Related: "Public Pensions Can Sink the Ship"

One of the most dramatic Florida stories playing out through much of the 2012 legislative session was last year’s signature reform of the state employee retirement system.

The highlight of that story came last Tuesday, when Circuit Judge Jackie Fulford struck down two particularly controversial provisions of  2011’s Senate Bill 2100. She ruled as unconstitutional the state’s requirement that all employees, regardless of when hired, pay 3 percent of their salary toward their pension. Her ruling upholds the law with regard to those hired after July 1, 2011.

And in so doing, it could mean a refund, with interest, to the more than 655,000 state and local government workers who pay into the system -- and as much as a $2 billion hole in the state budget.

Certainly the ruling was the highlight, but it was not the culmination of the story. Look for the culmination to come alive in the 1st District Court of Appeal, or perhaps beyond.

EXPLAINING THE DISPUTE

Vociferously opposed by Florida’s public-sector unions, SB 2100 fundamentally altered the way state employees’ retirements were subsidized. From July 1, 1974, to July 1, 2011, the state pension plan was noncontributory, which meant that employees did not contribute a penny of their income to it.

Last year’s reforms made the plan modestly contributory; employees automatically have 3 percent of their gross income directed from their paychecks into their retirement accounts.

In addition, the new legislation completely eliminates Florida’s cost of living adjustment (COLA). Under the traditional COLA, retirees saw their monthly stipends increase by 3 percent every year, to keep up with anticipated rises in the cost of living.

Under SB 2100, those hired after July 1 of last year no longer receive a COLA upon retirement; those already retired continue receiving their COLA without interruption; and those employed before July 1 and retiring on or after Aug. 1 of last year will receive a reduced COLA.

Several other provisions of the reform legislation are opposed by public-sector unions on substantive or policy grounds, but the retirement contributions and COLA reductions are the only two measures Fulford struck down.

To help readers fully understand this case, Sunshine State News is presenting here a short summary of each side’s legal arguments.

What were the bases for Judge Fulford’s determination that the retirement contributions and COLA reductions were unlawful?

The unions presented  three principal arguments before the court:

• The changes constituted an unlawful impairment of employees’ contracts with the state of Florida.
• The changes were effectively an exercise of eminent domain without due compensation to those employees who had their property (i.e., expected benefits) taken from them.
• The Legislature violated state employees’ state constitutional right to collectively bargain over the terms and conditions of their employment.

IMPAIRMENT OF CONTRACT?

Since 1974, and before passage of SB 2100, employees’ retirement plans were governed by Section 121 of the Florida Statutes, part of which reads as follows: “As of July 1, 1974, the rights of members of the retirement system established by this chapter are declared to be of a contractual nature, entered into between the member and the state, and such rights shall be legally enforceable as valid contract rights and shall not be abridged in any way.”

The unions argued that Section 121 ensured that all state employees hired between July 1, 1974, and July 1, 2011, could not have any of their benefits, not even their future ones, abridged in the slightest, not even by future legislation.

Gov. Rick Scott’s defense team did not dispute the contractual nature of Section 121, but insisted that the state’s contractual duties extended only to those benefits which would actually accrue while the 1974 provisions were in effect. The “contract” did not preclude the Legislature from passing new laws which would alter the amount of retirement benefit earned after whatever date new legislation would go into effect. The Legislature could not retroactively deny benefits already earned (i.e., between the law of 1974 and the law of 2011), but could change how or which benefits would accrue after the new law (i.e., of 2011) went into effect.

Scott argued that his interpretation was in line with state Supreme Court precedent. The chief case he relied on was Florida Sheriffs Association v. Department of Management Services, decided by the Florida Supreme Court in 1981. That case involved a special “risk credit” that the state adds to the income of certain “special risk class” state employees, such as police officers. The state Legislature had increased the credit rate from 2 percent of an officer’s monthly income, to 3 percent, and then reduced it back to 2 percent.

The court determined that the contractual obligations the state assumed under Section 121 did not prevent the Legislature from "altering benefits which accrue for future state service.” Officers would be entitled to the 3 percent credit they earned during the months that rate was in effect, but the amount could be altered after a future date determined by the Legislature.

Scott argued that the changes the Legislature made to the state pension scheme were analogous, and likewise did not violate the state’s contractual duties.

Fulford disagreed: “The changes at issue here, a complete change of the plan from a noncontributory to a contributory plan, and the elimination of entitlement to a cost-of-living adjustment, are qualitative changes to the plan, not changes to individual components of future accruals within the plan.”

EMINENT DOMAIN WITHOUT JUST COMPENSATION?

The unions further argued that the changes in the retirement plans constituted “a taking of [state employees’] property for a public purpose [i.e., eminent domain] without full compensation.”

Scott’s counterargument was simple: eminent domain cannot possibly be implicated in this case, because the 3 percent the state is deducting from employees’ paychecks is not being redirected for a “public purpose” at all, but directly into the retirement accounts of those very employees.

Fulford wasn’t buying it. She insisted that the changes in the retirement plans constituted a taking of property (the property being the contract rights discussed above) for a very public purpose: balancing the state’s budget.

VIOLATION OF COLLECTIVE BARGAINING RIGHTS?

Article I, Section 6 of Florida’s Constitution explicitly enshrines the right of state employees to collectively bargain over the terms and conditions of their employment. Because the pension reforms at issue were not collectively bargained over, the unions insisted their constitutional rights were violated.

Scott disagreed, relying on another Florida Supreme Court case, State of Florida v. Florida Police Benevolent Association Inc., decided in 1992. In that case, the Supreme Court determined that the Legislature was not required to appropriate funds sufficient to subsidize collective bargaining agreements. Requiring the Legislature to do so would violate the state constitutional separation of powers, because appropriating funds is an exclusively legislative function.

Scott’s lawyers failed to convince Fulford. She pointed out that SB 2100 was not an appropriations bill (i.e., it was not a bill that authorized the government to spend a certain amount of money for certain purposes), but a bill unilaterally altering a mandatory subject of collective bargaining, i.e., retirement pensions.

And although she did not specifically cite to it, Judge Fulford could have appealed to Scott’s own case law to justify her reasoning. In Police Benevolent Association, the Supreme Court explicitly noted: “Where the Legislature ... attempts to unilaterally change [a] benefit [as negotiated], the changes will not be upheld, and the negotiated benefit will be enforced.”

JUDICIAL ACTIVISM STRIKES AGAIN?

So, is Fulford just another judicial activist determined to read her policy preferences into the Florida Constitution?

Perhaps, but pronouncing her such on the basis of this ruling is probably irresponsible. The strongest case the unions have made is that from the constitutional right to collectively bargain, it is easy to see where a good-faith reading of both the Florida Constitution and Supreme Court legal precedent might yield the result it did in this case.

Conservatives and libertarians are noted for their insistence on the duty of judges to interpret the law according to original public meaning, and not to read their personal moral metanarratives into the texts. This approach to legal interpretation, known as “originalism,” is not inherently conservative or liberal: it’s a simple exercise in intellectual honesty. Originalist readings of legal documents don’t necessarily yield conservative or liberal results.

Scott and his legal team can make an equally reasonable argument that collective bargaining agreements should not legally tie the hands of state legislators. They will almost certainly argue just that when their appeal is heard by Florida’s 1st District Court of Appeal.

Meanwhile, those committed to the free market and limited government should brace themselves for the possible realization that the problem is less one of judicial activism as it is flawed constitutionalism.

Constitutional protections for state employee collective bargaining, and the concomitant obligation of state employers to bargain “in good faith,” are poisonous to the cause of limited government and reined-in spending. Our fiscal salvation may be less one of removing inconvenient judges than it is amending our state’s foundational legal document.



Eric Giunta wrote this legal analysis exclusively for Sunshine State News. Giunta recently graduated from Florida State University College of Law, where he served as president of that school's chapter of the nation's premier fellowship of conservative and libertarian law students. He is sitting for the Florida Bar Examination. The information contained in this article does not constitute legal advice nor is it intended to constitute legal advice.