

What the courts decide will have a major impact on the 215,000 current members in the pension system, and the state budget.

Lawmakers say the 2003 Legislature had no choice but to make major changes to Oregon's pension system. Losses in the stock market over the past few years, coupled with pension features like an 8 percent guaranteed annual return, were raising the system's deficit quickly.

"No doubt we needed to act," said House Majority Leader Tim Knopp, a Bend Republican who led reform efforts in the House. "But if the courts agree with the unions, the state, counties and school districts will be in a bankruptcy situation."

Taken together, the reforms cut $9 billion from the $17 billion deficit facing the pension system over the next 25 years. They also free up hundreds of millions of dollars for school districts and local governments over the next four years.

If the courts reject the challenges and the laws stand, lawmakers can continue to claim victory for protecting the financial health of the state by stabilizing pension costs.

If the laws are overturned, legislators could be pushed into a special session to find the money that must be paid back.

For public employees counting on the system for their pensions, of course, a reversal of the laws would be a victory. The unions estimate the reforms will cut individual retiree benefits by 10 percent to 30 percent, depending on where members are in their careers.

Tricia Smith, of the Oregon School Employees Association, said if the courts uphold the challenges to pension reform, the same state employers that implored lawmakers to make those changes will be leaning on the Legislature to pay pension members the retirement money they lost.

Attorney General Hardy Myers agrees with the unions.

In a written opinion released in June, Myers said key reforms didn't protect contract rights and would likely be overturned by the courts.

Democratic Gov. Ted Kulongoski, a former Oregon Supreme Court justice, has repeatedly said he believes the reforms will be upheld.

"Many people said the unsustainable PERS system could not and would not be fixed," Kulongoski said. "They were wrong. We fixed it."

The new laws, which took effect July 1, made three major pension changes. They updated the life-expectancy tables used to calculate monthly benefits, slowed the growth of pension accounts and eliminated cost-of-living increases for many current and future retirees.

Many retired early in fear of getting their pensions cut. David Crosley, a pension spokesman, said so far 10,846 people had retired in 2003, a record. The previous high was 6,843 in 1999. In a normal year, between 3,000 and 5,000 people retire, he said.

Others trust that the reforms will be overturned and decided to keep working — despite being eligible for retirement.

But Chuck Thacker, a fourth grade teacher in Ashland, acknowledged that the uncertainty of the court rulings and their aftermath were tempting him to quit.

"No one has a clue what's going to happen," said Thacker, who has taught for 31 years. "I'm just playing it year by year."