Rochlin v. State

• Decision Date: 23 September 1975
• Docket Number: No. 20,A,No. 11932,No. 1,1,20,11932
• Citation: 112 Ariz. 171,540 P.2d 643
• Parties: Abe ROCHLIN, Louis Escalada, and City of Nogales, a Municipal Corporation, Appellants, v. STATE of Arizona, Larry Woodall, Carl Cansler, and James A. Petrie, the Persons Constituting the Fund Manager of the Public Safety Personnel Retirement System, Ernest Garfield, Treasurer of the State of Arizona, and Gary K. Nelson, Attorney General of the State of Arizona, Benny Ashley, Grant Bingaman, Stephen T. Zimmerman, Ronald Oberholtzer, Fraternal Order of Police, Tucson Lodge, and Fraternal Order of Police, Pima County Lodgeppellees. 1932.
• Court: Arizona Supreme Court

Page 643

540 P.2d 643

112 Ariz. 171

Abe ROCHLIN, Louis Escalada, and City of Nogales, a Municipal Corporation, Appellants, v.STATE of Arizona, Larry Woodall, Carl Cansler, and James A. Petrie, the Persons Constituting the FundManager of the Public Safety Personnel Retirement System, Ernest Garfield, Treasurer of the State of Arizona, and Gary K. Nelson, Attorney General of the State of Arizona, Benny Ashley, Grant Bingaman, Stephen T. Zimmerman, Ronald Oberholtzer, Fraternal Order of Police, Tucson Lodge No. 1, and Fraternal Order of Police, Pima County Lodge No. 20, Appellees.

No. 11932.

Supreme Court of Arizona, In Banc.

Sept. 23, 1975.

Nasib Karam, Nogales, and Johnson, Shelley & Roberts by J. LaMar Shelley, Mesa, for appellants.

Bruce E. Babbitt, Atty. Gen. by Fred W. Stork, III, Asst. Atty. Gen., Phoenix, for the State of Ariz.

Hughes & Hughes by John C. Hughes, Phoenix, for appellees Ashley and Bingaman.

Quigley & Quigley by James E. Quigley, Tucson, for appellees Zimmerman, Oberholtzer, and Fraternal Order of Police Lodge 1 and 20.

HOLOHAN, Justice.

Plaintiffs, the City of Nogales and two of its resident taxpayers, brought this action for declaratory and injunctive relief against the State of Arizona, Fund Managers of the Public Safety Personnel Retirement System the State Treasurer, and the Attorney General.The action questioned the constitutionality of A.R.S. § 38--841 et seq., the Public Safety Personnel Retirement System.In Saunders v. Superior Court, 109 Ariz. 424, 510 P.2d 740(1973), this Court permitted individual employees and associations of employees covered by the Retirement System to intervene as partydefendants.

The facts were stipulated in the trial court, and motions for judgment were filed by the parties.The trial judge granted the defendants' motion for judgment and ordered the action dismissed with prejudice.A timely appeal was filed by the plaintiffs.

The parties agree that there are no issues of fact, and the issues to be resolved are solely matters of law.

Prior to 1968, the legislature had established separate pension systems for firemen, policemen, and highway patrolmen.Each system varied somewhat in the manner of funding and the amount of benefits.In 1968, the legislature enacted the statute in question in order to provide a uniform statewide pension system.Funding included the transfer of the monies in the previous independent systems into a single investment agency, a continuation of employee and employer (State and political subdivisions) current contributions, and contributions by the employer sufficient in amount to pay the prescribed interest rate on what is later defined as the past service cost.The act was amended in 1971 to liberalize the pension system by providing for earlier retirement by employees without reduction in benefits.

Appellants question the constitutionality of the Public Safety Personnel Retirement System on four grounds: First, that the unfunded liability of the State and political subdivisions is a debt subject to the limitations in Article 9, Sections 5and8 of the Arizona Constitution; second, that the act permits the State and local governments to postpone indefinitely the payment of an annual necessary expense contrary to the provisions of Article 9, Sections 3and7; third, that the giving of increased benefits grants extra compensation after services were rendered in violation of Article 4,Part 2, Section 17 of the Arizona Constitution; and fourth, that the method of fund ing the pension system creates non-uniformity in taxation, contrary to Article 9, Section 3 of the Arizona Constitution.

The Appellants are not attacking the concept of a pension system, but they are challenging the system as created in 1968 and amended in 1971.They maintain that the several pension systems in existence before the 1968 Act required fully funded systems.The 1968 Act and its amendments created a system which would have a constantly growing 'unfunded liability' because of the changes made in the retirement system providing for earlier retirement for personnel and liberalized benefits.This unfunded liability is the core of the issue of the constitutionality of the statute.Appellants maintain that it violates several provisions of the Arizona Constitution.

The term 'unfunded liability' is not used in the statute.A.R.S. § 38--843(B) uses the term 'past service cost,' but the effect is the same so that the terms may be said to be synonymous.The term unfunded liability is best described as the difference between the amount of money Actually paid into the retirement fund and the amount required to provide retirement benefits for employees covered by the system based upon their past service.The several changes in the former retirement systems produced a greater demand or liability on the retirement system than was originally provided for by the employer-employee contributions.This liability is unfunded, but the statutes require that each political unit pay into the retirement fund an amount representing the interest on the amount of the unfunded liability for that political unit.

Appellants contend that the unfunded liability in the system for all political entities amounted to over thirty million dollars on July 1, 1972.While Appellees do not contest the figures of Appellants, they contend that the fund is sound even though partially funded because government is continuous and there will always be a steady supply of persons entering the system, some staying, some leaving, and such a government retirement system, even though partially funded, is actuarially sound if the contributions to the system each year are sufficient to cover normal cost plus interest on the unfunded liability.Dombrowski v. City of Philadelphia, 431 Pa. 199, 245 A.2d 238(1968).

The arguments between Appellants and Appellees on the fiscal soundness of the retirement system are legislative considerations.This Court is not empowered to decide the wisdom, necessity, propriety or expediency of legislation.The Constitution of Arizona has placed such matters within the exclusive province of the legislature.Industrial Development Authority v. Nelson, 109 Ariz. 368, 509 P.2d 705(1973).This Court is charged by the Arizona Constitution with the duty of determining whether legislation is in conformity with that document.

To overcome the presumption in favor of the constitutionality of a legislative enactment, Appellants have the burden of establishing beyond a reasonable doubt that the act violates some provision of the Constitution.New Times, Inc. v. Arizona Board of Regents, 110 Ariz. 367, 519 P.2d 169(1974).

I.

Appellants contend that the unfunded liability of the State and political subdivisions under the Retirement System is a 'debt' under Article 9, Sections 5and8 of the Arizona Constitution, and the unfunded liability exceeds the debt limitations of those sections.This is a question of first impression in Arizona.

Section 5 of Article 9 reads in part:

'The State may contract debts to supply the casual deficits or failures in revenues, or to meet expenses not otherwise provided for; but the aggregate amount of such debts, direct and contingent, whether contracted by virtue of one or more laws, or at different periods of time, shall never exceed the sum of three hundred and fifty thousand dollars; and the money arising from the creation of such debts shall be applied to the purpose for which it was obtained or to repay the debts so contracted, and to no other purpose.'

Section 8 of Article 9 reads as follows:

'No county, city, town, school district, or other municipal corporation shall for any purpose become indebted in any manner to an amount exceeding four per centum of the taxable property in such county, city, town, school district, or other municipal corporation, without the assent of a majority of the property taxpayers, * * * voting at an election provided by law to be held for that purpose, * * * under no circumstances shall any county or school district become indebted to an amount exceeding ten per centum of such taxabler property, * * * that any incorporated city or town, with such assent, may be allowed to become indebted to a larger amount, but not exceeding fifteen per centum additional, for supplying such city or town with water, artificial light, or sewers, when the works for supplying such water, light, or sewers are or shall be owned and controlled by the municipality.'

What became Section 5 of Article 9 of the Arizona Constitution was taken 'from Ohio and several other states.'Journal of the Constitutional ConventionNovember 19, 1910, p. 22.Section 5 is identical to Article 8, Section 1 of the Ohio ConstitutionandArticle 7, Section 2 of the Iowa Constitution.It is nearly identical to Section 49 of the Kentucky ConstitutionandArticle 8, Section 1 of the Washington Constitution.Section 8 of Article 9 also was patterned after similar provisions in other state constitutions.

These limitations upon state and local debt were adopted as a reaction to the irresponsible borrowing by state governments in the 1830s and an equally reckless borrowing splurge indulged in by cities in the first few years after the Civil War.^*

Appellants argue that these sections of the stateconstitution should be interpreted to prevent the State and its political subdivision from becoming involved in the kind of pension system created by the 1968 actas amended.It is their contention that the same evil is present whether the transaction is called 'debt' or 'unfunded liability.'The question presented is whether an unfunded liability is a debt in the constitutional sense.

' Debt' as commonly understood includes every obligation by which one person is bound to pay money to another, but when used in the constitutional sense it is given a meaning much less comprehensive.Hubbell v. Herring, 216 Iowa 728, 249 N.W. 430(1933).A debt in the...