California Teachers Assn. v. Cory

• Decision Date: 07 May 1984
• Court: California Court of Appeals Court of Appeals
• Parties: , 17 Ed. Law Rep. 544, 5 Employee Benefits Cas. 1417 CALIFORNIA TEACHERS ASSOCIATION et al., Petitioners, v. Kenneth CORY, as State Controller of the State of California, Respondent, TEACHERS' RETIREMENT BOARD OF the STATE TEACHERS' RETIREMENT ASSOCIATION et al., Intervenors-Real Parties in Interest. TEACHERS' RETIREMENT BOARD OF the STATE TEACHERS' RETIREMENT ASSOCIATION et al., Petitioners, v. Kenneth CORY, as State Controller, Respondent, CALIFORNIA TEACHERS ASSOCIATION et al., Intervenors-Real Parties in Interest. Civ. 23229.

Page 611

202 Cal.Rptr. 611

155 Cal.App.3d 494, 17 Ed. Law Rep. 544,

5 Employee Benefits Cas. 1417

CALIFORNIA TEACHERS ASSOCIATION et al., Petitioners, v. Kenneth CORY, as State Controller of the State of California, Respondent, TEACHERS' RETIREMENT BOARD OF the STATE TEACHERS' RETIREMENT ASSOCIATION et al., Intervenors-Real Parties in Interest.

TEACHERS' RETIREMENT BOARD OF the STATE TEACHERS' RETIREMENT ASSOCIATION et al., Petitioners, v. Kenneth CORY, as State Controller, Respondent, CALIFORNIA TEACHERS ASSOCIATION et al., Intervenors-Real Parties in Interest.

Civ. 23229.

Court of Appeal, Third District, California.

May 7, 1984.

As Modified May 9, 1984.

Hearing Denied Aug. 20, 1984.

Schwartz, Steinsapir, Dohrmann, Krepack, Sommers & Edelstein, Laurence D. Steinsapir, Michael R. Feinberg and Raymond L. Hansen, Los Angeles, for petitioners, intervenors and real parties in interest Cal. Teachers Ass'n et al.

Bullen, McKone, McKinley, Gay, Keitges & Pach, Donald M. Pach, James R. Donahue, Keith Tohru Yamanaka, Sacramento, for petitioners, intervenors and real parties in interest Teachers' Retirement Bd. et al.

Morrison & Foerster, F. Bruce Dodge and Patrick J. Flinn, San Francisco, for respondent.

John K. Van de Kamp, Atty. Gen., N. Eugene Hill, Asst. Atty. Gen., Geoffrey L. Graybill, Deputy Atty. Gen., for intervenors and real parties in interest.

BLEASE, Associate Justice.

In this consolidated original mandamus proceeding the petitioners seek to compel the State's Controller to transfer funds from the General Fund (Gov.Code, § 16300) to the Teachers' Retirement Fund (Ed.Code, § 22300). ¹ The funds are amounts allegedly owing as state contributions to the State Teachers' Retirement System (Ed.Code, § 22001 et seq.). Petitioners are the California Teachers Association (CTA), three officers of CTA who are public school teachers, the Teachers' Retirement Board (Ed.Code, § 22200), and various members of the board. Petitioners contend the transfer is compelled by the continuing appropriation statutes in the Education Code, sections 23401 et seq., notwithstanding the Respondent Kenneth Cory, Controller, demurs to the petitions. He admits that the most recent annual budget bill appropriating one dollar is a prohibited impairment. However, he submits three earlier instances of reduced but substantial in lieu appropriations may not have been. The Controller contends, in any event, he cannot effect any transfer unless compelled by order of court.

appropriations for payments of lesser amounts in annual budget bills enacted subsequently. Petitioners argue that giving the subsequent (in lieu) appropriations amendatory effect would unconstitutionally impair a contract.

Intervenors George Deukmejian, Governor, and the Department of Finance (Gov.Code, § 13000) [represented by the Attorney General] demur to the petitions and answer them denying various assertions. These intervenors (collectively hereafter the Governor) deny that the continuing appropriation statutes in the Education Code confer contract rights and, accordingly, deny that petitioners are entitled to any relief. The Governor also contends that no valid appropriation exists upon which an order to transfer may be founded. We have concluded petitioners' claim has merit and will issue a peremptory writ commanding transfer of funds.

FACTS ²

The Legislature has enacted a statewide teachers' pension plan. The purpose clause recites: "In order to provide a financially sound plan for the retirement, with adequate retirement allowances, of teachers in the public schools of this state, teachers in schools supported by this state, and other persons employed in connection with the schools, the State Teachers' Retirement System is established." (Ed.Code, § 22001) With limited exceptions, participation in the system is mandatory for teachers, librarians and other certificated employees (hereafter collectively teachers) of the elementary and secondary schools (including community colleges) of the state. (Ed.Code, §§ 22500 et seq.; 50 et seq.) Upon death, or retirement for service or disability the system is obligated to pay various sums to the teacher or beneficiaries of the teacher. (Ed.Code, §§ 23800 et seq.; 23900.)

The progenitor of the current State Teachers' Retirement System was established in 1913. (Stats. 1913, ch. 694, p. 1423.) From its inception the system has had an unfunded liability; the statutory scheme has never included a mechanism for compiling reserves actuarially sufficient to generate investment income proportionate to the amount of future benefit payments for which it becomes obligated. In 1971 the Legislature acknowledged that the assets of the system were insufficient to meet this unfunded liability. (Stats.1971, ch. 1305, p. 2568.) In light of this situation, the Legislature provided that members and the employing agencies each shall contribute to the system a percentage of salaries earned and that the state shall contribute a sum certain for a given number of years. (Ibid.)

The state contribution was set at one hundred thirty-five million dollars ($135,000,000) annually for a period of thirty years beginning July 1, 1972. (Id., at p. 2577.) By virtue of an existing statute, former section 14113, these sums did not constitute an appropriation. Rather, the appropriation was made in and was subject to each State Budget Act. ³ (Stats.1969, ch On June 6, 1978, Proposition 13 (Cal.Const., art. XIIIA) was enacted by the electorate. It reduced the revenues for public school financing available from local property taxes. (See Comment, The Right to a Meaningful Education in California: Should Dollars Make the Difference? (1979) 10 Pacific L.J. 991, 1008-1010.) It necessitated a far-reaching restructuring of the fiscal basis of local government, including public education. The Legislature responded with Chapter 282, Statutes of 1979, which included a modification of the scheme of state contributions to the Teachers' Retirement Fund. The prior contribution provisions were repealed and present Education Code sections 23401, 23402, and 23403 were enacted, which appropriated amounts increasing annually according to statutory formulae. The State Controller was mandated to "transfer, in equal monthly payments, from the General Fund to the Teachers' Retirement Fund, the amounts specified in sections 23401 and 23402." ⁴ (Stats.1979, ch. 282, §§ 10 and 11, pp. 975-976.) The existing law, which required that the appropriations come from the State Budget Act, was repealed. (See fn. 3, ante.)

                896, § 2, p. 1771.)   Over time the amount of the aggregate statutory contribution was raised to one hundred forty-four million three hundred thousand dollars ($144,300,000) in order to defray intervening increases in benefits.  (See Stats.1977, ch. 894, §§ 9, 10, pp. 2678-2679;  Stats.1979, ch. 259, item 343, p. 700.)
                

The first transfers to the Teachers' Retirement Fund were to be made for the fiscal year beginning July 1, 1980. (Ibid.) However, the State Budget Act for that fiscal year contained an appropriation, in lieu of the statutory appropriation, of a reduced amount, $171,616,000. The act said of this amount: "For transfer by State Controller, in lieu of the appropriations provided for in Sections 23401 and 23402 of the Education Code...." (Stats.1980, ch. 510, p. 1207.)

Similarly, in lieu reduced appropriations were enacted in the next two State Budget These proceedings ensued shortly thereafter.

                Acts.  (Stats.1981, ch. 99, p. 510;  Stats.1982, ch. 326, p. ---.)  In the succeeding budget bill, for fiscal year 1983-1984, the Legislature appropriated and sent to the Governor an in lieu amount of $211,313,000.  (Stats.1983, ch. 324 [item 6300-101-001] p. ---.)  On this occasion, for the first time, the Governor reduced the in lieu appropriation, to one dollar ($1), saying the money could better be used for other educational purposes notwithstanding there was an unfunded actuarial liability of the Teachers' Retirement System. 5  (Id., [p. 45].)
                

DISCUSSION

It is at once apparent that this case is a close relative of our recent decision in Valdes v. Cory (1983) 139 Cal.App.3d 773, 189 Cal.Rptr. 212. In Valdes we reviewed an enactment repealing, for three months, the statutory appropriation of state employer contributions to the Public Employees' Retirement System provided by Government Code sections 20741 et seq. We held the enactment unconstitutional as an impairment of contract. ⁶ (Valdes, supra.) None of the parties argues Valdes was wrongly decided or ill-reasoned and it serves as a substantial predicate for our discussion here.

I

The Governor tenders the broadest defenses to petitioners' claims. He argues that sections 23401 et seq. do not give rise to a contract and, accordingly, the sums provided for in those sections may be modified at-will by the State Budget Acts. He says that statutory contracts can only be established by an explicit statement in the statute that private rights in contract are created. The issue is formation of a contract to which the state is a party, i.e. what is the measure by which a statute manifests a promise which, when accepted, creates a contract. That is an issue of state contract law to which we turn. ⁷

The parties agree that a state may enter into contracts with citizens creating an obligation which the Legislature cannot impair by subsequent enactment. They agree that legislation which merely declares a state policy and directs a subordinate body to carry it into effect is subject to revision or repeal in the discretion of the Legislature.

The Governor takes the position that a statute does not create contractual obligations unless it explicitly uses words of contract and that a contract therefore cannot be created by implication from a statute. He takes as his text an excerpt which Taylor v. Bd. of Education (1939) 31 Cal.App.2d 734, 742, 89 P.2d 148, obtained from the legal encyclopedia, American...