McClead v. Pima County
| Citation | 174 Ariz. 348,849 P.2d 1378 |
| Decision Date | 27 August 1992 |
| Docket Number | No. 1,CA-CV,1 |
| Parties | Edward McCLEAD and Nellie A. McClead, husband and wife, Plaintiffs/Appellants, v. PIMA COUNTY and Board of Supervisors; State Retirement Plan and System and Board of Directors; Elected Officials' Retirement Plan and Fund Manager; Public Safety Personnel Retirement System and Fund Manager; Corrections Officer Retirement Plan and Fund Manager; and State of Arizona, Defendants/Appellees. 90-477. |
| Court | Arizona Court of Appeals |
This action requires us to determine whether increases in state employee retirement benefits that are authorized after the benefiting employees have retired violate the extra compensation and gift clauses of the Arizona Constitution or impair the obligations of contract of other vested members of the retirement plans. Because the challenged benefits were not paid from funds belonging to the state, we find no unconstitutional extra compensation. In addition, because the expenditures served a public purpose and did not endanger the retirement plans' financial stability, we find no violation of the gift clause and no impairment of contract.
Pima County employed Edward McClead for approximately thirteen years, during which time he contributed to the Arizona State Retirement Plan and System ("ASRPS"). Upon his retirement in 1987, McClead began receiving monthly pension benefits from ASRPS. In 1988, ASRPS offered McClead and his wife ("McCleads") a health insurance premium subsidy. McCleads declined the subsidy because they already received health care benefits from another source.
In April 1989, McCleads brought a taxpayer suit pursuant to Ariz.Rev.Stat.Ann. ("A.R.S.") §§ 35-212 and -213 1 against ASRPS and its Board of Directors, Pima County and its Board of Supervisors ("Pima County"), the Elected Officials Retirement Plan ("EORP"), the Public Safety Personnel Retirement System ("PSPRS"), the Corrections Officer Retirement Plan ("CORP"), the Fund Manager responsible for administering state retirement plans and systems, and the State of Arizona ("State"). McCleads' original and amended complaints relied on the Arizona Constitution to challenge pension benefit increases, insurance premium subsidies, and tax equity allowances 2 for beneficiaries of the designated plans who had retired from public employment before the Arizona legislature authorized the increased benefits. McCleads claimed all three types of post-retirement benefit increases violate the "extra compensation clause" 3 and the "gift clause" 4 of the Arizona Constitution because the retired recipients provide no additional services in exchange for the increased benefits. McCleads also claimed the ASRPS post-retirement insurance premium subsidies violate the United States Constitution 5 and the Arizona Constitution 6 by creating liabilities that threaten to deplete substantially the pension fund and impair the vested rights of pensioners such as McClead.
The trial court granted appellees' motion for summary judgment. Relying on Rochlin v. State, 112 Ariz. 171, 540 P.2d 643 (1975), the court held that a pension is not a gratuity but compensation for services rendered and "[t]he Constitution of the State grants the Legislature the latitude to provide pension benefit increases of [this] kind ... [s]o long as the benefit increases are reasonably related to the service provided by the public employees." The court further reasoned that the legislature has "chosen to limit the erosion of the value of pension benefits to its retired public employees by increasing the amount [of] pension benefits from time to time." Finally, the court concluded the challenged benefits could not be construed as an impairment of the obligation of contract. Appellees moved for an award of attorney's fees and, although the court opined that fees could be assessed against McCleads, it ordered each party to bear its own costs.
McCleads timely appealed the court's grant of appellees' motion for summary judgment. They renew their constitutional challenges to all post-retirement benefit increases. Appellees contest McCleads' substantive claims and challenge their standing to raise the extra compensation and gift clause arguments.
To overcome the presumption in favor of the constitutionality of a legislative enactment, McCleads must carry the burden of establishing the legislation in question is unconstitutional beyond a reasonable doubt, with any doubts to be resolved in favor of constitutionality. Rochlin, 112 Ariz. at 174, 540 P.2d at 646; New Times, Inc. v. Arizona Bd. of Regents, 110 Ariz. 367, 519 P.2d 169 (1974).
The first issue is whether A.R.S. §§ 35-212 and -213 confer standing upon McCleads as taxpayers to challenge the increased benefits as violating the extra compensation and gift clauses of the Arizona Constitution. Prior to July 27, 1983, sections 35-212 and -213 empowered taxpayers to "bring an action in the name of the state to enjoin the illegal payment of state money." In interpreting these statutes, the Arizona Supreme Court defined "state money" as "money in the state treasury credited to a particular fund therein." Grant v. Bd. of Regents, 133 Ariz. 527, 529, 652 P.2d 1374, 1376 (1982). McCleads do not contend the funds challenged in this action are money in the state treasury credited to a particular fund.
By amendment effective July 27, 1983, however, the Arizona legislature amended A.R.S. § 35-212.A to grant taxpayers standing to challenge the expenditure of "public" rather than "state" money. Section 35-212.B broadly defines "public monies" as "all monies coming into the lawful possession, custody or control of state agencies, boards, commissions or departments or a state officer, employee or agent in his official capacity, irrespective of the source from which, or the manner in which, the monies are received." The state pension fund manager is a state agency and the funds it controls constitute public money within the meaning of section 35-212. See Fund Manager v. Superior Ct., 152 Ariz. 255, 259-60, 731 P.2d 620, 624-25 (App.1986) (citing Fund Manager v. Arizona Dep't of Admin., 151 Ariz. 93, 725 [174 Ariz. 353] P.2d 1127 (App.1986)). The current versions of A.R.S. §§ 35-212 and -213, therefore, give McCleads taxpayer standing to challenge post-retirement benefit increases paid from these funds. 7
Because McCleads' challenges depend upon the structure and funding of the public retirement plans and upon the post-retirement benefits involved in this suit, we next examine the nature of the plans and challenged benefit increases.
ASRPS is a comprehensive plan and system regulated by the Employment Retirement System Act and Plan, A.R.S. §§ 38-741 to -781.38, for the benefit of employees and officers of the state, state instrumentalities, and state political subdivisions. Employee and employer contributions, as well as interest earned on those contributions, fund the plan. See A.R.S. §§ 38-748, -749, -781.04, -781.05. Through the statutory scheme establishing and defining the plan, the legislature separated the plan funds from the general revenues of the state. ASRPS monies are kept in a "system depository separate and apart from all public monies or funds of this state, which shall be administered by the system exclusively for the purposes of this article." A.R.S. §§ 38-753.A, -781.21. In addition, ASRPS monies must be used solely for the benefit of plan and system members. See A.R.S. § 38-781.05.B.
McCleads challenge various statutes, enacted between 1970 and 1989, that provided ASRPS participants post-retirement benefit increases. 8 In all but two of these instances, the legislature directed that increased payments be made from the assets of the plan with any costs added to the plan's unfunded liability. In one exception, the legislature authorized adding the cost of a permanent increase in retirement pay to employer costs under the plan pursuant to A.R.S. § 38-781.05. Laws 1987, ch. 281, §§ 1-2. In another apparent exception, A.R.S. § 38-781.28.C, the legislature authorized funding by a yearly appropriation from the state general fund through June 30, 1983. A.R.S. § 38-781.35.
The second plan involved, PSPRS, is the state agency responsible for administering the pensions of Arizona's police and fire fighters. A.R.S. §§ 38-841 to -858. PSPRS has never received any appropriations from the Arizona treasury. Instead, PSPRS is funded entirely by contributions from its members, their state, county, or city employers, and investment earnings. See A.R.S. § 38-843. The evidence of record indicates that PSPRS is fully funded with more than sufficient monies available to pay the pensions of all participating members and their dependents.
McCleads challenge PSPRS post-retirement benefit increases enacted between 1976 and 1989. 9 These benefit increases were funded from either the PSPRS fund, employer contributions, or excess investment earnings. 10
EORP, the third plan involved, administers the pensions of Arizona's elected officials...
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