Opinion ID: 2223849
Heading Depth: 1
Heading Rank: 2

Heading: equal protection and uniformity clause issues

Text: Appellants argue that the Act is violative of both federal and state constitutional guarantees of equal protection and of the state constitutional guarantee of uniformity of taxation. With regard to appellants' equal protection challenge, we hold that the legislative classification at issue is rationally related to the achievement of a legitimate governmental purpose. Similarly, we reject appellants' uniformity clause challenge on the ground that public employee pension contributions are not a tax within the meaning of that constitutional provision. It is not disputed that the standard of review applicable to this case under both the state and federal equal protection clauses is the rational basis [11] test. Although we have expressed this standard in various ways, [12] the preeminent expression of rationality analysis under the equal protection clause is the requirement that legislative classifications make distinctions which are rationally related to legitimate legislative goals or interests. See, e.g. Minnesota Clover Leaf Creamery Co., 449 U.S. 456, 461-63, 101 S.Ct. 715, 722, 66 L.Ed.2d 659 (1981); State v. Hopf, 323 N.W.2d 746, 753 (Minn.1982). As the United States Supreme Court recently noted, the application of this standard entails two basic inquiries: In determining whether a challenged classification is rationally related to achievement of a legitimate state purpose, we must answer two questions: (1) Does the challenged legislation have a legitimate purpose: and (2) Was it reasonable for the lawmakers to believe that use of the challenged classification would promote that purpose? Western & Southern Life Insurance Co. v. State Board of Equalization, 451 U.S. 648, 668, 101 S.Ct. 2070, 2083, 68 L.Ed.2d 514 (1981) (citations omitted). At the outset, however, it must be recognized that statutes carry a presumption of constitutionality, and that it is not the role of the judiciary, in applying the rational basis standard, to question either the factual accuracy or political wisdom of the reasoning and judgments underlying the legislative enactment. See, e.g., Estate of Petroff, 319 N.W.2d 400, 405 n. 10 (Minn.1982); Nelson v. Peterson, 313 N.W.2d 580, 581 n. 2 (Minn.1981). It is not disputed that the impetus for the Act was a sudden determination that revenues actually available to the state in meeting its budgeted obligations would be precariously less than the figure which had been relied upon from previous projections. Acting within this fiscal context and under heavy time pressures, the legislature sought to achieve a balanced corrective approach which combined tax increases, budget cuts and budget shifts in an effort to spread the impact of the effects of the legislation. [13] Thus, the purpose of the Act, as stated by the legislature, is to correct the state's grave fiscal condition without creating undue economic displacement. [14] Among the many budget cuts contained in the Act, all of which were enacted for the purpose of reducing the budget deficit by decreasing state expenditures, are those which temporarily decrease employer pension contributions. The challenged provisions which correspondingly require a temporary increase in employee pension contributions were included for the purpose of preventing the undue economic dislocations which would otherwise have resulted from the significant increase in the unfunded liability of the public pension funds caused by budget cuts. [15] We conclude that these are the purposes of the challenged provisions of the Act, and that these purposes are legitimate. We therefore turn to the dispositive issue in appellants' equal protection challenge and assess the claim that, in designing the Act to achieve these purposes, the legislature irrationally treats differently persons who are similarly situated. Appellants advance a number of arguments in an effort to support their contention that the Act classifies persons who are similarly situated in a manner which, when viewed in relation to the purposes of the Act, is wholly irrational. First, appellants argue that the employee contribution provision is not rationally related to its underlying purpose because the provision, which does not affect all public employee pensioners, is impermissibly underinclusive. [16] The class of public employees not affected by the employee contribution provisions of the Act is the University of Minnesota faculty, and appellants contend that there is no rational basis for this omission. There are, however, a number of considerations which support the rationality of the legislature's decision to exempt University faculty from the obligation to increase their pension contributions. University faculty have a separate pension fund and employer contributions to this fund were not affected by the Act. [17] Thus, if the purpose of the challenged provision was to maintain the actuarial integrity of the public pension funds affected by the Act's budget cuts, it was rational to exclude the unaffected plan of the University of Minnesota faculty. Moreover, the legislature's initial failure to reduce employer contributions to the University faculty's pension plan was not irrational. In order for the legislature to have effectuated a four percent reduction of employer contributions to the University faculty's pension plan, state appropriations to the University would have had to have been earmarked, or specifically set aside for that purpose. See Regents of the University of Minnesota v. Lord, 257 N.W.2d 796, 800-01 (Minn.1977). Under the Minnesota Constitution, such conditions may be an improper invasion of the management prerogatives of the Board of Regents and, in any event, the Board of Regents may decide whether or not to accept appropriations made with such conditions. Id., Minn. Const. art. XIII, § 3. The independent nature of the University faculty's pension fund, and the fact that that fund was not affected by the Act's budget cuts, provide a rational basis for the omission of the University faculty from the Act's employee contribution provisions. [18] Appellants' primary argument in the equal protection context is that the increased employee pension contributions, when considered in conjunction with the purpose and effect of the related decrease in employer contributions, constitutes a discriminatory tax. In other words, appellants contend that, although the increase in employee contributions is physically paid into the pension funds, the increase of employee contributions replaces employer contributions which are withheld for general fund purposes and that this, in effect, is a payroll tax which directly benefits the state general fund. Constitutional challenges of a tax as discriminatory arise under the federal equal protection clause and the state uniformity clause. [19] The requisite initial determination in any analysis under the uniformity clause is that the challenged provision is, indeed, a tax. We conclude that the increased employee pension contribution is not a tax and we therefore reject appellants' uniformity clause challenge. The characteristics of the increase in employee pension contributions differ significantly from those of a tax. These different characteristics include the facts that employee pension contributions are credited to the employee's individual retirement account, and that the contributions entitle the employee to receive pension benefits upon retirement. Therefore, unlike a tax, the pension contribution inures to the benefit of the employee upon his retirement, and is not collected for the benefit of the public generally. As stated by the trial court, [i]t is definitely not the nature of a tax that it should inure to the direct financial gain of the taxpayer. These characteristics distinguish pension contributions from taxes. See Gossman v. State Employees Retirement System, 177 Neb. 326, 332-33, 129 N.W.2d 97, 102 (1964) (public employee pension contribution held not to be a tax because not an exaction or tax for the purposes of carrying on the general functions of government). The absence of a tax is dispositive of appellants' uniformity clause challenge.