SALEM — From the upper gallery of the Oregon House chamber, Peggy Kinkade, a Bend-La Pine School Board member, watched Wednesday as lawmakers prepared to vote on two key measures that would have repercussions in school districts across the state.

The two bills were inextricably linked in the Legislature — one to raise taxes, the other to trim public employees’ pension benefits, the revenue from both slated to help fund K-12 school districts.

One bill, Senate Bill 822, makes graduated cuts to cost-of-living adjustments to the Public Employees Retirement System, eliminates a tax credit for retirees living out of state and delays employer contributions in the next budget cycle.

The outcome of Wednesday’s vote was not what most expected: The $275 million tax hike failed without Republican support, but the Democratic plan to cut public employees’ pension benefits prevailed. Locally, Kinkade said, the surprising outcome means there is still time this legislative session to make more long-term structural changes to PERS.

“The fact the tax measure kind of went down in flames … gives us hope that there will be more of a compromise with Democrats to do more on PERS and Republicans to do more on taxes,” she said. “Both sides will give a little bit, and that will be a positive thing.”

SB 822, the PERS bill, has passed both chambers, and the governor has indicated he would sign it. House Speaker Tina Kotek, D-Portland, said she’s gone as far as she’s willing to go on PERS.

But on the Senate side, where work continues on a bipartisan tax-revenue package, raising taxes without deeper cuts to the pension system is expected to be difficult at best. The governor, who has pushed for more reforms, has signaled he will now be a more present figure at the negotiating table.

“People are going to step back and have conversations about how to move forward,” said Tim Raphael, the governor’s spokesman.

Wilkinson said the changes made within SB 822 will help the district maintain itself and avoid layoffs. But, he said, he’s looking forward to what he hopes will be a more robust discussion on the Senate side.

“Kotek has dug in; she’s repeated she won’t support any more changes to PERS,” Wilkinson said. “It will be interesting to see who will win that standoff.”

Kotek has said she will get to a $6.75 billion figure for K-12 schools, even if the end package is something other than a combination of $810 million from PERS and $275 million in taxes.

It won’t be from “public employee’s backs,” she said. “We’re going to be more creative about that.”

It will be a “balanced share sacrifice,” and if they can’t get it from tax breaks, the Democrats might have to make cuts.

The PERS changes in SB 822 would reduce cost-of-living increases to the tune of $460 million in the next budget cycle. It would also delay $350 million in payments until future years.

Much of PERS revenue comes from its investment fund. When that fund doesn’t do well and earnings fall, employers must make up the difference to keep the fund stable. Rates will likely remain high or even increase in the foreseeable future.

The current unfunded PERS liability is $14 billion.

Projections show that employer contribution rates to PERS would be 26.1 percent in 2015-17,what they would be in the upcoming two years if the pension system was left completely alone this session.

“It’s a delicate position we’re in as school board members, because our employees are a really valuable asset and we want them to be treated well while they are employed and after they retire,” Kinkade said.

“Because, frankly, they don’t get paid well, and a healthy retirement is part of the deal. We want modifications that aren’t harmful to our employees, but help us with our budget today.”

What’s ahead

What SB 822 means for Bend-La Pine

According to Bend-La Pine Superintendent Ron Wilkinson: If the bill is signed into law, the district would owe about $14.1 million for PERS in the coming school year. Without it, the district would owe about $16.3 million. Every $1 million is enough to pay for 13.4 teachers.