Court Opinion

ID: 9530995
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:06:11.906906+00
Date Added: 2024-06-11T13:28:18.824507
License: Public Domain

*479Neill, J.
(dissenting) — The issue here presented is whether pension rights established by the Teachers’ Retirement System include a vested right to biennial allocations to the reserve fund in the amount stated in a preliminary computation submitted to the preceding legislature by the retirement system trustees. Identification of the issue reveals much that is not involved as well as the nature of the question presented in this case.
First, this case does not, as such, involve official actions depriving the pension system of “actuarial soundness.”3 The majority announces that there is a “vested right” to such a characteristic, citing Dombrowski v. Philadelphia, 431 Pa. 199, 245 A.2d 238 (1968). In quoting from that case, the majority emphasizes the very points which distinguish it from the case at hand. A dispositive point in Dombrowski was the existence of an express provision in the Philadelphia city charter that the retirement system would be “actuarially sound,” and that provision was there taken as an express contractual promise. As will be discussed, our statutes do not contain such promissory language. But my instant point is that, even assuming Washington law creates a general vested right to a pension system that is “actuarially *480sound,” there is no showing in the case at bench that petitioners have been in any way deprived of that right by the Governor’s exercise of his duty under the Budget and Accounting Act. RCW 43.88.110.4 In this respect, Dombrowski *481is distinguishable. In that case, there was a specific and undisputed finding that the city had failed to provide its promised “actuarially sound” system and that petitioner-employee was suffering immediate injury to his contract rights. The facts before us do not contain that crucial element. The most that can be inferred is that the governor’s actions gave the reserve fund less actuarial strength than it otherwise would have had. This does not establish that “actuarial soundness” has been destroyed. The contrary is indicated by the fact that, even with the shift of moneys occasioned by the challenged actions, the pension reserve fund retained strength currently in excess of $177 million. I find no showing whatsoever that, in order to have an “actuarially sound” retirement system, the legislative and executive branches of this state’s government must blind themselves to fiscal realities to satisfy an abstract mathematical conclusion.
Nor, in my view, is any such requirement expressed in or reasonably inferable from the legislative framework. The Teachers’ Retirement System is codified as RCW 41.32. The assets of the system are broken into two broad general funds, the reserve fund aforesaid, and the retirement fund, *482currently of some $208 million, both of which are maintained in the state treasury. RCW 41.32.030. The reserve fund is described as “a fund in the state treasury in which shall be accumulated an actuarial reserve adequate to meet present and future pension liabilities of the system.” (Italics mine.) RCW 41.32.010 (20).
RCW 41.32.401 provides in part as follows:
For the purpose of establishing and maintaining an actuarial reserve adequate to meet present and future pension liabilities of the system . . . the board of trustees . . . shall compute the amount necessary to be 'appropriated during the next legislative session for transfer from the state general fund to the teachers’ retirement system during the next biennium. Such computation shall provide for amortization of unfunded pension liabilities over a period of not more than fifty years from July 1, 1964. The amount thus computed as necessary shall be reported to the governor . . . for inclusion in the budget. The legislature shall make the necessary appropriation from the state general fund . . . after considering the estimates as prepared and submitted, and shall appropriate from the teachers’ retirement fund the amount to be expended during the next biennium for operating expenses. The transfer of funds from the state general fund to the retirement system shall be at a rate determined by the board of trustees on the basis of the latest valuation prepared by the actuary employed by the board, and shall include [percentage contributions] . . . Such transfers from the general fund shall be made before the end of each calendar quarter at the rate determined by the board of trustees and shall be computed on the basis of the members’ total earnable compensation received for the quarter . . . The amounts transferred shall be distributed first to the teachers’ retirement fund for the payment of pensions, survivors’ benefits and the state’s share of the operating expenses for the system, and the balance shall be credited to the teachers’ retirement pension reserve fund. The total amount of such transfers for a biennium shall not exceed the total amount appropriated by the legislature.
The majority notes that teachers’ pension rights in this state are regarded as deferred compensation and contrac*483tual in nature. With this I agree. But this in no way alters the fact that the extent of those rights is measured exclusively by the statutes creating them. State ex rel. Wittler v. Yelle, 65 Wn.2d 660, 399 P.2d 319 (1965).
I see nothing in the legislation establishing the teachers’ retirement system that supports the notion that neither the legislature nor the Governor can alter the computation submitted each biennium by the board’s actuary. To the contrary, the terms of RCW 41.32.401 rather clearly leave it with the legislature to determine what is a “necessary appropriation . . . after considering the estimates as prepared and submitted.” Such a reading is indicated not only by the terms of the statute, but by common sense. Actuarial conclusions need consider only mathematical factors and estimates. The legislature must cope with additional considerations and realities, such as the availability of funds, and balance the necessity of meeting current obligations (including current pension payments) with the desirability of placing moneys in a reserve fund for future use.5
RCW 41.32.401 does not require transfers of funds in blind adherence to the first computed estimates. To the contrary, the statute injects considerable flexibility in calling for transfers of a percentage rather than a set amount, and tying the amount of the transfer to the “latest valuation” made in each “calendar quarter.” The rate of transfer is to be determined by the board of trustees. The legislative appropriation, but for a specific allocation for operating expenses, is made in general terms to the retirement system as a whole. This, again, indicates a flexible rather than a static approach. The statute does not call for a specific amount to be credited to the reserve fund. Rather, it decrees that the balance after all distributions for retirement fund purposes is the amount to be credited to the reserve *484fund. The statutory limitation on funding is also in general terms, requiring only that the total amount of such transfers in a biennium shall not exceed the total amount appropriated by the legislature.
The appropriation which is the subject of this lawsuit has two important characteristics. First the appropriation states the general total sum appropriated to the retirement system as a whole, which is in consonance with the statutory scheme discussed above. Second, the appropriation to the teachers’ retirement system was expressly made subject to the Governor’s revisory powers. Laws of 1969, Ex. Ses., ch. 282, § 6, p. 2746. The majority, in citing this section, has failed to note the important fact that the specific legislative appropriation here involved is, by its very terms, made subject to the Governor’s allotment control under RCW 43.88.110.6 Thus, this case involves no conflict between the powers of the legislature and the executive; those branches of government have acted in consonance in this matter.
In today’s decision, the majority ignores the basic nature of “actuarial soundness” and the need to deal with it in the context of fiscal management. Without considering the interests of the prime beneficiaries of “actuarial soundness” (the taxpayers), the majority elevates the interest of secondary beneficiaries to that of a “vested right.” Such elevation might be tenable as a “contractual” matter if there were an express or at least reasonably inferable promise to that effect by the state — such as existed in Dombrowski, supra. But none is to be found here, absent the most strained and imaginative interpretation.
It is to be emphasized that this case does not involve the firmly established right of public employees to receive pension payments as they come due. That vested pension right, *485expressed in the line of cases represented by Bakenhus v. Seattle, 48 Wn.2d 695, 296 P.2d 536 (1956), imposes upon the state or municipal authority which has promised the pension “the obligation to pay a pension when the employee has fulfilled all of the prescribed conditions.” Baken-hus, supra at 698. This solemn contractual obligation is supported by the full faith and credit of the state.
In the case at bench that obligation is being fully met and petitioners make no substantial claims that it will not continue to be met. To conclude that the establishment and mandatory biennial implementation of the statutory goal of this reserve account is essential to protect the rights of teachers to receive their pensions as they become payable requires the assumptions that the full faith and credit of this state will be insufficient to pay teachers’ pensions or that the government will renege upon its solemn contractual obligations and that the judiciary is powerless to otherwise protect the rights of teachers to receive the pensions due. In my view, such assumptions are highly unrealistic and should not be indulged in a case involving the sovereign state — as distinguished from local governing units, which have substantial restrictions on the extent of their taxing authority. Indeed this court has embraced the opposite assumptions. To illustrate, the assumption that the legislature will meet obligations when called upon to do so underlies our rule that once the state wrongfully “takes” private land it will not be ousted and the property owner will be left to his damages remedy. See Wandermere Corp. v. State, 79 Wn.2d 688, 697, 488 P.2d 1088 (1971); State ex rel. Decker v. Yelle, 191 Wash. 397, 71 P.2d 379 (1937); State ex rel. Peel v. Clausen, 94 Wash. 166, 162 P. 1 (1917).
Prudent fiscal management of state affairs is a responsibility which the constitution places in the legislative and executive branches of government, not in this court. To construe the pension legislation as creating a vested right in the method of funding the state’s obligation would require this court to find a legislative intent to surrender for the future a substantial portion of its fiscal responsibilities *486in the operation of state government. As I have previously discussed, I find nothing in this legislation conveying such intent. Moreover, it seems to me that ascribing such meaning to the legislation subjects it to constitutional doubt. See State ex rel. Washington State Bldg. Financing Authority v. Yelle, 47 Wn.2d 705, 289 P.2d 355 (1955). It is to be observed that this court has heretofore characterized the 50-year amortization provision as a mere “admonition by the legislature to future sessions” in upholding that provision against a claim that it violates the “debt” provision of Const, art. 8. State ex rel. Wittler v. Yelle, 65 Wn.2d 660, 668-69, 399 P.2d 319 (1965).
For these reasons I think it more proper to view RCW 41.32 as a legislative expression of a fiscally prudent program of building up over a period of 50 years a fund which will relieve then current taxpayers of a portion of the preexisting obligations of the state to meet pension payments. The statute is just the “admonition” expressed in Wittier, supra, rather than the absolute command to future legislatures contended for by petitioners. Government is not entirely unlike the individual who, during times of current ability places funds in a savings account to tide him over periods of economic stress. When his current income is insufficient to meet maturing mortgage payments and other such obligations, he draws on that savings account which, in turn, will be replenished when current income exceeds current needs. That analogy accords with common sense and with the constitutional and legislative framework before this court.
I am reluctant to conclude that governmental decision making is to be removed from the legislature, whose members are elected by, representative of, and accountable to the body politic, and reposed instead in persons or groups which do not bear these characteristics. In my view that, and only that, is accomplished by today’s majority decision. Its result adds not a penny to pensions being received or to be received, does not protect the moneys contributed by *487teachers (which are placed in separate accounts)7 and has not been shown necessary to assure “actuarial soundness” of the pension system. None of these matters are involved. Rather, the majority, in the name of “vested right,” establishes a prior claim to state funds, immune from the exercise by the legislature and the executive of their constitutional and statutory duties.
Thus, being convinced that the exercise of the allotment control is not an impairment of a teacher’s right to pension benefits as they become payable, and finding no legislative commitment binding future legislatures, I would deny the writ.
Stafford, J. (concurring specially in the dissent) — I have carefully reviewed both the majority and dissenting opinions and find that I cannot fully agree with either.
I do not agree with the dissent’s assertion that actuarial soundness, or its equivalent, is assured by the fact that members of the pension system have a vested right to receive payments as they become due. That position is based upon an assumption that the system’s strength is assured by the state’s credit. Such credit is said to be unassailable because of the state’s unlimited power to collect all taxes necessary to pay its obligations.
The argument is good in theory, however, it does not bear up under historical scrutiny. The great depression of the 1930’s made it painfully clear that the power to levy taxes is of little value if people have no money with which to pay them. For example, taxing authorities cannot always recover money for unpaid taxes by the simple process of selling the property of defaulting taxpayers. Property can be sold only if there are purchasers with money. In addition, if people have no money, they will defer or eliminate the purchase of many items subject to state sales tax. In short, history tells us that the credit of state govem*488ment rests upon a much more tenuous base than one may care to admit.
It is no answer to say that pension payments may be made by warrant, if there are insufficient funds. Turning again to the great depression, one is reminded that many banks refused to cash warrants and others did so only after discounting them. Thus, those paid by warrant were faced either with an inability to cash them, or with the necessity of accepting less than the warrant’s face value.
Further, the Budget and Accounting Act, Laws of 1959, ch. 328, as amended by Laws of 1965, ch. 8, does not give a Governor unlimited power to revise or withhold previously approved allotments from agencies not exempted in sections 11 and 24 of the act. Section 11 imposes two limitations: (1) the Governor must first “ascertain that available revenues for the applicable period will be less than the respective appropriations”; and, (2) “he shall revise the allotments concerned so as to prevent the making of expenditures in excess of available revenues.” (Italics mine.)
All parties agree that at the time here in question revenues in the general fund were, and would continue to be, less than proposed expenditures for the remainder of the fiscal biennium. Thus, the requirement of the first limitation has been met.
It will be noted, however, that the second requirement refers to the revision of “allotments”. Use of the plural indicates that the total budget may not be balanced at the expense of one or a few departments or agencies. If the power is exercised, “allotments” must be revised or withheld pro rata among all nonexempt agencies and departments, rather than by being revised or withheld selectively.
Granted, petitioners do not contend that the allotment in question was singled out. Nevertheless, for the sake of accuracy, we should not leave an impression that the power under section 11 is unbridled.
Finally, I disagree with the dissent’s position that the Laws of 1963, Ex. Ses., ch. 14 do not necessarily contemplate a pension system that is actuarially sound. While it is *489true the words “actuarially sound” do not appear in the Laws of 1963, Ex. Ses., ch. 14, it is mere quibbling to say that the language contained therein, at page 1372, does not contemplate the creation of a pension system that eventually will be “actuarially sound”:
For the purpose of establishing and maintaining an actuarial reserve adequate to meet present and future pension liabilities of the system and to pay for one-half of the operating expenses of the system, the board of trustees at each regular July meeting next preceding a regular session of the legislature shall compute the amount necessary to be appropriated during the next legislative session for transfer from the state general fund to the teachers’ retirement system during the next biennium. Such computation shall provide for amortization of unfunded pension liabilities over a period of not more than fifty years from the effective date of this 1963 amendatory act.
(Italics mine.)
Turning now to the majority opinion, it is one thing to say that the legislature created a pension system which contemplates eventual “actuarial soundness”. It is quite another to accept the majority’s position that a member of the system possesses a vested right therein and also has a vested right which deprives the legislature of monetary power to do other than systematically appropriate all funds a trustee estimates as necessary to reach “actuarial soundness” within a specified time.
Members of the system have a vested right in an “actu-arially sound” system. However, the extent thereof as well as the extent of legislative and/or executive control of funds appropriated to meet the estimated need are derived from the Laws of 1963, Ex. Ses., ch. 14, § 11, p. 1372. Thus, the language that created the system is important.
In addition to providing for eventual “actuarial soundness”, the above mentioned act also provides:
The legislature shall make the necessary appropriation from the state general fund to the teachers’ retirement system after considering the estimates as prepared and submitted, and shall appropriate from the teachers’ re*490tirement fund the amount to be expended during the next biennium for operating expenses.
(Italics' mine.) Pursuant thereto the board of trustees is required to make a computation that is a mere estimate of needs. The legislature, in turn, is required to “consider” the estimate. However, the act neither requires the legislature to follow the estimate nor provides that the board’s estimate is a gauge of what is deemed to be a “necessary appropriation” in any one biennium. Thus, one must conclude that the vested rights created by the above cited act are subject to the legislature’s determination of what is deemed to be a “necessary appropriation.”
With such ultimate legislative control in mind, it will be remembered that the appropriation for the 1969 biennium contained a limitation upon what it deemed to be a “necessary appropriation”:
In order to carry out the provisions of these appropriations and the state budget, the budget director, with the approval of the governor, may:
(1) Allot all or any portion of the funds herein appropriated or included in the state budget, to the various agencies by such periods as he shall determine and may place any funds not so allotted in reserve available for subsequent allotment: . . .
(Italics mine.) Laws of 1969, Ex. Ses., ch. 282, § 6, p. 2746.
The legislature not only acted within the power reserved to itself in the Laws of 1963, Ex. Ses., ch. 14, § 11, but acted within the purview of the Budget and Accounting Act8 which contains language of similar import. Further, the appropriation act also authorized a withholding of funds with the approval of the Governor, under conditions similar to those provided in the Budget and Accounting Act.
The majority seems to assume that the pension system created by Laws of 1963, Ex. Ses., ch. 14, is not subject to section 11 of the Budget and Accounting Act. However, such assumption ignores the fact that the Budget and Accounting Act, adopted in 1959, specifically exempted nu*491merous agencies, departments, and commissions from its controls.9 The teachers’ pension system, however, was not exempted. Furthermore, the legislature could have provided for such an exemption when the pension system was created in 1963, but it did not do so.
Thus, in 1963, when the legislature enacted the “ac-tuarially sound” pension system, it created a system subject to the previously enacted fiscal controls of the Budget and Accounting Act. That this was not mere happenstance is demonstrated by the legislative use of such control in the appropriation of funds for the 1969 biennium (ie., authorizing the withholding of funds subject to approval of the Governor, in a manner similar to that provided in the Budget and Accounting Act). In short, the Governor was authorized to act either under the specific language of the legislative appropriation or of the Budget and Accounting Act.
In passing, an additional defect in the majority’s position should be noted. The record contains no evidence that either the legislature’s 1969 appropriation or the Governor’s withholding of funds pursuant thereto, impaired the actual or eventual “actuarial soundness” of the pension system.
In the final analysis, there is no question that members of the pension system have a vested right in a system that eventually will be actuarially sound. However, this vested right is subject to the power of the legislature to determine the amount of funding needed, in any one biennium, to reach the actuarial goal. Further, the system is subject to the fiscal control of the Budget and Accounting Act.
I am in complete sympathy with the need for an actu-arially sound pension system. It is a matter of good business practice and prudent fiscal management to so provide. Nevertheless, the method of achieving that goal is a legislative rather than a judicial function. The legislature has the power to provide for an actuarially sound system free of the Budget and Accounting Act’s control. If it does so, then, *492under the theory of Dombrowski v. Philadelphia, 431 Pa. 199, 245 A.2d 238 (1968), the legislature will be required to provide systematic funding to insure an actuarially sound pension system. Unfortunately, the legislature has not taken that step to date.
Without question each member of the court is in sympathy with the cause of those who are members of the teachers’ pension system. Nevertheless our personal feeling in this regard provides us with no authority to override both legislative and executive power by judicial fiat. For these reasons, I am compelled to dissent.
Wright, J., concurs with Stafford, J.
Petition for rehearing denied June 23, 1972.

“Actuarial soundness” is a term expressing the idea of building a reserve fund which, at some reasonable future time, will be sufficient to meet current obligations without new revenues. Three observations should be made as to the nature of “actuarial soundness”:
1. In itself, it is a mathematical abstraction — an actuary’s estimate based upon his own actuarial assumptions and subject to variance according to the “conservative” or “liberal” nature of those assumptions. A recent hypothetical illustration of this phenomenon showed actuarial estimates (of the amount needed to assure an identical fund, or degree of “actuarial soundness”) ranging from $3.7 million to $19.6 million, a variance of over 500 per cent. Forbes Magazine, vol. 109, No. 6, p. 53 (March 15, 1972).
2. When “actuarial soundness” is placed in the context of fiscal management, it is revealed to be a commendable, but supplementary item, to be achieved after current necessities have been attended.
3. The prime beneficiary of “actuarial soundness” is the party who will be required to make the future payments, not those who will receive them. The ultimate recipients benefit in a secondary way in that payments coming due (which are in no way increased by “actuarial soundness”) will have been previously funded.

For several biennia prior to 1959-61 biennium, the state was faced with continuing and increasing general fund deficits. After considerable study by the legislative budget committee, under the auspices of the executive, in consultation with a citizens committee and the work of a research firm, the legislature adopted Laws of 1959, ch. 328, which is commonly known as the Budget and Accounting Act. The preamble of said act provides (p. 1601):
Section 1. Purpose. It is the purpose of this enactment to establish an effective budget and accounting system for all activities of the state government; to prescribe the powers and duties of the governor as these relate to securing such fiscal controls as will promote effective budget administration; and to prescribe the responsibilities of agencies of the executive branch of the state government.
This legislative act includes in section 7 a definition of “appropriations” wherein it is stated:
Appropriations shall be deemed maximum authorizations to incur expenditures but the governor shall exercise all due supervision and control to ensure that expenditure rates are such that program objectives are realized within these máximums.
The heart of the control therein adopted to prevent general fund deficits is contained in section 11 which reads:
Sec. 11. Expenditure programs; allotments; reserves. Subsections (1) and (2) of this section set forth the expenditure programs and the allotment and reserve procedures to be followed by the executive branch.
(1) Before the beginning of the fiscal period, all agencies shall submit to the governor a statement of proposed agency expenditures at such times and in such form as may be required by him. The statement of proposed expenditures shall show, among other things, the requested allotments of appropriations for the ensuing fiscal period for the agency concerned for such periods as may be determined by the budget director for the entire fiscal period. The governor shall review the requested allotments in the light of the agency’s plan of work and, with the advice of the budget director, he may revise or alter agency allotments: Provided, That revision of allotments shall not be made for the following: agencies headed by elective officials; University of Washington; Washington State College; Central Washington College of Education; Eastern Washington College of Education; and Western Washington College of Education. The aggregate of the allotments for any agency shall not exceed the
*481total of appropriations available to the agency concerned for the fiscal period.
(2) Except for agencies headed by elective officials and for institutions for higher education, as provided in this section, the approved allotments may be revised during the course of the fiscal period in accordance with the regulations issued pursuant to this act. If at any time during the fiscal period the governor shall ascertain that available revenues for the applicable period will be less than the respective appropriations, he shall revise the allotments concerned so as to prevent the making of expenditures in excess of available revenues. To the same end, and with the exception stated in this section for allotments involving agencies headed by elective officials and for institutions for higher education the governor is authorized to withhold and to assign to, and to remove from, a reserve status any portion of an agency appropriation which in the governor’s discretion is not needed for the allotment. No expenditures shall be made from any portion of an appropriation which has been assigned to a reserve status except as provided in this section.
(Italics mine.)

It is of interest to note that by the terms of RCW 41.32.4941 the legislature did transfer funds from the Pension Reserve Fund to the Teachers’ Retirement Fund for the purpose of paying increased benefits (1961). Laws of 1961, Ex. Ses., ch. 22, § 4.

It is pertinent to note that the legislature has not seen fit to include the Teachers’ Retirement System among those agencies expressly exempted from this power of the executive to revise allotments. See RCW 43.88.110(1). No issue is here raised by the parties or the record as to whether the Governor has the power to selectively revise allotments or must instead exercise his revisory power pro rata among all nonexempt agencies.

Upon retirement a teacher receives retirement benefits consisting of two parts. He receives an annuity derived from his own contributions to the annuity fund. He also receives a pension which comes from the state’s allocations to the retirement system.

Laws of 1959, ch. 328, as amended by Laws of 1965, ch. 8.

Laws of 1959, ch. 328, §§ 11 and 24.