AFSCME COUNCILS 6, 14, 65 AND 96, AFL-CIO, Plaintiffs-Appellants, v. Barbara L. SUNDQUIST, Commissioner of Employee Relations; Allen Rudell, Commissioner of Finance; and the State of Minnesota, Defendants-Respondents, and The Minneapolis Police Relief Association; the Minneapolis Fire Department Relief Association; the Minnesota Federation of Teachers, AFL-CIO; the Minnesota Police and Peace Officers Association; the Minneapolis Employees Retirement Board; Minnesota Professional Firefighters Association, AFL-CIO; Duluth Police Pension Association; Duluth Police Union, AFL-CIO; Police Officers Federation of Minneapolis; Minnesota Firefighters Joint Pension Council; Minneapolis Retired Police Association; Rochester Police Relief Association; Minnesota Police Pension Council; Minnesota Education Association; Minnesota Teamsters Public and Law Enforcement Employees Union, Local No. 320; St. Paul Police and Firefighters Relief Associations, Minnesota Association of Professional Employees, Intervenors-Appellants, and International Union of Operating Engineers, Local 49, Amicus Curiae.
Nos. C1-83-152, C8-83-164, C1-83-166, C3-83-167 and C5-83-168
Supreme Court of Minnesota
Sept. 16, 1983
Rehearing Denied Nov. 22, 1983
338 N.W.2d 560
AMDAHL, Chief Justice.
Roger A. Peterson, Minneapolis, for Mpls. Police Relief Ass‘n, et al.
Eric R. Miller and John Tunheim, St. Paul, for Minn. Educ. Ass‘n.
Jeffrey W. Jacobs, Minneapolis, for Minn. Teamsters Public and Law Enforcement Employees Union.
Joseph T. O‘Neill, O‘Neill, Burke & O‘Neill, St. Paul, for St. Paul Police Relief Ass‘n.
Gregg Corwin, St. Louis Park, for Minn. Ass‘n. of Professional Employees.
Hubert H. Humphrey, III, Atty. Gen., Richard Allyn, Chief Deputy Atty. Gen., Peter M. Ackerberg, Asst. Atty. Gen., St. Paul, for Sundquist, et al.
Bruce A. Finzen, St. Paul, for amicus Intern. Union of Operating Engineers.
Julia Penny Clark, Robert H. Chanin, Bredhoff & Kaiser, Washington D.C., for amicus Nat. Educ. Ass‘n.
This litigation challenges the validity of legislation passed by the Minnesota Legislature on December 10, 1982, and signed into law by Governor Albert H. Quie on December 13, 1982. Act of December 10, 1982, 3rd Spec.Sess. ch. 1, 1982 Minn.Sess. Law Serv. 1819 (the “Act“). On that same day, various parties, representing public employees affected by the terms of the Act, petitioned this court for a writ of quo warranto in an effort to prevent the enforcement of the Act. Finding that this case did not present the type of controversy which fits within the nature of quo warranto, this court issued an order, on December 20, 1982, denying the petition and remanding the case to a special three-judge district court panel for an expedited hearing. The panel consisted of retired District Court Judges Archie L. Gingold, Gordon L. McRae and Bruce C. Stone.
In conjunction with the filing of their amended complaint on December 23, 1982, appellants brought a motion for a temporary injunction seeking to immediately restrain that part of the Act increasing government employees’ existing contributions to the pension funds by 2%.1 On December 30, 1982, the trial court denied appellants’ motion for a temporary injunction and set the case for trial on January 6, 1983. Thereafter, on January 24, 1983, the trial court issued its findings of fact, conclusions of law and order for judgment dismissing plaintiffs’ complaint. On that same day, a notice of appeal from the order and judgment of the trial court was filed with this court.
The Act was written and passed upon rather short notice in response to an imminent, and very serious, fiscal crisis facing the government of the State of Minnesota. Governor Quie called the Third Special Session of the 72nd Legislature in early December 1982 to address an anticipated shortfall in state revenue of approximately $312,000,000.2 This substantial anticipated
Three major factors operated to further accentuate the severity of the crisis and the need for a swift legislative response. First, the crisis was compounded by the fact that local government aids and homestead credits in excess of $1,000,000,000 were due to be paid by the state to Minnesota cities and counties in mid-December 1982. A second factor emphasizing the immediacy of the need for remedial attention was the state‘s obligations for $930,000,000 in short term certificates of indebtedness. These certificates were recently issued by the state to alleviate a severe cash flow problem, and contained convenants which gave unqualified priority to an impoundment schedule, commencing February 1, 1983, established to assure the satisfaction of the indebtedness upon maturity in June 1983. An additional pressure for an expeditious legislative response to this crisis was exacted by a statutory provision requiring the Commissioner of Finance to “unallot,” or withhold the payment of, appropriated funds when projected revenues are insufficient to meet the state‘s expenses.
Although the Act effects a number of tax increases, spending cuts and spending shifts, the only portion of the Act challenged in this action are the provisions impacting upon the terms of public employees’ employment, primarily the provision regarding public employees’ pension contributions.4 In relevant part, the Act requires that, beginning with the first full pay period after December 23, 1982, various state, county and municipal employees are required to pay an additional 2% of their salaries into their respective pension funds. This increase in employee contributions is limited in duration to the last pay period before January 1, 1984; then the preexisting formula returns. The Act also requires that, beginning with the first full pay period after December 23, 1982, and continuing until the last full pay period before July 1, 1983, employer contributions to the pension funds equal to 4 percent of salary are to be either diverted from the pension funds and credited to the general fund, or deferred altogether and not paid to the funds. It is projected that these reductions in employer contributions will save the state approximately $63,000,000. In addition, the Act provides that, until June 30, 1983, state employees who choose to go on unpaid leaves of absence may continue to accrue most fringe benefits as if they had been working during their leave periods. The Act also contains provisions which raise issues of federal taxation, the most important of which is a provision to reduce the federal adjusted gross income of public employees by the amount of their employee contributions.5
1. CONTRACT CLAUSE ISSUES
Appellants argue that the Act unconstitutionally impairs contractual obligations between public employers and employees regarding the level of public employee pension contributions.6 This court recently addressed the issue of the nature of a public employee‘s interest in a public pension or retirement plan and the degree to which that interest is afforded constitutional protection. In Christensen v. Minneapolis Municipal Employees Retirement Board, 331 N.W.2d 740 (Minn.1983), we abandoned the gratuity approach in analyzing such issues in favor of an expanded contract approach. Recognizing that a conventional contract approach, with its strict rules of mutuality, can seldom operate to provide protection for specific, legitimate interests of public employees in this context, the Christensen case augmented the contract approach to include the closely related doctrine of promissory estoppel. Id. at 747. Under Christensen, public employees can challenge changes affecting their interests in a public pension plan under the contract clause by establishing their right to the maintenance of the preexisting terms or conditions as a matter of either express contract, implied-in-fact contract, or promissory estoppel.7
In the case at bar, appellants advance each of these theories in arguing that the Act unconstitutionally impairs contractual obligations between public employers and employees regarding the level of public employee pension contributions. We conclude that no contract or contract term, express or implied, existed between public employ
It cannot be disputed that the record contains no evidence of an express contract designating rates at which public employees must contribute to their pension funds. In the absence of an express contract, appellants argue that the legislature‘s promise to supply pension benefits to public employees constitutes an implied-in-fact contract to maintain employee pension contributions at a fixed level during their employment. Where the evidence does not prove the existence of an express agreement, a contract implied in fact may be established by circumstantial evidence showing a mutual intention to contract. See Bergstedt, Wahlberg, Berquist Associates, Inc. v. Rothchild, 302 Minn. 476, 479-80, 225 N.W.2d 261, 263 (1975). Whether a contract is to be implied in fact, and the existence of the terms of such a contract, are questions of fact to be determined by the trier of fact, and the trier‘s findings in this regard will not be set aside by this court unless they are found to be clearly erroneous. Id.,
Appellants urge that the pension plans themselves constitute contracts be
Nothing done under the terms of this chapter and acts amendatory thereof shall create or give any contract rights to any person, except the right to receive back upon withdrawal from the association through separation from the public services, the accumulated deductions, as by law defined, standing to his credit on the books of the association.
Similar restrictive statutory provisions exist with regard to most of the state‘s other major public retirement funds. See, e.g.,
Relying upon the doctrine of promissory estoppel, appellants next contend that the legislature promised that their contribution levels would remain fixed throughout their contribution periods and that they relied upon that promise to their detriment. Promissory estoppel is applicable when (1) a promise has been made, (2) which the promisor expected or should have reasonably expected to induce action of a definite and substantial character by the promisee, (3) which in fact induced such action, and (4) in circumstances requiring the enforcement of the promise to avoid injustice. See Grouse v. Group Health Plan, Inc., 306 N.W.2d 114, 116 (Minn.1981); Restatement (Second) of Contracts § 90 (1981). The trial court found both that the legislature made no promise regarding fixed employee pension
Appellants have failed to designate evidence in the record which tends to establish that the legislature made any promise to maintain employee contributions to the pension plans at a fixed level during the contribution period.9 To the contrary, the record shows that the state had varied contribution levels in the past within a number of the pension funds at issue and that employees were aware of such changes. Consequently, appellants were unable to produce a single witness to testify to any reliance on a fixed, unchanging level of employee contributions. This record belies the appellants’ claim to promissory estoppel.10
In this regard, we endorse the following conclusion of the trial court:
There is no basis for the contention that, no matter what the legislature has said, what it has done is induce employee contributors to rely on the expectation that contributions levels would remain fixed. The employee contributions, the employer contributions, and the appropriations to cover unfunded liabilities have been modified on a number of occasions in the past decade. Therefore, an employee aware enough of his or her pension contribution rate to formulate some kind of reliance interest would be aware that those contribution levels have fluctuated over time. Given that history, an expectation that contribution rates would remain fixed is patently unreasonable.
We conclude that the trial court‘s findings that the state made no promise regarding guaranteed levels of employee contributions, and that, even if such a promise had been made, appellants have not established that they reasonably and detrimentally re
2. EQUAL PROTECTION AND UNI FORMITY CLAUSE ISSUES
Appellants argue that the Act is violative of both federal and state constitutional guarantees of equal protection and of the state constitutional guarantee of uniformity of taxation. With regard to appellants’ equal protection challenge, we hold that the legislative classification at issue is rationally related to the achievement of a legitimate governmental purpose. Similarly, we reject appellants’ uniformity clause challenge on the ground that public employee pension contributions are not a tax within the meaning of that constitutional provision.
It is not disputed that the standard of review applicable to this case under both the state and federal equal protection clauses is the “rational basis”11 test. Although we have expressed this standard in
In determining whether a challenged classification is rationally related to achievement of a legitimate state purpose, we must answer two questions: (1) Does the challenged legislation have a legitimate purpose: and (2) Was it reasonable for the lawmakers to believe that use of the challenged classification would promote that purpose?
Western & Southern Life Insurance Co. v. State Board of Equalization, 451 U.S. 648, 668, 101 S.Ct. 2070, 2083, 68 L.Ed.2d 514 (1981) (citations omitted). At the outset, however, it must be recognized that statutes carry a presumption of constitutionality, and that it is not the role of the judiciary, in applying the rational basis standard, to question either the factual accuracy or political wisdom of the reasoning and judgments underlying the legislative enactment. See, e.g., Estate of Petroff, 319 N.W.2d 400, 405 n. 10 (Minn.1982); Nelson v. Peterson, 313 N.W.2d 580, 581 n. 2 (Minn.1981).
It is not disputed that the impetus for the Act was a sudden determination that revenues actually available to the state in meeting its budgeted obligations would be precariously less than the figure which had been relied upon from previous projections. Acting within this fiscal context and under heavy time pressures, the legislature sought to achieve a balanced corrective approach which combined tax increases, budget cuts and budget shifts in an effort to spread the impact of the effects of the legislation.13 Thus, the purpose of the Act,
Appellants advance a number of arguments in an effort to support their contention that the Act classifies persons who are similarly situated in a manner which, when viewed in relation to the purposes of the Act, is wholly irrational. First, appellants argue that the employee contribution provision is not rationally related to its underlying purpose because the provision, which does not affect all public employee pensioners, is impermissibly underinclusive.16 The class of public employees not affected by the employee contribution provisions of the Act is the University of Minnesota faculty, and appellants contend that there is no rational basis for this omission. There are, however, a number of considerations which support the rationality of the legislature‘s decision to exempt University faculty from the obligation to increase their pension contributions. University faculty have a separate pension fund and employer contributions to this fund were not affected by the Act.17 Thus, if the purpose of the challenged provision was to maintain the actuarial integrity of the public pension
Appellants’ primary argument in the equal protection context is that the increased employee pension contributions, when considered in conjunction with the purpose and effect of the related decrease in employer contributions, constitutes a discriminatory tax. In other words, appellants contend that, although the increase in employee contributions is physically paid into the pension funds, the increase of employee contributions replaces employer contributions which are withheld for general fund purposes and that this, in effect, is a payroll tax which directly benefits the state general fund. Constitutional challenges of a tax as discriminatory arise under the federal equal protection clause and the state uniformity clause.19 The requisite initial determination in any analysis under the uniformity clause is that the challenged provision is, indeed, a tax. We conclude that the increased employee pension contribution is not a tax and we therefore reject appellants’ uniformity clause challenge.
The characteristics of the increase in employee pension contributions differ significantly from those of a tax. These different characteristics include the facts that employee pension contributions are credited to the employee‘s individual retirement account, and that the contributions entitle
3. DUE PROCESS ISSUES
Appellants’ claim that the Act violates the substantive guarantees of due process has two components.20 In a variation of the arguments made in the equal protection context, appellants first contend that the provisions of the Act increasing employee pension contributions are not rationally related to a legitimate governmental purpose and therefore violate both the state due process clause,
The threshold determination in a due process claim is whether the interest allegedly interfered with rises to the level of a constitutionally protected “liberty” or “property” interest. Appellants present two arguments in an effort to establish a constitutionally protected property interest that has been affected by the increase in employee pension contributions.23 First, appellants argue that they have a contractual right in employee contributions levels that has been altered by the Act. It is recognized that contractual rights are a form of property within the meaning of the due process clause. See United States Trust Co. v. New Jersey, 431 U.S. 1, 19 n. 16, 97 S.Ct. 1505, 1516 n. 16, 52 L.Ed.2d 92 (1977). Appellants’ claim to such property fails, however, because, as is treated more fully in our discussion of appellants’ claim under the contract clause, we reject the theory that appellants ever had a contractual right to fixed levels of employee pension contributions.
A second theory advanced by appellants is that they have a property interest in their individual salaries which has been interfered with. Although it is clear that salary is a form of property protected by the guarantees of due process, it is unclear whether this interest has been interfered with to an extent which requires an analysis of whether that interference meets due process standards. Appellants concede that the Act does not affect the gross salaries of public employees. Appellants maintain, however, that it is the Act‘s effects upon employees’ net salaries which constitutes the impermissible interference. Yet, the Act‘s effects upon the net salaries of public employees is, in most cases, beneficial. It is true that the net salaries of affected public employees will be temporarily reduced by two percent. Countervailing this temporary decrease, however, is the long term net increase conferred by the “pick up” provision of the Act which permits an employee‘s total pension contribution to be treated for federal income tax purposes as an employer contribution. This “pick up” provision is permanent and will result in a substantial federal income tax savings. See supra note 5. In most cases, and even considering the two percent increase in employee pension contributions, the Act will operate to provide public employees more disposable income than would have been available to them if the Act had never been enacted.
Even if we assume, however, that appellants have demonstrated a property right which has been interfered with, it is clear that that interference satisfies the demands of due process. With regard to appellants’ due process challenge to the rationality of the Act, our rationality analysis in the due process context is no more restrictive than that conducted in the equal protection context. See, e.g., Guilliams v. Commissioner of Revenue, 299 N.W.2d 138, 144 (Minn.1980). Therefore, for the reasons discussed above in our analysis of appellants’ equal protection challenge, we reiter
With regard to appellants’ “taking” claim, the constitutional prohibition against governmental expropriation of private property applies only when it is demonstrated that that property has been taken for public purposes. See generally L. Tribe, American Constitutional Law, § 9-2 (1978). Here the increased employee pension contributions were enacted for the purpose of maintaining the actuarial integrity of the public employee pension funds. This action benefits the contributors themselves, and is not a public use within the meaning of the constitutional proscription because only the contributing members can be beneficiaries of the pension plans. See Stevens v. Board of Trustees of the Police Pension Fund of Shreveport, 370 So.2d 528, 531 (La. 1979) (public employee‘s pension contribution not a public use of private funds). Accordingly, assuming the requisite interference with a property right, there has been no impermissible taking of private property for a public use.
4. UNFAIR LABOR PRACTICE ISSUES
Appellants argue that employee pension contribution levels are a subject of bargaining which the legislature cannot unilaterally change without committing an unfair labor practice. Originally enacted in response to widespread dissatisfaction with the prevailing system of public employment labor relations, the Public Employment Labor Relations Act of 1971 (PELRA) provides a comprehensive structure for conflict resolution in public employment. See generally Note, The Minnesota Public Employment Labor Relations Act of 1971: Another Public Employment Experiment, 57 Minn.L. Rev. 134 (1972). Pursuant to
Appellants advance two arguments in support of their contention that pension contribution levels are a permissive subject of bargaining. First, appellants rely upon a 1975 letter to that effect from an attorney general‘s staff attorney who was assigned to the Metropolitan Transit Commission. This letter, however, is apparently not a formal opinion of the attorney general and, in any event, is not binding upon this court.
A review of the legislative history of PELRA indicates that pension contribution levels were never intended to be a permissible subject of bargaining. The statutory exclusion of “retirement contributions or benefits” from the scope of bargainable “terms and conditions of employment” was added as an amendment to PELRA in 1973. Act of May 24, 1973, ch. 635, § 6, 1973 Minn.Laws 1526, 1527. The author of the amendment, Representative Donald Moe, explained the purpose of the exclusion when he offered the amendment before the House Committee on Governmental Operations: “The purpose of the amendment is to take the negotiation of pension benefits out of the bill and preserve the present situation with regard to pension benefits and that is to keep them within the realm of the legislature.” Statement of Rep. Donald Moe, House Committee on Governmental Operations, March 13, 1973. Representative Moe went on to explain that the exclusion was necessary to prevent the decentralized and discordant administration of public pensions, and to maintain legislative discretion over significant matters of budgetary policy. Id. This legislative record reflects a legislative intent to remove pension issues from the scope of permissible bargaining.
Reviewing a statutory scheme of public employment relations which, in relevant part, is very similar to PELRA, the Iowa Supreme Court recently addressed this issue of the effect of a statutory exclusion of retirement issues from the scope of bargaining. In City of Mason City v. Public Employment Relations Board, 316 N.W.2d 851 (Iowa 1982), the Iowa court found that the legislative intent underlying the statutory exclusion was to completely remove issues regarding pensions from the scope of collective bargaining. Id. at 854. In so holding, the Iowa court identified three policy considerations which support the prohibition against negotiations concerning pension systems: (1) to permit employers to contain the rising cost of pension benefits; (2) to permit the legislature to participate in the making of significant government policy; and (3) to promote uniformity and to prevent the existence of disparate benefits between different funds based upon the skill and success of employees’ bargaining representative. Id. We rely upon this reasoning and this evidence of legislative intent and hold that, pursuant to the exclusion in
Pursuing a separate unfair labor practice theory, appellants argue that the Act‘s provision which permits employees who choose to go on unpaid leaves of absence to continue to accrue most fringe benefits is a subject of bargaining which the legislature cannot unilaterally change without committing an unfair labor practice under PELRA. The Act provides that, until June 30, 1983, state employees who choose to go on unpaid
We hold that the legislature cannot commit an unfair labor practice under PELRA. Because the provision of PELRA that concerns employer unfair labor practices applies only to “public employers,”
Support for the view that legislative acts are not governed by PELRA can be found in Minnesota Education Association v. State of Minnesota, 282 N.W.2d 915 (Minn.1979), appeal dismissed, 444 U.S. 1062, 100 S.Ct. 1001, 62 L.Ed.2d 744 (1980). In that case, an arbitrator‘s award, rendered after an impasse in negotiations, was changed by the legislature during its ratification of the award. This unilateral change in the terms and conditions of employment was challenged, in part, on the ground that the legislature had no authority under PELRA to modify an arbitration award. In upholding the legislature‘s action, we reviewed the legislative history of PELRA and concluded that the legislature had reserved the “right to modify all contracts, including arbitration awards.” Id. at 918. The policy reasons discussed in support of this holding are “the necessity for the representatives of the people to retain final control over appropriations and to apply uniform budgetary considerations to numerous bargaining units.” Id. Appellants attempt to distinguish Minnesota Education Association by arguing that its holding applies only to the authority of the legislature to modify terms and conditions of employment in conjunction with its approval of state employee collective bargaining agreements, and that the holding cannot be extended to apply where, as in the case at bar, the legislature enacts a unilateral change after it has previously approved an agreement. Although these changed circumstances may trigger greater constitutional constraints upon the legislature‘s ability to act, we find that the policy considerations found controlling in the challenge to the legislature‘s power to act under PELRA in Minnesota Education Association apply with equal force to the issue of legislative authority in the present context. Accordingly, we hold that the legislative enactment of the “unpaid leave” provision does not constitute an unfair labor practice under PELRA.
Affirmed.
YETKA, Justice (dissenting).
I respectfully dissent. Because I would hold that the mandatory 2% withholding
Nearly a year ago, in my dissent in In re U.S. Steel Corporation v. State of Minnesota, 324 N.W.2d 638 (1982), I wrote:
We all must remember that our constitutions—both state and federal—were intended to protect not only one citizen from another, but also to protect all citizens from oppressive acts of the government. If the legislature can strike an illegal blow at the mighty and be permitted to get away with it, it can more easily strike again at those least able to respond. I think there is a point at which to call a halt to such activity, and this is a good opportunity.
Id. at 647 (Yetka, J., dissenting). Here, public employees are the victims of an illegal act of the legislature less than a year later!
I surely agree that we must give great deference to a legislative act, but the constitution was written for the courts to interpret. We must not allow the constitutional language to be an illusionary protection only.1 To uphold the authority of the legislature to levy a tax on public employees, while excluding the general public, and unilaterally to deprive state employees of their contractual rights without sufficient justification constitute an abdication of this court‘s responsibility to ensure that Minnesota citizens are protected from arbitrary and discriminatory legislative action.
Uniformity Clause
We have previously addressed what constitutes a tax. “Taxes are pecuniary charges imposed by the legislative power to raise money for public purposes—a burden imposed to supply the very lifeblood of the state.” Great Lakes Pipe Line Co. v. Commissioner of Taxation, 272 Minn. 403, 407, 138 N.W.2d 612, 615 (1965), appeal dismissed, 384 U.S. 718, 86 S.Ct. 1886, 16 L.Ed.2d 881 (1966), quoting In re Petition of S.R.A., Inc., 213 Minn. 487, 488, 7 N.W.2d 484, 485 (1942). “In a general sense, [a tax is] any contribution imposed by government upon individuals, for the use and service of the state, whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name.” Black‘s Law Dictionary 1307 (rev. 5th ed. 1979); see also Staub v. Harris, 626 F.2d 275, 278 (3d Cir.1980).
The 2% withholding provision is a tax. It is an enforced contribution, exacted pursuant to legislative authority, and collected from public employees to address the general budget crisis facing the state. The form of the payment is not as important as is its substance. State employees are forced to pay 2% of their gross income to the state while non-public employees are not.
The majority and the district court emphasize several characteristics of the form and nature of the contribution and conclude that it is not, in fact, a tax. They stress that each contribution is credited to an individual account, that the money is refunded if the employee leaves public service (though only prior to vesting), and that the contribution is recouped in the form of
Further, the claim that the contribution is necessary to ensure the integrity of the pension fund and, therefore, of direct benefit to the employees is not persuasive. There is no evidence in the record that, prior to the contribution, the fund was in a less-than-adequate financial position. The district court, in its findings of facts, found that the fund was in a “reasonably good financial condition.” The Legislative Commission on Pensions and Retirement,3 in its report to the 1979-1980 Minnesota State Legislature, came to the same conclusion. To the extent that the fund is compromised, it is the result of the companion decrease in the state‘s contributions to the fund. The legislature enacted both provisions in the same bill to combat the same problem—the state‘s budget crisis. One cannot be reviewed without consideration of the other.
In light of our obligation to review statutes as a whole and to pierce form to evalu
The great majority of our citizens pay into the federal social security fund. Congress has mandated coverage for most workers. The payments are made to the federal government in the form of payroll deductions. Historically, these deductions have been referred to as “payroll taxes.” One need only pick up recent newspaper and magazine articles addressing recent amendments to that act and read the pros and cons of increasing the taxes to make the system solvent to conclude that the contributions are indeed taxes. Those taxes are dedicated for the specific purposes set forth in the Social Security Act. Minnesota has road user, motor vehicle, and gasoline taxes. These funds are also dedicated for specific state highway funding purposes, but are they any less a tax? To ask the question, it seems to me, is to answer it. Of course they are taxes and so is the levy the retirement benefits. It was intended to replace funds no longer contributed by the state, such funds being diverted to the state‘s general fund for the purpose of alleviating the general budget deficit.
legislature has made on state employees in the act before us.
Concluding that the contribution constitutes a tax, I now subject the provisions to the standards of judging constitutionality in light of the state uniformity clause. In interpreting our state uniformity clause, we are not bound by federal court interpretation of the federal equal protection clause. Because I conclude that the statute fails to pass constitutional muster under the independent state basis mandated by our state uniformity clause, I do not address whether it would pass the “rational basis” test under the federal equal protection clause.
The first step in analyzing any statute under the uniformity clause “rational basis” standard is identifying the purpose the statute was intended to fulfill. Here we have both the expressed purpose to solve the state‘s budget crisis, contained in the statute itself, and a purpose argued by the state‘s attorneys that the 2% contribution is necessary to ensure the integrity of the pension fund because of the 4% cut in employer contribution.
No single approach has been followed by courts in identifying the appropriate purpose to apply in constitutional analysis. See Leedes, The Rationality Requirement of the Equal Protection Clause, 42 Ohio St.L.J. 639, 642-47 (1981). The United States Supreme Court has taken several different approaches, including hypothesizing any potential purpose, whether or not expressed by the legislature or the state‘s advocates, see United States R.R. Retirement Bd. v. Fritz, 449 U.S. 166, 101 S.Ct. 453, 66 L.Ed.2d 368 (1980), and requiring that a deliberate choice of purpose be expressly stated in the legislation itself or actually discernible from legislative history, see Schweiker v. Wilson, 450 U.S. 221, 101 S.Ct. 1074, 67 L.Ed.2d 186 (1981). Between these two extremes is an approach that looks for something less than express statements, but falls short of out-and-out speculation. In the instant case, we have two conflicting purposes—an express purpose stated in the legislation itself and one advocated by the state‘s attorneys.
I cannot accept the integrity of the fund as the proper purpose for analysis under the state uniformity clause. The entire statute must be examined, not any one provision in isolation. The legislature cannot create a purpose by one portion of the statute and then use the need created thereby to justify another portion, at least when the secondary portion impinges on the constitutional rights of state citizens.
The applicable purpose is the one expressly stated in the legislation, that is, the need to balance the state budget as opposed to the “need” to shore up the pension fund. The preamble to the act clearly states the purpose of the legislation. The fact that the legislature was in special session, called for the specific purpose of addressing the budget deficit, reinforces a narrow interpretation of the purpose for constitutional analysis. Finally, to adopt any other purpose would be to elevate form over substance and ignore the actual effect of the legislation.
The majority, in effect, consolidates multiple purposes. It does so in two ways. First, it says that the adverse impact on the pension fund caused by the deprivation of employers’ contributions will affect the state‘s credit rating which will, in turn, exacerbate the state‘s fiscal crisis by affecting the state‘s ability to borrow. Second, the majority argues that the reduction in employer contributions threatened the soundness of the fund, thereby requiring that the legislature act to protect the fund.
Neither argument is sufficient. Although no one can deny the importance to the state of a good credit rating, the 6-month decrease in employer contributions is merely one of the numerous factors threatening the rating and the equally numerous measures being pursued to protect it. The majority‘s argument is simply too attenuated to bring the increase in employee contributions within the ambit of the legislative purpose outlined in the bill‘s preamble.
The second argument is superficially more persuasive, but also fails to withstand scrutiny. To begin with, there is something facile and dangerous in saying that creating
The majority repeatedly refers to the magnitude of the state‘s economic crisis and the need for swift solutions. This may explain the legislature‘s actions; it does not remove the taint of unconstitutionality. The constitutional entitlement to uniform treatment cannot be subverted in pursuit of credit ratings and quick fixes. Here, the money that is levied by the state can be traced directly to the general revenue fund. The statute states clearly that, in some pension plans, the state is withholding its contributions while, in others, the proceeds of the additional employee levies are to be paid directly to that fund.4 State employees are thus contributing millions to the state revenue fund to help balance the budget.
It has been argued that, since the legislature has the power to decrease employer contributions currently, it also has the power to raise employee contributions at some time in the future to maintain the financial integrity of the pension funds. Taking both steps in the same act must, therefore, be permissible. This argument fails for two reasons. First, it is far from clear that the legislature may unilaterally decrease employer contributions. The contract clause discussion that follows in this dissent indicates that such an act would violate the state constitutional provision proscribing impairment of contract.
Second, even assuming that a decrease in employer contributions would not violate the contract clause, a subsequent increase in employee contributions would still run afoul of the uniformity clause. A delay in imposing a tax on public employees does not render the levy any less a tax. If the classification fails to address the purpose of the legislation, it fails constitutional muster whether enacted today or 2 years from now. The applicable purpose remains the curing of the state‘s financial crisis. Funds previously incorporated into the general revenue fund through the decrease in employer contributions are merely replaced by subsequent employee contributions. The substance remains the same, though the form is manipulated to avoid constitutional barriers.
Any law passed by the legislature that imposes a tax on citizens of this state must pass the two-step uniformity clause test of a legitimate purpose and a classification rationally related to that purpose. Here, the test is not met because the classification consisting of state employees does not rationally relate to the purpose of curing the state‘s financial crisis.
To me, nothing can be clearer than that the levy is a tax, a tax devoted to the general welfare of the entire citizenry of the State of Minnesota. If we uphold this scheme, what is to prevent the legislature from levying a special tax on steel workers only to help alleviate certain economic conditions on Minnesota‘s Iron Range, on farm families to alleviate problems on the farms, or on other industrywide workers to help or maintain industries in the State of Minnesota? I can see no distinction.
I conclude that the act violates the state uniformity clause and the district court must be reversed.
Contract Clause
I would also hold that contract rights existed between the state and its employees and therefore disagree with the majority‘s finding that no contract, express or implied, governed the levels of employee contributions. Since the 1950‘s, the legislature has made it clear by a series of actions that it intended to guarantee that public pension funds would be actuarily sound and able to pay certain benefits. When it found those funds not sound, it increased contributions not only on the part of the employees, but the employers as well.6 As a matter of fact, from 1959 until 1973, it imposed a special 2 1/2 percent levy on local political subdivisions, in addition to the normal employer-employee contributions, until pre-existing fund deficits were eliminated. See Act of May 24, 1973, ch. 753, § 85, 1973 Minn.Laws 2266, 2308, repealing
For the same reasons, I take strong exception to the majority opinion finding no intent to promise specific levels of state contributions or pensions. For, as we held in Sylvestre v. State, 298 Minn. 142, 214 N.W.2d 658 (1973), insofar as it affected the judiciary, a sound pension system is one of the few inducements for public employment. Id. at 149, 214 N.W.2d at 663. It is similar to a deferred compensation plan where the state offers a pension in addition to the regular salary if a public employee works for a specified period of years. For the most part, state employees are paid far less than either their federal counterparts or those in private employment for similar work. There will be a shock wave felt throughout the state if public employees are now told, in effect, that never mind what your salary was or what your pension estimates were at the time you came to work 10 years ago, these can be changed anytime. Such a holding simply does not square with today‘s reality nor is such a holding even consistent, in my opinion, with our recent decision in Christensen v. Minneapolis Municipal Employees Retirement Board, 331 N.W.2d 740 (Minn.1983).10
The legislature considered also a 2% across-the-board decrease in salaries, we are told. Undoubtedly, there was fear that if that course of action were taken, it would be violative of the impairment of contract clauses of the state and federal constitutions because the state had entered into a collective bargaining agreement and the legislature had ratified a contract with state employees that prohibited a cut for the period of that contract. A fiscal crisis that fails to justify a direct impairment of contract, however, cannot then be held to justify the same impairment, though accomplished in a circuitous manner.
The state emphasizes horror stories of possible layoffs in the tens of thousands in an apparent attempt to show that, even if the statute impaired contract rights, such an impairment was justified by the seriousness of the state‘s fiscal crisis. The state‘s scenario, however, envisions solving the entire $312 million shortage through layoffs and does not limit itself to the $63 million initially taxed to state employees. The con
Perhaps there is some validity to the argument that the legislature felt state employees ought to share in the cost of the solutions to the state‘s financial crisis. In my opinion, however, the legislature has passed far over the line on what is permissible and what is not in enacting this statute. Other jurisdictions have held that increases in public employee pension contributions without counterbalancing increased benefit to the employee constitute impairments of contract rights. Allen v. City of Long Beach, 45 Cal.2d 128, 287 P.2d 765 (1955); Marvel v. Dannemann, 490 F.Supp. 170 (D.Del.1980); Singer v. City of Topeka, 227 Kan. 356, 607 P.2d 467 (1980); Opinion of the Justices, 364 Mass. 847, 303 N.E.2d 320 (1973). California recently held that a decrease in employer contributions to a public pension reserve fund was an unconstitutional impairment of contract. Valdes v. Cory, 139 Cal.App.3d 773, 189 Cal.Rptr. 212 (1983).
I conclude that the doctrine of promissory estoppel creates actionable contract rights in public employees as to the state pension fund. By decreasing employer contributions and increasing employee contributions, the legislature has substantially impaired its contract with state employees, an impairment not justified by the extent of the financial crisis the legislature acted to cure.
Under the circumstances of this case, I must conclude that the legislature has failed to act in a constitutional manner. Thus, I must dissent from the majority opinion. To do otherwise appears to me to be nothing less than abolishing the historical protection afforded by our constitutions and to say, in effect, taxpayers beware be
SCOTT, Justice (dissenting).
I join in the dissent of Justice YETKA.
WAHL, Justice (dissenting).
I join the dissent of Justice YETKA.
KELLEY, Justice (dissenting).
I respectfully dissent. I concur with the majority that appellants have failed to establish an express or implied contract. The three-judge panel made findings that the state made no promises regarding guaranteed levels of employee contributions to the pension funds and that appellants have failed to establish that they reasonably and detrimentally relied upon any express or implied promises made by the state. While perhaps different findings could have been made, as Justice Yetka points out in his dissent, I conclude the panel‘s findings on the contract issues were not clearly erroneous. I further concur that the enactment of the “Act” by the legislature was not an unfair labor practice under PELRA.
However, because I cannot escape the conclusion that the mandatory 2% withholding provision is a tax, and, as such, that it violates the state uniformity clause,
Notes
I regard it as a salutary doctrine that cities, states and the Federal Government must exercise their powers so as not to discriminate between their inhabitants except upon some reasonable differentiation fairly related to the object of regulation. This equality is not merely abstract justice. The framers of the Constitution knew, and we should not forget today, that there is no more effective practical guaranty against arbitrary and unreasonable government than to require that the principles of law which officials would impose upon a minority must be imposed generally. Conversely, nothing opens the door to arbitrary action so effectively as to allow those officials to pick and choose only a few to whom they will apply legislation and thus to escape the political retribution that might be visited upon them if larger numbers were affected. Courts can take no better measure to assure that laws will be just than to require that laws be equal in operation.
Railway Express Agency, Inc. v. New York, 336 U.S. 106, 112-13, 69 S.Ct. 463, 466, 93 L.Ed. 533 (1949) (Jackson, J., concurring).In the instant case, the contribution did not result in the creation or maintenance of any ate the substance of legislation, I can only conclude that state employees received no greater benefit than did the public at large from the pension fund contributions. If all taxpayers were required to contribute an extra 2% of their income to the state coffers, no one would dispute that the contribution would constitute a tax. If a bird looks like a duck, quacks like a duck, and walks like a duck, it is most likely a duck. Likewise, if an act looks like a tax, raises revenue like a tax, and is mandatory like a tax, it is a tax.
The exceptions to the policy of lock-step contribution increases noted in the majority opinion are not significant. The 1974 amendments to the Teachers Retirement Association levels of contributions consisted of a temporary 1/2 percent difference enacted along with significant alterations to the operation of the fund itself. The contribution levels for correctional employee members of the state retirement system merely reflect the unique status of these employees pursuant to
An additional contribution shall be made to the fund based on two and one-half percent of the salary of each member not to exceed $4,800 in any calendar year for the purpose of amortizing the deficit in the fund. This contribution shall be made from funds available to the employing subdivision in the manner provided in section 353.28. This subdivision takes effect July 1, 1959.
Ms. Dudley‘s testimony provides the requisite evidence to support the trial court‘s findings, and can be easily verified through independent research. For example, with regard to the fact that employer contributions have always matched employee contributions, see Act of March 27, 1974, ch. 289, § 20-21, 1974 Minn. Laws 442, 450-51 (amendingQ. I notice * * * that the [Legislative Commission on Pensions and Retirement] is recommending [in its report to the Legislature] that for regular public-employees the employee-employer should make matching contributions to meet normal costs. Has the Legislature always followed this advice?
A. No, it has not.
*
Q. During these years [1957-1980], has the Legislature changed benefit levels for the various plans?
A. Yes.
Q. Have they made changes in the contribution levels, both for employer and employee?
A. Yes.
Q. For the various plans?
A. Yes.
Q. Have the contribution levels of either the employer or employee always been tied to an increase in benefits?
A. No.
- the classification uniformly, without discrimination, applies to and embraces all who are similarly situated with respect to conditions or wants justifying appropriate legislation;
- the distinctions which separate those who are included within the classification from those who are excluded are not manifestly arbitrary or fanciful, but are genuine and substantial so as to provide a natural and reasonable basis in the necessity or circumstances of the members of the classification to justify different legislation adapted to their peculiar conditions and needs; and
- the classification is germane or relevant to the purpose of the law, that is, there must be an evident connection between the distinctive needs peculiar to the class and the remedy or regulations therefor which the law purports to provide.
Legislative Commission on Pensions and Retirement, Report to the 1979-1980 Minnesota State Legislature, at 12.One plan is not established specifically by statuate and is not governed to any substantial extent by statute or special law other than the acturial reporting required under
Minnesota Statutes, Chapter 356 . [SeeMinn.Stat. § 356.20, subds. 2(9), (10) (1982) ] This plan is the University of Minnesota Faculty Retirement Plan. Policy determinations for this plan lies with the Board of Regents of the University of Minnesota.
Perhaps the dissent means to suggest that legislation which raises the pension contribution rates of one group of public employees without imposing a corresponding increase upon all other public employees can never be rationally related to a legitimate governmental interest. This proposition also lacks merit. It must be remembered that there are 640 different plans which provide retirement benefits to approximately 225,000 public employees in Minnesota, and that these plans “reflect a very complex picture of varying structure, legal authority, membership coverage, benefits, costs and financing.” Legislative Commission on Pensions and Retirement, Report to the 1979-1980 Minnesota State Legislature, at 8. There are a number of legitimate purposes for which contribution levels to any one of the 640 plans may be changed, including the financial condition of the particular plan, the changing of that plan‘s benefit levels and general budget considerations. The rationality of an increase in contribution levels to participants in any one plan must be assessed on its merits by reference to the purposes for which the increase was imposed. Contrary to the position of the dissent, any such change would not necessarily be wholly unrelated to any legitimate governmental interest.