Opinion ID: 217175
Heading Depth: 3
Heading Rank: 1

Heading: The Retirement Systems' Independence from the State of Missouri

Text: We first analyze the Retirement Systems' independence from the State of Missouri. Courts generally assess an entity's independence in comparison to the type of independence that a political subdivision possesses. Regents, 519 U.S. at 429 n. 5, 117 S.Ct. 900 (noting that the question was whether a state agency has the same kind of independent status as a county or is instead an arm of the State); Mount Healthy Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 280, 97 S.Ct. 568, 50 L.Ed.2d 471 (1977) (noting that the question was whether a local school board was to be treated as an arm of the State . . . or [was] instead to be treated as a municipal corporation or other political subdivision). The more an entity's independence resembles that of a political subdivision, the less likely the entity is an arm of a State. See Mount Healthy, 429 U.S. at 280, 97 S.Ct. 568 (noting that counties and similar municipal corporations are not arms of States); Illinois v. City of Milwaukee, 406 U.S. 91, 97, 92 S.Ct. 1385, 31 L.Ed.2d 712 (1972) (It is well settled that for the purposes of diversity of citizenship, political subdivisions are citizens of their respective States.). Political subdivisions generally enjoy significant operational independence. These characteristics of operational independence may include being organized as a body corporate, possessing the ability to buy, sell, and hold property, and possessing the ability to sue and be sued in the entity's own name. Moor, 411 U.S. at 719, 93 S.Ct. 1785. The Retirement Systems possess some of these characteristics. The entities are bod[ies] corporate, have the power to sue and be sued in their own name, and can transact all of [their] business, invest all of [their] funds, and hold all of [their] cash, securities, and other property. §§ 169.020(1), .610(1). The Retirement Systems' possession of these powers, however, does not preclude a finding that they are arms of the State of Missouri. The Supreme Court has held an entity to be an arm of a State despite its ability to sue and be sued in its own name, State Highway Comm'n, 278 U.S. at 199, 49 S.Ct. 104, and the Second Circuit has held an entity to be an arm of a State despite its designation as a corporate body. See McGinty v. New York, 251 F.3d 84, 96 (2d Cir.2001). Other state statutes, moreover, greatly restrict the Retirement Systems' operational independence. Whereas a typical political subdivision may provide a wide variety of services, the State of Missouri created PSRS and PEERS solely to provid[e] retirement allowances and other benefits to public-school employees who work in districts with populations of less than 400,000 people. §§ 169.020(1), .610(1). Not only are the Retirement Systems much more limited in their purpose than political subdivisions, but state law also greatly regulates the way the Systems carry out their limited purpose. Among the most important regulations, statutes dictate the sources of the Systems' revenue, §§ 169.030(1), .620(1), the amount of funds each revenue source provides, §§ 169.030(1), .620(1), to what extent these revenue amounts may be increased, §§ 169.030(4), .620(4), when the Systems are to pay benefits, §§ 169.060, .660, and the amount of benefits the Systems are to pay, §§ 169.070, .670. Restrictions such as these are important because they indicate that not only has the State of Missouri created the Retirement Systems for a limited purpose, but that the State extensively regulates the way the Systems carry out this limited purpose. Cf. Hadley v. N. Ark. Cmty. Technical Coll., 76 F.3d 1437, 1439-40 (8th Cir.1996) (noting that the State of Arkansas provided an entity with significant autonomy with respect to how it could achieve its organizational purpose, but still ultimately concluding that the entity was an arm of the State of Arkansas). These restrictions indicate that, compared to a typical political subdivision, the Retirement Systems possess little operational independence from the State of Missouri. In addition to operational independence, political subdivisions generally possess political independence from States. Thus, the greater the State's ability to appoint an entity's leaders, the more likely the entity is an arm of the State. See Hess v. Port Auth. Trans-Hudson Corp., 513 U.S. 30, 44, 115 S.Ct. 394, 130 L.Ed.2d 245 (1994). In this case, the Governor of Missouri appoints three of the seven members of the Retirement Systems' Board with the Missouri Senate's consent. § 169.020(2). Since the State of Missouri appoints fewer than half of the Retirement Systems' Board, the Retirement Systems have some political independence from the State of Missouri. However, the fact that the State of Missouri does not appoint all or even a majority of the Board's members is not dispositive. Hadley, 76 F.3d at 1441-42 (concluding that an entity is an arm of a State even when none of the entity's nine board members were appointed by state officials). A State's appointment power, even if limited, restricts an entity's political independence because it may produce subtle or indirect manipulation of the entity's decision-making processes by state officials. Univ. of R.I., 2 F.3d at 1207. Such political pressures are not typically present for political subdivisions like counties and municipalities because States generally do not directly appoint their leaders. The Retirement Systems' lack of complete political independence and their significant lack of operational independence make it unsurprising that Missouri statutes characterize the Retirement Systems as state agenc[ies] and indicate that the Systems are not political subdivisions. See § 536.010(8) (defining state agency as a body that is authorized by the constitution or statute to make rules or to adjudicate contested cases); § 169.020(14) (authorizing the Retirement Systems' Board, subject to the limitations in the statutes creating the Systems, to formulate and adopt rules and regulations to administer the Systems). The Supreme Court and the Eighth Circuit have suggested that such characterizations favor a finding that the entity is an arm of a State. Mount Healthy, 429 U.S. at 280, 97 S.Ct. 568; Moor, 411 U.S. at 719, 93 S.Ct. 1785; Hadley, 76 F.3d at 1441. Missouri courts also refer to the Retirement Systems' Board as an agency and defer to the Board's interpretations of statutes as announced by the rules that the Board promulgates. Savannah R-III Sch. Dist. v. Pub. Sch. Ret. Sys. of Mo., 912 S.W.2d 574, 576-77 (Mo.Ct.App.1995). These rules are published in the Missouri Code of State Regulations, see Mo.Code Regs. Ann. tit. 16 § 10, which also publishes rules promulgated by other entities that we have held to be arms of the State of Missouri. See, e.g., McLean v. Gordon, 548 F.3d 613, 618 (8th Cir.2008) (Department of Social Services); Singletary v. Mo. Dep't of Corr., 423 F.3d 886, 890 (8th Cir.2005) (Department of Corrections); Union Electric v. Mo. Dep't of Conservation, 366 F.3d 655, 660 n. 3 (8th Cir.2004) (Department of Conservation). Thus, Missouri law characterizes the Retirement Systems the way we would expect it to characterize an arm of the State. Not only does Missouri statutory and case law explicitly indicate that the Retirement Systems lack independence from the State of Missouri, but the nature and scope of the Retirement Systems' operations also imply a lack of independence from the State of Missouri. First, the Retirement Systems do not furnish the type of local services that political subdivisions typically furnish, such as water service, flood control, [or] rubbish disposal. Moor, 411 U.S. at 719, 93 S.Ct. 1785 (noting that a county's provision of these services was an indication of the independent status occupied by California counties relative to the State of California); see also Gorman, 257 F.3d at 744 (noting that a police board's functions are primarily local in concluding that the board was not an arm of a State). Second, the Retirement Systems' operations are statewide in scope rather than limited to a particular geographic area. McGinty, 251 F.3d at 98 (noting that because a retirement system's operations were statewide in scope, the operations were a function of state government rather than local government). Thus, the Retirement Systems appear to be carrying out a function of state government, which implies a lack of independence from the State of Missouri. On the whole, therefore, the Retirement Systems lack the type of independence from the State of Missouri that a political subdivision typically possesses. The State of Missouri significantly restricts the Retirement Systems' operational independence, it places material restrictions on the Systems' political independence, and the Systems carry out state-government functions rather than local ones. Thus, the Retirement Systems do not have the same kind of independent status as a political subdivision. Regents, 519 U.S. at 429 n. 5, 117 S.Ct. 900.