Writings and observations

A failure of consideration

harris ROBERT
HARRIS

 
Oregon
Outpost

When there is a mutually bargained for exchange for value, and one side is unable to deliver the promised value, in legal terms it’s called a failure of consideration.

What should be done if the Oregon Supreme Court overturns the PERS reforms that were part of the 2013 Legislaure’s “Grand Bargain” ?

In 2013, the State faced a budget crisis. State retirement costs were taking an ever increasing part of State and local budgets and Oregon education spending was losing ground and we continued to dwell in the bottom third of all states in per student spending. The solution was the Grand Bargain. The key elements of the deal were:

PERS changes. Reduce COLA’s, remove future legislators from coverage. (and other fixes)
Taxes: increase taxes on higher income Oregonians and eliminate the special medical tax deduction for higher income seniors. Increase cigarette taxes. Decrease taxes for pass through (S-Corp and LLC) business owners
Eliminate the power of local entities to regulate GMO’s
One time spending bump for schools

The GMO bill was a pay off for someone and not a key to the bargain. The key bargain- or exchange of consideration – between the Democrats and the Republicans was the trade off between PERS changes and taxes. And the key result was the school spending bump.

Immediately after the Grand Bargain was passed, the PERS changes were challenged in court. The challenge was fast tracked to the Oregon Supreme Court. All briefing was to be complete by early September and arguments are to be heard in October 2014. Unfortunately, the Oregon Supreme Court will not be able to issue an opinion before the November election.

But what if the Courts strike some or all of the PERS changes? If it does, the Legislature will have to address the huge gap the Court will have blown in the budget.

If that occurs, there is a failure of consideration for the Grand Bargain, and the question become; does the 2015 Legislature have a moral obligation to rebalance the grand bargain by either coming up with other PERS changes that would withstand judicial scrutiny, or in effect rescind that part of the grand bargain that was a key trade off for many Republicans by eliminating the tax cuts for pass through entities.

Back in 2013, I argued that the Legislature should simply pass a bill with all possible PERS changes with a target for savings and a list of priorities. The Court could then evaluate the lawfulness of each of the changes starting with the top of the list and stop their evaluation when they reached the target savings number. I called it the Spaghetti against the wall proposal. Throw it there, and see what sticks. That is still an option and actually was similar to what Dennis Richardson has recently proposed doing. On the other hand, Kitzhaber has made it clear that if these PERS changes get stuck down, he will not address any other PERS changes. Meaning he will have to cut spending, or increase taxes.

I suggest that should PERS changes fail, then it’s a failure of consideration of the Grand Bargain and the Democrats would be perfectly within their rights to renege on the tax cuts to pass through corporations. Or, we can keep the tax cuts, live with PERS without the savings, and eliminate the extra spending on schools.

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