STATE EX REL. v. W. VA. INV. MANAGEMENT BD.

• Decision Date: 17 July 1998
• Docket Number: No. 25134.,25134.
• Citation: 508 S.E.2d 130,203 W.Va. 413
• Court: West Virginia Supreme Court
• Parties: STATE of West Virginia ex rel. WEST VIRGINIA REGIONAL JAIL AND CORRECTIONAL FACILITY AUTHORITY, Petitioner, v. WEST VIRGINIA INVESTMENT MANAGEMENT BOARD, Respondent.

508 S.E.2d 130

203 W.Va. 413

STATE of West Virginia ex rel. WEST VIRGINIA REGIONAL JAIL AND CORRECTIONAL FACILITY AUTHORITY, Petitioner, v. WEST VIRGINIA INVESTMENT MANAGEMENT BOARD, Respondent.

No. 25134.

Supreme Court of Appeals of West Virginia.

Submitted June 3, 1998.

Decided July 17, 1998.

Benjamin L. Bailey, Esq., Special Assistant Attorney General, Kenneth E. Webb, Jr., Esq., Bowles Rice McDavid Graff & Love, Charleston, West Virginia, Attorneys for the Petitioner.

James K. Brown, Esq., Jackson & Kelly, Charleston, West Virginia, and Darrell V. McGraw, Jr., Esq., Attorney General, Silas B. Taylor, Managing Deputy Attorney General, Charleston, West Virginia, Attorneys for the Respondent. MAYNARD, Justice:

In this original mandamus proceeding, the relator, the West Virginia Regional Jail and Correctional Facility Authority, requests that this Court evaluate the constitutionality of House Bill 4702 (1998),¹ a recent enactment of the West Virginia Legislature.² This bill directs the respondent, the West Virginia Investment Management Board, the group charged with investing the funds of the Public Employees Pension System, to invest $150,000,000 of the pension system funds in the West Virginia Jail and Correctional Facility Authority to enable it to complete the construction or renovation of certain jails and correctional facilities in West Virginia. The issues before us are, inter alia, whether House Bill 4702 constitutes an unconstitutional impairment of the contract existing between the State of West Virginia and the participants and beneficiaries of the Public Retirement System and whether House Bill 4702 violates Article X, Section 4 of the West Virginia Constitution which places limitations on the contracting of State debt.

I. FACTS

The relator, the West Virginia Regional Jail and Correctional Facility Authority ("Jail Authority"), is a body corporate and governmental instrumentality created by the West Virginia Legislature. It is charged with the financing and construction of jails and correctional facilities in the State and is governed by the provisions of W.Va.Code § 31-20-1 to 31-20-28 as well as various constitutional provisions and decisions of this Court.

The respondent, the West Virginia Investment Management Board ("Board"), is also a body corporate and government instrumentality. It was created by the West Virginia Legislature to manage and invest the funds of West Virginia's various public employee pension systems. Its authority and powers to make investments are governed by the West Virginia Investment Management Act, W.Va.Code § 12-6-1 to 12-6-19, as well as by various constitutional provisions and decisions of this Court.

During the 1998 Legislative Session, the West Virginia Legislature passed House Bill 4702. The stated purpose of the bill is to finance the ongoing construction and renovation of jails and correctional facilities in West Virginia. The bill directs the Board, the body charged with managing the funds of the Public Employees Retirement System ("PERS"), to invest $150,000,000 of those funds in the Jail Authority for its on-going construction and renovation projects. The purpose of the investment is to enable the completion and construction of jail and correctional facilities. House Bill 4702 prescribes the source of the investment funds, establishes a method for repayment of the investment, and sets a market rate of interest.

Specifically, under the provisions of the bill, any PERS funds invested by the Investment Management Board with the Regional Jail Authority must earn an annual return equal to the five year average annualized rate of return earned by the core fixed-income portfolio of PERS, plus one tenth of one percent, and such rate of return shall not be less than five percent. The bill creates a "regional jail and correctional facility investment fund" in the State treasury that is dedicated to the payment of investment earnings and the return of PERS capital invested by the Board in the Jail Authority. The regional jail and correctional facility investment fund will receive insurance taxes deposited in the "insurance tax fund," a special revenue fund made up of insurance taxes already established by W.Va.Code §§ 33-3-14 (1983) and 33-3-15 (1957). The bill further provides that monthly payments representing investment earnings and the return of PERS capital invested in the Jail Authority by the Board shall commence six months after funds are invested and cease within twenty-five years when all PERS capital is returned.

The Board has refused transfer of the $150,000,000 to the Jail Authority on the grounds that House Bill 4702 violates constitutional prohibitions against State impairment of contracts and the incurring of State debt. The Board also asserts that the bill raises other legal problems.

II.

STANDARD FOR GRANTING MANDAMUS

It is well-settled that,

[a] writ of mandamus will not issue unless three elements co-exist—(1) a clear legal right in the petitioner to the relief sought; (2) a legal duty on the part of respondent to do the thing which the petitioner seeks to compel; and (3) the absence of another adequate remedy.

Syllabus Point 2, State ex rel. Kucera v. City of Wheeling, 153 W.Va. 538, 170 S.E.2d 367 (1969). With this in mind, we now review the issues before us.

III. DISCUSSION

A. Issue No. 1: Impairment of Contracts

The Board claims, first, that House Bill 4702 unconstitutionally impairs the contract between the State of West Virginia and the members and beneficiaries of the Public Employees Retirement System. According to the Board, House Bill 4702 results in the use of Public Employees Retirement System funds for purposes other than the sole benefit of the Public Employees Retirement System. We disagree.

Article III, Section 4 of the West Virginia Constitution states in part that "[n]o... law impairing the obligation of a contract, shall be passed." This is consistent with Article I, Section 10 of the United States Constitution which provides that "[n]o State shall ... pass any ... Law impairing the Obligation of Contracts." To determine whether legislation impairs a contractual obligation in violation of the federal and state constitutions, this Court has stated the following three-pronged test:

The initial inquiry is whether the statute has substantially impaired the contractual rights of the parties. If a substantial impairment is shown, the second step of the test is to determine whether there is a significant and legitimate public purpose behind the legislation. Finally, if a legitimate public purpose is demonstrated, the court must determine whether the adjustment of the rights and responsibilities of contracting parties is based upon reasonable conditions and is of a character appropriate to the public purpose justifying the legislation's adoption.

Syllabus Point 4, in part, Shell v. Metropolitan Life Ins. Co., 181 W.Va. 16, 380 S.E.2d 183 (1989). Further, "[t]he severity of the impairment measures the height of the hurdle the state legislation must clear. Minimal alteration of contractual obligations may end the inquiry at its first stage." Shell, 181 W.Va. at 21, 380 S.E.2d at 188,quoting Allied Structural Steel Co., 438 U.S. at 245, 98 S.Ct. at 2722-23, 57 L.Ed.2d at 736-37.

There is no doubt that a contract exists between PERS members and beneficiaries and the State. The Public Employees Retirement System was created by W.Va. Code §§ 5-10-1 et seq. in 1961 to provide a general retirement system for public employees. "A review of the statute reveals a classic example of a `statutory' trust." Dadisman v. Moore, 181 W.Va. 779, 784, 384 S.E.2d 816, 821 (1988). Further, "[a] statute is treated as a contract when the language and circumstances evince a legislative intent to create private rights of a contractual nature." Id., 181 W.Va. at 789, 384 S.E.2d at 826, citing United States Trust Co. v. New Jersey, 431 U.S. 1, 17 n. 24, 97 S.Ct. 1505, 1519 n. 24, 52 L.Ed.2d 92 (1977)

. This Court has held that "[r]etired and active PERS plan participants have contractually vested property rights created by the pension statute, and such property rights are enforceable and cannot be impaired or diminished by the State." Syllabus Point 16, Dadisman. In order to ensure that the property rights of PERS participants are not impaired or diminished, this Court has stated, "The PERS Board, as trustee of retirement funds, must dispose of them according to the law. The board has a fiduciary duty to protect the fund and the interests of all beneficiaries thereof, and it must exercise due care, diligence, and skill in administering the trust." Syllabus Point 14, Dadisman. The essence of the contract between the State and PERS members and beneficiaries is that upon a member's retirement, he or she "shall receive a straight life annuity equal to two percent of his final average salary multiplied by the number of years, and fraction of a year, of his credited service in force at the time of his retirement." W.Va.Code § 5-10-22 (1971). Also, this Court has stated that "[t]he cynosure of an employee's W.Va. Const. art. III, § 4 contract right to a pension is not the employee's or even the government's contribution to the fund; rather, it is the government's promise to pay." Syllabus Point 12, Booth v. Sims, 193 W.Va. 323, 456 S.E.2d 167 (1995).

It is obvious, therefore, that not every modification to the State's existing contract with PERS members is a substantial impairment.

The realization and protection of public employees' pension property rights is a constitutional obligation of the State. The State cannot divest the plan participants of their rights except by due process, although prospective modifications which do not run afoul of the federal or State impairment clauses are possible.

Syllabus Point 18, Dadisman. Further, this Court has stated:

While the law recognizes that states retain some reserve power to modify by statute

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