Friday, May 8, 2015
The Illinois Supreme Court ruled unanimously that the state's efforts to cut public pensions violated the state constitutional Pension Protection Clause.
The case means that the state can't balance its budget on the backs of state workers who are members of a public retirement system. It also means that the state supreme court takes the state constitutional Pension Clause seriously.
The case arose after the state legislature, and former Governor Quinn signed, Senate Bill 1 in late 2013. Senate Bill 1, which became Public Act 98-599, cut state workers' public pension benefits in several ways. State workers sued, arguing, among other things that the cuts violated the state constitutional Pension Protection Clause.
The Pension Protection Clause says that "[m]embership in any pension or retirement system of the State *** shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired." The Clause was added in the 1970 constitution in order to protect state workers from pension cuts in a system that had been (and since has been) chronically underfunded.
The Illinois high court's ruling says that the Clause means what it says. In fact, the court said exactly that: "We held in [Kanerva v. Weems] that the clause means precisely what it says." And this means that "once an individual begins work and becomes a member of a public retirement system, any subsequent changes to the Pension Code that would diminish the benefits conferred by membership in the retirement system cannot be applied to that individual." The court called the question "easily resolved."
The court also rejected the state's argument that its fiscal situation is so dire that it has to dip into public pension funds by using its "reserved sovereign powers." The court said that things might be bad, but they've been bad before, and will be bad again. It's no reason to violate the Pension Protection Clause. The court also said that other provisions of the 1970 constitution contained limitations or suspension provisions; not so the Public Pension Clause.
Monday, February 23, 2015
A New Jersey trial judge today ruled that Governor Chris Christie's cut to the state's public pension system violated the state and federal contracts clauses. Along the way, the judge also ruled that the state's contractual obligation to fund its public pension system did not violate the state constitutional Debt Limitations Clause and Appropriations Clause, and did not impermissibly infringe on the governor's line-item veto power. Oh, and she also ruled that the trial court had jurisdiction over the case, and that it didn't present a political question.
In a case that "implicate[s] the fragile balance at the heart of the legislative process . . . where political, constitutional, and judicial forces appear to collide," this ruling has a little something for everyone.
As a result of earlier litigation, the state has a statutory obligation to fund its public pension system. And the statute is written to create a contract right on the part of public employees--so that any decision not to fully fund the system immediately implicates the state and federal contract clauses. So when Governor Christie wielded his line-item veto pen to cut the state contribution out of the legislature's appropriation bill (because of unexpectedly low revenues), the plaintiffs were waiting in the wings with their contracts clause claims. And the judge agreed with them. That part of the ruling is unremarkable.
But the Governor's creative defenses--and the court's rejection of them--demand some attention. The governor argued that the statutory obligation to fund the public pension system violated the state constitutional Debt Limitations Clause (which limits state borrowing burdens) and the Appropriations Clause. Moreover, Governor Christie said that the statutory obligation intruded upon his executive power to veto legislation. The court reviewed the text, history, and cases on the relevant state constitutional provisions and concluded that they did not override the state's statutory obligation to fund its public pension system.
The ruling means that the state has to find $1.57 billion to fund the system. Governor Christie will likely appeal.
Friday, September 19, 2014
The Eleventh Circuit ruled this week in Taylor v. City of Gadsden that a city's increase in the mandatory contribution paid by public employees to the city's pension fund did not violate the Contract Clause of the U.S. or Alabama Constitutions.
The case arose when the City of Gadsden increased the mandatory contribution rate to the city pension fund by city firefighters from 6 percent of their salary to 8.5 percent of their salary in order to cover some of the city's pension shortfall. The city took the action pursuant to a state law that allowed, but did not require, cities to increase the mandatory contributions of public employees to their pension funds. Firefighters sued, claiming that the increase violated the Contract Clause of the U.S. Constitution and the parallel provision in the Alabama Constitution (interpreted in lock-step with the federal constitutional provision).
The Eleventh Circuit ruled that the Contract Clause didn't even apply to the city, because the city's act was not "an exercise of legislative power"; instead, it was merely a "particular item of business coming within [its] official cognizance . . . relating to the administrative business of the municipality," a "creature of state statute," but not exercising the legislative power of the state. Because Gadsden wasn't "passing any 'law,'" it "was, at bottom, 'doing nothing different than what a private party does,'" and was not subject to the Contract Clause.
The court said that even if Gadsden was subject to the Contract Clause, there was no violation here. That's because there was no contract, and relevant statutory provisions did not create an obligation not to raise the contribution rate. (Any statutory obligation went to the benefits under the pension plan, not the contributions to it.) Finally, the court said that "at most . . . the City has breached a contract, not impaired one." And "[b]ecause no state action has denied plaintiffs the possibility of a damages remedy, 'it would be absurd to turn [the] breach of contract . . . into a violation of the federal Constitution.'"
Thursday, January 26, 2012
A three-judge panel of the Third Circuit ruled this week in Mabey v. Schoch that the federal Buy America Act and implementing regulations do not preempt Pennsylvania's Steel Act. Both acts require the use of steel made in the United States for public works projects funded by the federal and state governments, respectively. But the Buy America Act has broader exceptions, including, importantly, a provision that says that the Act is satisfied when a project "[i]ncludes no permanently incorporated steel or iron materials."
The case arose after the state, citing the state Steel Act, declined to use Mabey's temporary bridge on a project, because Mabey gets its steel from the United Kingdom. Pennsylvania previously contracted with Mabey, notwithstanding the state Steel Act. But it apparently changed its policy, decided to enforce the Steel Act against Mabey, and, according to Mabey, forced Mabey to cancel four of its state contracts.
Mabey sued, alleging that exception in the federal Buy America Act preempted the state Steel Act, and that its temporary bridge met the federal Act's provision relating to "no permanently incorporated steel or iron materials." The Third Circuit rejected this claim. It ruled that another section of the federal Buy America Act and its regulations, read as a whole, did not clearly reflect congressional intent to preempt; instead, they left room for states to issue more stringent regulations--exactly what Pennsylvania did here. Thus, the state's Steel Act restrictions applied with their full force to Mabey.
The court also rejected Mabey's Dormant Commerce Clause, Contract Clause, and equal protection claims. As to the dormant Commerce Clause, the court ruled that the Steel Act fell under the market participant exception (because Pennsylvania was a market participant when it contracted for public works) and, moreover, that Congress authorized Pennsylvania to discriminate against interstate commerce through the federal Buy America Act. The court said that the state's late-coming enforcement of the Steel Act against Mabey didn't violate the Contract Clause, because the Act was on the books since Mabey started contracting with the state, and the state agency's decision to enforce it didn't amount to "legislative authority subject to scrutiny under the Contract Clause." And finally the court ruled that the state didn't violate the Equal Protection Clause, because the state's action--first not enforcing, then enforcing, the Steel Act--was rational: "A state agency could rationally determine that application of domestic steel requirements to items used at the discretion of the contractor is too onerous and difficult to enforce."
Sunday, June 26, 2011
New Jersey - - - like Wisconsin and Florida amonsgt other states - - - has acted to limit public employee compensations and benefits. And, as in Wisconsin and Florida, public employees have filed a lawsuit alleging constitutional infringements.
The bill S-2937/A-4133 is an extensive overhauling of the public employee pension and health care benefits of New Jersey employees. Governor Christie promoted the bill and is expected to sign it.
The complaint, filed in federal court, alleges violations of both federal and state law. Like the Florida complaint, it alleges impairments of the obligations of contracts, although it includes the federal provision, as well as a takings clause claim. There is also a federal tax claim.
Saturday, April 9, 2011
Article I, section 10 of the Constitution provides that "no state shall" "pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts." That last prohibition is known as the Contracts Clause - - - or is it the Contract Clause?
Professor Jay Wexler reveals that federal courts are about five times more likely to use the term "Contract Clause" than "Contracts Clause" - - - 4800 to 900 cases in the "allfeds" database.
But as Wexler notes, the Fourth Circuit has devoted a footnote to deciding the issue. Wexler is exceedingly knowledgeable about judicial footnotes and we've previously discussed his useful taxonomy. But how would this footnote be classified? Footnote 2 in the opinion in Crosby v. City of Gastonia, decided March 10, 2011, stated:
The Clause provides, in pertinent part, that "[n]o State shall . . . pass any . . . Law impairing the Obligation of Contracts." U.S. Const. art. I, § 10, cl. 1. The Supreme Court and nearly all federal courts have, over the years, inconsistently denominated this key provision of Article I as both the "Contract Clause" and the "Contracts Clause." Because the text of the Constitution speaks of the obligation of "contracts" in the plural, we will use that form of the noun to refer to the Clause in this opinion.
(ellipses in orginal).
Wexler notes that Justice O'Connor was sitting by designation on the Fourth Circuit panel, but also expresses his opinion about the relevance of the singular and plural designations for the clause in question. Wexler's post - - - and his new blog "Odd Clauses Watch" is well worth a read.