A comprehensive legal analysis commissioned by Legislative Auditor Daryl Purpera concludes there is substantial legal precedent for successful litigation against the state should Gov. Bobby Jindal’s sweeping retirement bills be passed by the legislature and subsequently signed into law.
That, of course, raises yet another issue altogether: will Purpera be “Teagued” for having the audacity to order such a study that takes issue with the governor who has already demonstrated in no uncertain terms that dissent will not be tolerated.
Purpera works for the legislature, which would normally indicate that he is protected from the wrath of the governor but in light of Jindal’s curiously dominating stranglehold on a weak-willed, spineless and compliant legislature, who knows?
The report also said that any litigation “would likely ensue in state as opposed to federal court due to Eleventh Amendment restrictions upon suing states in federal court.” It did, however, note that exceptions to the Eleventh Amendment restrictions could allow plaintiffs to bring suit in federal court “under certain circumstances.”
The analysis was performed by the Strasburger & Price law firm of Dallas and which also has offices in Houston, San Antonio, Austin, New York and Washington, D.C.
It cites case law in no fewer than 18 other states where courts overturned legislative efforts to alter state retirement programs in mid-stream.
It also cited the Louisiana Constitution, which says, “Membership in any retirement system of the state or of a political subdivision thereof shall be a contractual relationship between employee and employers, and the state shall guarantee benefits payable to a member of a state retirement system or retiree or to his lawful beneficiary upon his death.”
It also said that Louisiana courts employ a four-part test in determining whether a contract violates the state and U.S. constitutional prohibitions on impairing the obligations of contracts:
• The reviewing court must determine whether the state law would, in fact, impair a contractual relationship;
• If the court finds impairment, it must determine whether the impairment is of constitutional dimensions;
• If the state regulation constitutes a substantial impairment, the court must determine whether a significant and legitimate public purpose justifies the regulation, and
• If a significant and legitimate public purpose exists, the court then determines whether the adjustment to the rights and responsibilities of the contracting parties is based upon reasonable conditions and is of a character appropriate to the public purpose justifying the legislation’s adoption.
Courts, the report said, generally defer to the legislature when dealing with economic regulation between private parties but “such complete deference is not appropriate when the state is a party to a contract because its own self-interest is at stake” as is the case of contracts with state employees.
The U.S. Supreme Court ruled that the state “must overcome a significant burden to justify drastic changes in contractual pension benefits. Simple presumptions of reasonableness or necessity, which are at the core of legislative deference, cannot stand.”
It also has held that if contract rights are taken for some public benefit, “there must be just compensation.” That ruling would seem to apply to the bill to increase employee contributions by 3 percent, the proceeds of which would go into the general fund and not to help erase the pension’s unfunded accrued liability or to increase retirement benefits.
That same U.S. Supreme Court ruling said, “A state may not refuse to meet its legitimate financial obligations simply because it would prefer to spend the money to promote the public good rather than the private welfare of its creditors.”
The 38-page report, released Wednesday by Purpera’s office, says the proposed legislation “poses issues under both the United States and Louisiana Constitutions” which protects public pension benefits from impairment caused by diminished benefits, from depriving employees of property rights without due process, from the divesting of public employee benefits without just compensation and against public officials for enforcing unconstitutional laws.
It also said the state “must overcome a significant burden to justify drastic changes in contractual pension benefits. Simple presumptions of reasonableness or necessity, which are at the core of legislative deference, cannot stand.
“The pending public pension bills are most vulnerable to both U.S. and Louisiana constitutional Contract Clause scrutiny, though the other potential challengers have significant merit, as well,” the report’s executive summary said.
HB 56 and SB 52, which would increase employee contributions by 3 percent, “face an initial potential state constitutional challenge as tax bills,” the report said, in that the State Constitution prohibits the legislature from enacting tax bills during a regular session convened in even-numbered years. “These bills seeking to increase employee contribution rates may be characterized as ‘tax’ bills—a ‘tax’ being defined as a monetary charge imposed by government on persons and others to yield public revenue.
“If the state deposits funds from increased employee contributions into the state general fund, a stronger argument exists that they yield public revenue and thus that the legislation constitutes a ‘tax’ bill prohibited in the 2012 session (and) may also violate IRS rules for qualified benefit plans,” the report said. “Any legislative attempt to increase employee contribution rates faces almost certain litigation and a reasonable likelihood of being held unconstitutional.”
While the Strasburger paper did not say so, the imposition of the additional 3 percent contribution as a condition of continued employment doesn’t seem too far removed from the nasty words kickback and extortion: “I’ll pay you X dollars, but you gotta give back Y dollars to go into the company bank account, or we’ll just hire someone else.”
“As currently drafted, each bill, except the one merging two pension systems (The Louisiana Teachers Retirement System, LTRS, and the Louisiana School Employees’ Retirement System, LSERS), retroactively impairs or diminishes accrued pension benefits contrary to the guarantees” contained in the U.S. Constitution.
The bills addressed by the Strasburger study include those which would:
• Increase the minimum retirement age;
• Increase employee contributions;
• Iincrease the number of years used to calculate final employee average compensation, and,
• Merge the two independent public retirement systems.
The executive summary said challenges would most likely allege violations under Article X, Paragraph 29 of the Louisiana Constitution which protects public pension benefits, the Contract Clause within both the Louisiana and U.S. Constitutions (which prohibits contract impairment due to diminished benefits), the Taking Clause of both the state and U.S. constitutions (prohibiting the reduction of public employee benefits without just compensation), and the Due Process clauses of both documents for depriving employees of property rights without due process.
The report said that while the bills proposing to merge LTRS and LSERS appear benign on the surface in that they seek “only a merger of administrative functions,” they also “contain a directive to study a future merger of plan assets, suggesting the legislature’s intent to merge the funding aspects of the two systems in the not too distant future.
“Any such merger attempt could, in contrast, raise the likelihood of being challenged as unconstitutional,” it said. “This would have a negative effect on the actuarial soundness of the disparately-funded system,” which, it said, is constitutionally “guaranteed.”
Specifically cited in the report were, other than in Louisiana, cases in Alaska, Arizona, Colorado, Delaware, Florida, Hawaii, Illinois, Kansas, Maine, Massachusetts, Michigan, Minnesota, New Hampshire, Pennsylvania, Rhode Island, Tennessee, Washington and West Virginia. In each state, courts overturned attempts to alter state employee retirement benefits, deeming them to be contracts that could not legally or constitutionally be impaired.
“Therefore, we conclude that House Bills 53, 55 and 56 and Senate Bills 51, 52, 42 and 47, in their current form, face a likelihood of being challenged in the courts,” the executive summary said.
“If such challenges occur, we think it more likely than not that a court will rule each then-adopted bill as unconstitutional to the degree such bills affect the accrued benefits of current members and retirees.”