SALEM – The Oregon House on Wednesday unanimously approved the first in what is expected to be a series of proposals to rein in the runaway costs of the state’s public pension system.

House Bill 2001 caps the annual guaranteed earnings of so-called Tier 1 members – those hired before 1996 – and is expected to shrink the long-term debt of the Public Employee Retirement System by $904 million.

Under current law, Tier I employees are guaranteed that their accounts will grow by 8 percent a year, but there is no ceiling.

As of Dec. 31, 2002, the PERS debt, also known as the ”unfunded liability,” was projected to be $14.8 billion over the next 30 years, a result of poor investment returns, bad oversight and generous benefits that the system doesn’t have the assets to support.

To help cover the current and future pension obligations to some 300,000 public workers and retirees, the state is scheduled to begin collecting millions of additional dollars from schools and other government entities this summer.

If House Bill 2001 passes the state Senate and is signed by Gov. Ted Kulongoski, employer rates would be lower and allow more money to be spent on other government services, said House Majority Leader Tim Knopp, R-Bend, the chairman of the House PERS Committee.

”Promises made to public employees will be difficult to keep if we don’t make sensible and responsible reforms,” he said.

The savings would add up to about $100 million a year.

Rep. Tom Butler, R-Ontario, said House Bill 2001 will be among the least painful when it comes to the challenging chore of revising PERS. Public employee unions endorsed the legislation, but have signaled that other, more dramatic reforms could be ripe for legal challenges.

”This is some of the lowest of the low-hanging fruit and it will start us out on the right foot,” Butler said in a floor speech.

The bill fits into a framework for PERS reforms outlined by Kulongoski last week. He said changes must help resolve the financial imbalance but also protect the accrued benefits of retirees and current workers.

Two other PERS-related bills are on deck in Knopp’s committee. One would immediately implement current life expectancy data when figuring pension benefits; the other would reshape the PERS oversight board so public employees no longer hold a majority.

A court decision last fall said the PERS board failed to act as responsible overseers of the pension system by steering robust investment profits into retirees’ accounts rather than saving much of the money in rainy day reserves.

Nine members of the current board were part of the unanimous vote in March 2000 which put earnings worth 20 percent into retirement accounts, said PERS spokesman David Crosley.

If House Bill 2001 was in place, those earnings for PERS members would have been capped at 8 percent.

Rep. Greg Macpherson, D-Lake Oswego, said the proposal fixes a mathematical flaw that virtually guarantees that PERS would fall into the red.

That’s because Tier I workers are guaranteed no less than the average expected investment return of the PERS portfolio.

Public workers deserve a fair pension, he said, but the terms of the deal should not be allowed to bankrupt schools and local governments.

Roughly 65 percent of PERS members are in Tier 1, but they are responsible for 97 percent of the unfunded liability. Workers hired starting in 1996 are not guaranteed an annual growth rate.

Knopp said the public sent a clear signal to lawmakers this week – with the defeat of Measure 28 – to lower the costs of government. ”Oregonians are asking for a fix to PERS and this bill is the first step in that process,” he said.

The floor vote was the first in the House of the 2003 session. The proposal passed by a 55-to-0 vote.

James Sinks can be reached at 503-566-2839 or at jamess@cyberis.net