Opinion ID: 1412422
Heading Depth: 3
Heading Rank: 2

Heading: Actual and Substantial Impairment of the Contract

Text: Even assuming there was a contract, Appellant must prove the second element in an impairment of contract claim regarding whether there was a substantial impairment to the contract. Appellant argues that the ALC and the circuit court erred in finding the 7% retirement benefits increase fairly offset the loss of the tax exemption because, assuming retirement benefits of $100 and the 7% increase of $7, he would be taxed on $107 at a rate of 7%, which would be $7.49 in taxes. Thus, he argues, he will always be $0.49 worse off under Act 189 than he would be under prior section 9-1-1680. We find this calculation unpersuasive because it fails to consider the tax exemption given to Appellant as a state employee. [4] A statute is viewed as substantially impairing a contract, for Contract Clause analysis, where it alters the reasonable expectations of the contracting parties. Hodges, 341 S.C. at 94, 533 S.E.2d at 585-86. In discussing the impairment of contract claim in Evans, this Court noted that testimony may have revealed Act 189's 7% increase in retirement benefits fairly offset any financial loss to State Retirees resulting from Act 189's deletion of the full tax exemption for state retirement benefits. Evans, 344 S.C. at 68, 543 S.E.2d at 551. Taking the cue from the Evans decision, the ALC accepted a deposition and affidavit from the Department's expert, R. Kent Porth, analyzing the impact of Act 189 on Appellant. Reviewing Appellant's income tax returns from the years 1997 through 2001, Porth opined that the 7% increase in retirement benefits more than offset the increased tax burden resulting from the enactment of Act 189 in nearly every taxable year. Although Appellant disagreed with Porth's calculation method, Porth was the only expert presented below for the ALC's consideration. The ALC found, and the circuit court affirmed the finding, that the 7% retirement benefits increase fairly offset the loss of the tax exemption such that there was no substantial impairment of the contract. The ALC's finding that there was no substantial impairment of the contract because the loss of the tax exemption was fairly offset by the 7% increase in benefits is supported by the substantial evidence in the record. See S.C. Coastal Conservation League v. S.C. Dep't of Health & Envtl. Control, 363 S.C. 67, 73, 610 S.E.2d 482, 485 (2005) (noting there is a substantial evidence standard of review from the decision of the ALC). While Appellant's generalized calculation would appear to indicate Act 189 was detrimental, his calculation does not take into consideration the specific deductions and exemptions from Appellant's retirement income like a review of his tax returns would.