April 25, 1995
ANN MUSSELMAN, HERSCHEL IRONS, ZELMA RIFKIN, KATHERINE KEELING, JEANINE POIRIER, MARY CHRISTIAN, ETTA MAE PIERCE, AND C. ANN GRAHAN, PLAINTIFFS-APPELLANTS,
JOHN ENGLER, AS GOVERNOR OF THE STATE OF MICHIGAN, DOUGLAS B. ROBERTS, AS TREASURER, PATRICIA A. WOODWORTH, AS DIRECTOR OF THE DEPARTMENT OF MANAGEMENT AND BUDGET, THOMAS H. MCTAVISH, AS AUDITOR GENERAL, GARY D. HAWKS, AS ACTING STATE SUPERINTENDENT OF PUBLIC INSTRUCTION, MICHIGAN PUBLIC SCHOOL EMPLOYEES RETIREMENT BOARD, AND THE LEGISLATURE OF THE STATE OF MICHIGAN, DEFENDANTS-APPELLEES.
Before The Entire Bench (except Weaver, J.). Chief Justice James H. Brickley, Justices Charles L. Levin, Michael F. Cavanagh, Patricia J. Boyle, Dorothy Comstock Riley, Conrad L. Mallett, Jr., Elizabeth A. Weaver. Riley, J. (concurring in part and Dissenting in part).
The opinion of the court was delivered by: Boyle
The question presented concerns funding of retirement health care benefits for members of the Public School Employees Retirement System. Although we find that the failure to fund these benefits as they arise violates Const 1963, art 9, § 24, we cannot grant the plaintiffs' request for mandamus.
FACTS AND PROCEDURAL HISTORY
The plaintiffs in these consolidated cases are current and retired public school employees who are members of the Michigan Public School Employees Retirement System (MPSERS). That system, established pursuant to MCL 38.1301 et seq.; MSA 15.893(111) et seq., covers employees of public local school districts, intermediate school districts, tax-supported community or junior colleges, and various state universities. MCL 38.1305(1); MSA 15.893(115)(1); MCL 38.1306(4); MSA 15.893(116)(4). Retirees receive both a monthly monetary allowance, see MCL 38.1384; MSA 15.893(194), and various health care benefits, see MCL 38.1391; MSA 15.893(201). This case concerns those health care benefits.
Health insurance premiums for retired public school employees were first funded by the state in 1975. Under 1974 PA 244, § 27e, the Retirement Board paid "hospitalization and medical coverage insurance premium . . . not to exceed $25.00 per month . . . ." That act further specified that premiums would be paid "only during those fiscal years for which an appropriation is made which is sufficient to cover the premium payments likely to be made for that year or on a terminal funding basis." Id.
This statute was amended several times over the next few years. Each amendment increased the amount of the premium that the state would pay. In 1983, the act was amended to provide that "the retirement system shall pay the entire monthly premium . . . ." 1983 PA 143.
In 1985, the statutes governing health care benefits for members of MPSERS were amended extensively. See 1985 PA 91. While the state continued to pay the entire monthly premium for retirees' health benefits, that payment was no longer contingent on a yearly appropriation. Instead, the statute required the board to pay the entire monthly premium for any retirant or beneficiary receiving a monthly retirement allowance: "the retirement system shall pay the entire monthly premium or membership or subscription fee for . . . a retirant or retirement allowance beneficiary who elects coverage in a group health benefits plan authorized by the retirement board and the department." 1985 PA 91, § 91(1).
The statute also required the state to fund benefits being earned by *fn1 current employees: "the contribution rate for other benefits, including health benefits, shall be computed using an individual projected benefit entry age normal cost method of valuation." 1985 PA 91, § 41(2). Pursuant to this statute, the state prefunded retirement health care benefits until fiscal year 1990-91.
On June 18, 1991, however, while the state was in the midst of budgetary problems, the Governor issued Executive Order *fn2 No. 1991-17. That order reduced the appropriation to the public school employees retirement system by approximately $54 million *fn3 by amending the controlling statute: *fn4
(1) The appropriations to the public school employees retirement system from the school aid fund, as provided jointly by Act 214 of the Public Acts of 1990 and Act 357 of the Public Acts of 1990, hereby are reduced by $53,795,700 GFGP/School Aid Fund ($55,773,300 Gross) as a result of the following revision of section 41(2) of Act 300 of the Public Acts of 1980 (public school employees retirement act of 1979) as amended:
(2) The contribution rate for benefits payable in the event of the death of a member before retirement or the disability of a member shall be computed using a terminal funding method of valuation. The contribution rate for other benefits, including health benefits, shall be computed using an individual projected benefit entry age normal cost method of valuation. FOR THE 1990-91 STATE FISCAL YEAR, THE CONTRIBUTION RATE FOR HEALTH BENEFITS SHALL BE COMPUTED USING A CASH DISBURSEMENT METHOD.
On July 3, 1991, plaintiffs filed a complaint for Writ of Mandamus with the Court of Appeals, asserting that Executive Order No. 1991-17 violated several provisions of the Michigan Constitution and the United States Constitution. On November 19, 1991, the Court summarily denied the plaintiffs' complaint.
In preparation for fiscal year 1991-92, the Governor made an executive recommendation to cease actuarially prefunding health benefits. Pursuant to this recommendation, the Legislature did not fund benefits being earned by current employees, and appropriated funds only to pay insurance premiums for retirees and beneficiaries. See 1991 PA 119. On April 16, 1992, Governor Engler issued Executive Order No. 1992-6, which amended 1980 PA 300, § 41(2) in a way similar to Executive Order No. 1991-17, except that it applied to the "1991-92 state fiscal year."
On December 10, 1991, plaintiffs filed both a motion for rehearing and a motion to amend their complaint by adding a count challenging 1991 PA 119. On February 4, 1992, the Court of Appeals granted both motions and ordered "a full hearing on the merits in the same manner as an appeal of right."
For the 1992-93 fiscal year, the Legislature appropriated funds only to pay insurance premiums of retirees and beneficiaries, which amounted to just over $229 million. See 1992 PA 148. Again, the Legislature did not appropriate money for health benefits being earned by current employees, and amended MCL 38.1341(2); MSA 15.893(151)(2), accordingly:
Except as otherwise provided in this subsection, the contribution rate for other benefits, including health benefits, shall be computed using an individual projected benefit entry age normal cost method of valuation. For the 1992-93 state fiscal year, the contribution rate for health benefits shall be computed using a cash disbursement method. [ 1992 PA 158 (emphasis added).]
On February 23, 1993, however, the appropriation was cut by approximately half, a reduction of $115.6 million, in Executive Order No. 1993-6. Because the entire appropriation had been necessary just to pay insurance premiums for retirees and beneficiaries, reduction had to come from somewhere else. The order specified that "health insurance benefits shall be paid from the Reserve for Health Benefits as provided by section 34 of Act 300 of the Public Acts of 1980."
Plaintiffs then moved to amend their complaint for mandamus to add a count alleging that the state's actions in the 1992-93 budget year also violated the constitution. This motion was denied April 12, 1993.
On July 19, 1993, the Court of Appeals denied plaintiffs' petition for mandamus (hereinafter "Musselman I"). 200 Mich. App. 656; 505 N.W.2d 288 (1993). The majority *fn5 declined to reach the merits, and instead ruled that it was "without authority to order the relief requested by the plaintiffs in any event":
In the present case, it is clear that plaintiffs are not seeking to compel the performance of a ministerial act. Rather, they seek an order compelling the Governor to exercise his discretion under Const 1963, art 5, § 20 in a particular manner. We cannot provide such a remedy. Furthermore, it is not within our province to order the Legislature to appropriate funds. [Id. at 662-664.]
In addition, the majority found that the plaintiff had not established that any of the remaining defendants possessed authority to appropriate or transfer money to the Retirement System. Id. at 665.
On August 2, 1993, plaintiffs filed an original complaint for mandamus regarding the 1992-93 budget year (hereinafter "Musselman II"). This complaint was summarily denied. We granted the plaintiffs application for leave to appeal in both cases. 445 Mich 881 (1994).
THE CONSTITUTIONALITY OF FUNDING PENSION HEALTH CARE BENEFITS ON A CASH DISBURSEMENT BASIS
There is no dispute that, since the 1990-91 fiscal year, the state has failed to fund retirement health care benefits being earned *fn6 by current employees (as opposed to benefits owed to retired members, which have continually been satisfied in full). The plaintiffs allege that this failure violates the second sentence of Const 1963, art 9, § 24, *fn7 which requires that "financial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities." We agree.
A. Retirement Health Care Benefits Fall Within Const 1963, art 9, § 24
At the outset we emphasize that the defendants do not argue that health care benefits are not "financial benefits arising on account of service rendered in each fiscal year . . . ." We have neither a factual record nor legal arguments on the subsidiary question when health care benefits "arise," and we intimate no opinion regarding that question. Instead, the threshold issue before us is defendants' contention that "health benefits are not 'accrued financial benefits' within the first paragraph of art 9, § 24--and are not therefore subject to the prefunding requirements of the second paragraph thereof."
Defendants trace the drafting history of art 9, § 24, *fn8 noting that delegate proposals and proceedings before the Committee on Finance and Taxation applied to "benefits" or "accrued benefits." They argue that the subsequent addition of the word "financial" suggests that the provision governs only direct payments to the retirant, and that therefore, although health care may be a benefit, it is not a "financial benefit."
Whether the restriction to "financial" benefits excludes health care benefits from the scope of the provision depends to some extent on one's point of view. From the perspective of the employee, it is not completely clear that health insurance is a "financial benefit." Although health insurance is not cash that retirants may spend as they wish, employees receive health insurance in lieu of additional compensation, and they would have to purchase insurance if it were not provided to them. This analysis tends to show that retirement health care benefits are financial benefits, but the fact that it does not yield a conclusive answer indicates that this point of view is likely the wrong one.
Instead, the proper perspective from which to interpret the term "financial benefits" seems to be that of the government. The purpose of the provision is, after all, to check legislative bodies, requiring them to fund pension obligations annually, and thereby preventing back door spending. Article 9, § 24 arose out of concern about legislative bodies failing to fund pension obligations at the time they were earned, so that the liabilities of several public pension funds greatly exceeded their assets. At the time of the Constitutional Convention, the Committee on Finance and Taxation estimated that it would require nearly $600 million to make the two public school employees retirement systems actuarially sound. See 1 Official Record, Constitutional Convention of 1961, p 771. Thus, "many pensioners had accumulated years of service for which insufficient money had been set aside in the pension reserve funds to pay the benefits to which their years of service entitled them." Kosa v State Treasurer, 408 Mich 356, 365; 292 N.W.2d 452 (1980).
Failing to fund pension benefits at the time they are earned amounts to borrowing against future budgets, or "back door" spending. Cf. 1 Official Record, Constitutional Convention of 1961, pp 772-773. "Back door" spending was the term used by the delegates to refer to the process of establishing pensions without paying the costs at the same time. The delegates intended to prevent this: *fn9
In other words, they should put enough money in there so when they retire the money is there. And there was a very specific purpose for this. I was one of the ones that pushed it. I wanted employers, legislative bodies and city councils to be very aware of what they were spending when they gave a person, a public employee, a retirement program. In other words, how much did it cost per year?
See also Jurva v Attorney General, 419 Mich 209, 224-225; 351 N.W.2d 813 (1984) ("the purpose of the provision was to prevent the shifting of the burden for pensions from the taxpayers who derived benefit from the services rendered to future taxpayers by 'back door' spending").
For the purpose of securing pension benefits and preventing "back door spending," failing to prefund retirement health care benefits is no different from failing to prefund monthly retirement allowances--a practice that defendants concede is prohibited. *fn10 In both cases, the cost of the benefit either must be paid as the benefits are earned by the taxpayers who are receiving the direct benefits from the services, or it must be paid as the benefits come due by taxpayers who have received no direct benefit from the services. The constitution requires that benefits be funded as they are earned. Therefore, because the purpose of the provision is to prevent governmental units from amassing bills for pension payments that they do not have money to pay, we hold that the term "financial benefits" must include retirement health care benefits.
Defendants argue that the framers and ratifiers of Const 1963, art 9, § 24 could not have had health benefits in mind when they adopted the provision, because state retirement systems did not pay for employee health care benefits until roughly a decade after adoption of the Constitution of 1963. The defendants' only evidence for this proposition, however, is that "health benefits were not provided at all under the teacher's retirement act until 1974." This fact does not show either that health care benefits were not part of retirement plans during the early 1960's or that the drafters of the provision did not contemplate that health care benefits might fall within the provision some day.
Whether or not they were funded by the state, health care benefits appear to have increasingly been a part of retirement plans across the nation at the time this provision was drafted and adopted. See Kleinmann, Fringe benefits for public school personnel (Bureau of Publications, Teacher's College, Columbia University: New York, 1962), p 20. Michigan residents in particular would have been aware of the possibility that retirees might receive health care benefits. On January 1, 1962, approximately one month before the delegates discussed the proposal that was to become Const 1963, art 9, § 24, the Chrysler Corporation began providing health insurance for its retirees and their eligible dependents on a split pay basis. *fn11
Moreover, even assuming that the possibility that retirement health care benefits would become part of pension plans did not occur to all or some of the framers of Const 1963, art 9, § 24, the scope of the provision is not necessarily limited by the specific benefits they actually thought of. The very idea behind formulating a general rule, as opposed to a set of specific commands, is that a rule governs possibilities that could not have been anticipated at the time. Given that the justification for applying this rule to monthly retirement allowances is equally applicable to health care benefits, it seems fair to say that prefunding of health care benefits is what the framers intended.
Defendants also point to definitions in other legal sources that distinguish health care benefits from monthly living allowances in the form of cash payments. Under ERISA, for example, the term "accrued benefit" does not include ancillary benefits such as payment of medical expenses or insurance. See 26 CFR, part 1, §§ 1.411(a)-7(a)(1), (c)(3). There is simply no reason to assume that a word or phrase carries the same meaning whenever it appears regardless of the context. Health care benefits are not "accrued benefits" under ERISA because ERISA is intended to insure prefunding only of retirement allowances. The distinction between health care benefits and monthly retirement allowances merely reflects the congressional policy determination that "vesting of these ancillary benefits would seriously complicate the administration and increase the cost of plans whose primary function is to provide retirement income." Sutton v Weirton Steel Div of Nat'l Steel Corp, 724 F.2d 406, 410 (CA4, 1983).
B. Amendment of the Statute Requiring Prefunding does not Cure the Problem
Defendants argue that the constitution permits amendment of 1985 PA 91, § 41(2), the statute that provides for prefunding retirement health care benefits, because appropriations by one Legislature do not bind succeeding Legislatures. See, e.g., Oakland Schools Bd of Ed v Sup't of Public Instruction, 392 Mich 613; 221 N.W.2d 345 (1974). While we agree with the proposition advanced, the argument is misplaced.
The prefunding requirements of Const 1963, art 9, § 24 apply to pension benefits that must be paid. *fn12 The only alternative, leaving the bill for yet a future Legislature, exacerbates the problem. Unlike emergency cuts of nearly any other type of service, cuts of pension funds must be directly repaid, and at a much higher cost. *fn13
The obligation to pay retirement health care benefits does not arise from the appropriations statutes. It is a contractual right arising from the fact that employees have worked in reliance on the statutory promise that the board will pay earned health care benefits of any member receiving a retirement allowance.
Moreover, as a practical matter, pension obligations differ from nearly every other type of government spending insofar as they simply cannot be reduced or cut. Leaving aside the desirability of such choices, it would be possible for the government to stop funding many of the projects it now plans to pay for. For example, if the Legislature had passed a statute saying that it would fund highway improvement for the next five years, it could choose to cease funding highway expansion and repair in any given year. The state would not get wider highways that year, and traffic congestion would probably increase, but the state could pay this price if it needed to save the money. Similarly, the state could reduce the appropriation for its police force. Local communities previously benefiting from state police protection would either receive less police protection, divert local revenues from other sources, or seek new revenues.
Michigan governmental units do not have the option, however, of not paying retirement benefits. Unlike highway construction or police protection, which a governmental unit can choose to receive less of, it is impossible to receive less service from the pensioner. The pension is payment for work already completed, or deferred compensation. *fn14 See, for example, Jacoby v Grays Harbor Chair & Mfg Co, 77 Wash 2d 911, 915; 468 P.2d 666 (1970), *fn15 and Hoefel v Atlas Tack Corp, 581 F.2d 1, 5 (CA1, 1978) (applying Massachusetts law) and authorities cited therein.
THE GOVERNOR'S EMERGENCY BUDGET CUTTING POWERS
Defendants also suggest that the executive orders that require funding on a cash disbursement basis do not violate the constitution because they comply with Const 1963, art 5, § 20. That provision *fn16 allows the Governor, with approval of the appropriations committees of both houses, to "reduce expenditures authorized by appropriations whenever it appears that actual revenues for a fiscal period will fall below the revenue estimates on which appropriations for that period were based." The only restriction is that "the governor may not reduce expenditures of the legislative and judicial branches or from funds constitutionally dedicated for specific purposes." *fn17 No constitutionally dedicated funds were disturbed by the executive orders in question. During fiscal year 1990-91, for example, only 55.7 percent of the $3.145 billion school aid fund, from which the retirement health care benefits were paid, was from sales tax revenue constitutionally dedicated to the school aid fund by Const 1963, art 9, § 11. *fn18
We agree with the defendants that Const 1963, art 5, § 20 "was intended to give the Governor broad power to reduce expenditures in many areas." Michigan Ass'n of Cos v Dep't of Mgt & Bdgt, 418 Mich 667, 684; 345 N.W.2d 584 (1984). In addition, we agree that education has not been immunized from emergency reductions. We also agree that Const 1963, art 9, § 24, is not a self-executing appropriation that constitutionally dedicates funds to state pension reserves. It does not follow from any of this, however, that Const 1963, art 5, § 20 empowers the Governor to reduce expenditures in a way that violates another provision of the constitution. It certainly would not authorize the government to refuse to satisfy its contractual obligations, *fn19 such as pension payments to retirees, in an emergency.
Defendants do not argue that Const 1963, art 5, § 20 would authorize the Governor to fail to prefund monthly retirement allowances (as opposed to retirement health care benefits). Rather, the defendants concede that prefunding of monthly retirement allowances is "constitutionally commanded" under Const 1963, art 9, § 24. Our Conclusion is simply that health care benefits are "financial benefits" within the meaning of Const 1963, art 9, § 24, and consequently fall within the obligation that the defendants acknowledge.
Defendants point to the fact that the 1985 Legislature, which initially promised retirement health care benefits, did not have to balance the state budget in fiscal years 1990-91 and 1991-92. We appreciate that prefunding benefits promised by a previous Legislature can cause the state financial hardship. This seems to have been appreciated by the framers as well, who intended that governmental units would have to prefund benefits despite the temporary financial difficulty that would cause:
Mr. Van Dusen: Mr. Chairman and Mr. Gover, it is designed to prevent cities from in the future using the funds which are put into a pension fund to take care of current service benefits for any other purpose. If a city has become addicted to this practice, I would think the discontinuance of the habit might be a difficult experience for the city, at least briefly. It shouldn't hurt, however, too much. (laughter)
Mr. Gover: Just what do you mean by not hurting too much?
Mr. Van Dusen: I think I can give a clearer answer to Mr. Gover's question than I did. This is designed to see that money that is put into a pension fund to service currently accruing benefits is used for no other purpose. Any city that has been putting it in with one hand and taking it out with the other [to pay unfunded accrued liabilities] has got to stop. And if that hurts, why, it hurts. [1 Official Record, Constitutional Convention of 1961, p 775.]
Finally, defendants assert that funding of pension health care benefits on a cash disbursement basis does not run afoul of the constitution because it is only temporary. "This issue is significantly different from the question whether, under Const 1963, art 9, § 24, P 2, funding for health benefits under 1980 PA 300, § 41(2) may be permanently returned to cash disbursement funding, through legislative amendment . . . . That precise issue is not before this Court . . . ." *fn20
We see no indication, however, either that the failure to prefund is temporary, or that Const 1963, art 5, § 20 provides the Governor authority to violate other constitutional provisions even temporarily. Insofar as it authorizes the Governor to select and implement spending cuts in an emergency, it simply affords him legislative power. But the Legislature does not have authority to fail to prefund a pension fund, even temporarily.
The plaintiffs request a writ of mandamus ordering the appropriate official to transfer funds from the school aid fund to the reserve for health benefits. *fn21 We agree with the Court of Appeals that under these circumstances we do not have authority to grant that relief.
To obtain a writ of mandamus, the plaintiff must have a clear legal right to the performance of the specific duty sought to be compelled, and the defendants must have a clear legal duty to perform the same. Pillon v Attorney General, 345 Mich 536, 539; 77 N.W.2d 257 (1956); Janigian v Dearborn, 336 Mich 261, 264; 57 N.W.2d 876 (1953). Mandamus is an extraordinary remedy that may lie to compel the exercise of discretion, but not to compel its exercise in a particular manner. Teasel v Mental Health Dep't, 419 Mich 390, 409-410; 355 N.W.2d 75 (1984).
Given that the plaintiffs have failed to show that there is a pool of funds available to be transferred to the reserve for health benefits, the requested relief necessarily involves funds from the state treasury. *fn22 The only defendant with authority to appropriate funds *fn23 from the treasury is the Legislature. See Detroit Bd of Ed v Sup't of Public Instruction, 319 Mich 436, 453; 29 N.W.2d 902 (1947). "No money shall be paid out of the state treasury except in pursuance of appropriations made by law." Const 1963, art 9, § 17.
In this context, this Court lacks the power to require the Legislature to appropriate funds. This was the understanding of the drafters of art 9, § 24, who likewise did not contemplate that the prefunding requirement could be enforced by a court. They expected that the decision to comply rested ultimately with the Legislature, whom the people would have to trust:
It is the intention that we will put in each year enough in every fund to take care of the liability occurring during that year, so it will not go farther and farther behind.
In other words, insofar as the plaintiffs are asking us to require the Legislature to appropriate funds for retirement health care benefits, we understand that the intention of the drafters was that the second sentence of Const 1963, art 9, § 24 is not self-executing. Because the provision does not alter the rule that legislative action is necessary to appropriate funds, it fails to "'lay down rules by means of which [its] principles may be given the force of law.'" *fn24
We do not wish to imply that courts lack either power or authority to prevent the state from using money held in reserve for pension payments to pay for unfunded accrued liabilities. Insofar as it is merely a prohibition, Const 1963, art 9, § 24 is self-executing. As a general rule, no legislation is necessary to give effect to a prohibition. See, e.g., Beecher v Baldy, 7 Mich 488, 500 (1859) (Christiancy, J.). Although lacking power in the instant case to order the state to appropriate money, it is at least clear that a court can prevent the appropriate state officer with a clear legal duty to retain funds from violating that duty "applying funded reserves to meet unfunded retirement obligations." Kosa, supra, 408 Mich 382.
It has been neither argued nor established that art 5, § 20 permits the Governor or Legislature to decline to prefund the benefits contemplated by art 9, § 24. We hold that the state is obligated to prefund health care benefits under art 9, § 24. However, because we have no authority to order the Governor or the Legislature to appropriate funds, mandamus is denied.
Patricia J. Boyle
Conrad L. Mallett, Jr.
James H. Brickley
Michael F. Cavanagh
RILEY, J. (concurring in part and Dissenting in part).
The dispositive issue presented in this case is the proper method for funding health care benefits in the Michigan Public School Employees Retirement System. The majority finds that this Court does not have the power to grant plaintiffs mandamus even though the Governor's failure to prefund these benefits violates Const 1963, art 9, § 24. Although I agree with the majority's result that plaintiffs will not be able to recover, I disagree with its reasoning. Const 1963, art 9, § 24 requires that only financial benefits be prefunded. It is my belief that health care benefits do not equal financial benefits. This belief is based on my Conclusion that health care benefits simply do not fall under the definitional umbrella of financial benefits. Consequently, I conclude that the Governor did not violate the constitution by failing to prefund these health care benefits and for this reason I believe that plaintiffs should be denied relief.
The key to determining whether Governor Engler violated the constitution through his actions turns on how one defines a financial benefit. Const 1963, art 9, § 24 provides in relevant part:
The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.
Financial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities.
Through this provision, the constitution establishes a contractual obligation requiring the state to fund financial benefits in a given year as they arise. If the aforementioned health benefits are financial benefits, then they have to be funded and the Governor's acts preventing such funding were unconstitutional. However, if these health benefits do not fall under the penumbra of financial benefits, then they are not constitutionally dedicated and the Governor's failure to prefund them is not unconstitutional, provided that he had the power to cut the budget in this manner.
The majority maintains that health benefits are equal to financial benefits and begins by viewing the issue from the perspective of the employee. The majority argues that for the employee these health benefits may not represent cash in hand but they do have a definite cash value. Although health insurance is not cash that retirants may spend as they employees receive health insurance in lieu of additional compensation, and they would have to purchase insurance if it were not provided to them." Slip op, p 9.
The majority concludes that examining this issue through the eyes of the employee will not answer the question whether health benefits are equal to financial benefits. "This analysis tends to show that retirement health care benefits are financial benefits, but the fact that it does not yield a conclusive answer indicates that this point of view is likely the wrong one." Slip op, p 9.
Thus, the majority concludes that the issue should be viewed from the government's perspective and arrives at the Conclusion that financial benefits are equal to health benefits. "Instead, the proper perspective from which to interpret the term 'financial benefits' seems to be that of the government." Slip op, pp 9-10. The majority carefully examines the history behind this provision and concludes that the reason for its existence is to protect the pension fund. "Therefore, because the purpose of the provision is to prevent governmental units from amassing bills for pension payments that they do not have money to pay, we hold that the term 'financial benefits' must include retirement health care benefits." Slip op, p 12.
The majority's ultimate Conclusion, however, misses the mark because when interpreting the language of the constitution, unambiguous terms are given their plain meaning.
The constitution, although drawn up by a convention, derives no vitality from its framers, but depends for its force entirely upon the popular vote. Being designed for the popular judgment, and owing its existence to the popular approval, its language must receive such a construction as is most consistent with plain, common sense . . . . [ People ex rel Twitchell v Blodgett, 13 Mich 127, 141 (1865).]
The normal usage of the word "financial" *fn1 connotes money and "money" *fn2 connotes some form of hard currency that can be "spent."
The financial world shares a similar interpretation of this term. In an article appearing in the National Mortgage News on January 14, 1991, a definition of a financial instrument appeared that is directly relevant. In this article, a proposal by the Financial Accounting Standards Board, which creates guidelines for general accounting principles, was discussed. Specifically, the proposal required "financial institutions to report the current value of all 'financial instruments' in their portfolios." "FASB Opts for Current Value Reports," National Mortgage News, January 14, 1991, p 8. Moreover, it is interesting to note that "the FASB proposal excludes pension benefits, leases, insurance policies and similar items from its definition of financial instruments." Id. at 9 (emphasis added). Hence, if the FASB does not consider pension benefits and insurance policies to fall under the definition of a financial instrument, it is not a large leap to conclude that health insurance benefits included in a pension plan are not a financial instrument and hence are not a financial benefit.
This Conclusion by the FASB, although not controlling, sheds a great deal of light on the proper interpretation of the term "financial benefit." However, even more illuminating is the case of Port Huron Area School Dist v Port Huron Ed Ass'n, 120 Mich. App. 112, 116; 327 N.W.2d 413 (1982). In that case, the Court of Appeals interpreted the term "financial resource" as including funds, assets, and expected revenues. "We hold that the term 'financial resources' means the funds-assets, expected revenues, etc.--available for expenditure by the [district] in a given year." The reference in this definition to funds, assets, and expected revenues once again demonstrates that the term "financial" is understood to involve actual money. Consequently, it is difficult to find that a health benefit is a financial benefit.
This Conclusion finds further support in the fact that even money does not always equal a financial benefit. In Jurva v Attorney General, 419 Mich 209, 224; 351 N.W.2d 813 (1984), this Court found that cash payments as an incentive for early retirement did not constitute financial benefits. "We find, therefore, that early retirement incentives are not 'financial benefits arising on account of service rendered' and that Const 1963, art 9, § 24 is inapplicable."
While the majority does attempt to substantiate its Conclusion that health benefits are equal to financial benefits by looking to the intent of the framers of the provision, such an examination is improper because, as stated by Justice Cooley in Blodgett, "the light to be derived from an examination of the proceedings of constitutional conventions, on questions of constitutional construction, is commonly vague and inconclusive, and not to be allowed, in any case, to control the meaning of unambiguous terms." Id. at 166. He further stated:
If, however, by an examination of these proceedings, we had succeeded in ascertaining definitely the intent of the convention, we might still be far from the intent of the people in adopting their work. That intent should be gathered from the words embraced by the instrument as adopted, if those words are free from doubt. The people, in passing upon it, looked only to the clauses as they then stood, without troubling themselves with the considerations, or the accidental circumstances, that may have brought them to their present form. [Id. at 166-167.]
Justice Cooley then concluded that if the constitution expresses a natural meaning which, upon
the first impression . . . strike[s] the mind on reading the clause . . . then further examination, with a view to find some other and more subtle meaning, ought to be made with extreme caution, lest we deceive ourselves into disregarding the plain and obvious sense for some other, which only ingenuity discovers and suggests. [Id. at 167.]
Because the term "financial" has a commonly understood meaning, there is no need to look to the framers' intent behind the provision. Thus, I believe that the majority's analysis regarding the purpose behind the provision is improper.
Furthermore, it is questionable whether the framers even intended that financial benefits equal health benefits. The legislative history indicates that the term originally recommended for this provision by the advisory committee was "benefit," which has a broad connotation.
The committee recommends that the following be included in the constitution:
Sec. a. The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof, which shall not be diminished or impaired thereby.
All such benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be usable for financing unfunded accrued liabilities. [1 Official Record, Constitutional Convention 1961, p 770 (emphasis added).]
However, in the final draft, the framers limited the term "benefit" by adding the word "financial."
Financial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities. [Const 1963, art 9, § 24 (emphasis added).]
Hence, the problem with the majority's Conclusion is that the framers' creation specifically classifies the type of benefit protected as financial. The framers had every opportunity to use the broader solitary term "benefit" when it was recommended in that form, but chose not to do so. This fact leads to the inevitable Conclusion that the framers actually intended to limit the definitional umbrella of "benefit" by narrowing it with the use of the term "financial." In fact, when the vote was taken on April 19, 1962, the proposal that included the term "financial benefit" was overwhelmingly approved with 117 yeas and only 1 nay. 2 Official Record, Constitutional Convention 1961, p 2659. Consequently, even if we look at the legislative history behind the provision, we come to the realization that the framers wanted a narrower meaning for the term "benefit."
This Conclusion makes perfect sense in light of the principle of ejusdem generis, a rule of statutory construction that is applied where there are general terms modified by more specific terms.
"The rule 'accomplishes the purpose of giving effect to both the particular and the general words, by treating the particular words as indicating the class, and the general words as extending the provisions of the statute to everything embraced in that class, though not specifically named by the particular words.'
"The resolution of this conflict by allowing the specific words to identify the class and by restricting the meaning of general words to things within the class is justified on the ground that had the legislature intended the general words to be used in their unrestricted sense, it would have made no mention of the particular words." [ Belanger v Warren Bd of Ed, 432 Mich 575, 583-584; 443 N.W.2d 372 (1989), quoting 2A Sands, Sutherland Statutory Construction (4th ed), § 47.17, p 166.]
This rule of interpretation is directly applicable in this case because the rules for interpreting statutes are essentially the same as the rules for interpreting the constitution. See Tucker v Ferguson, 89 U.S. (22 Wall) 527; 22 L Ed 805 (1874). The specific word chosen, "financial," identifies the class restricting the meaning of the general word "benefit" to that class, "financial benefits." If the framers had wanted the term "benefit" to be used in a broad sense, they would not have used the term "financial" to limit it. Here the framers had a chance to limit the term to only "benefit," and actually made that recommendation, but, in the end, the limiting term "financial" appeared. Consequently, because a court "should not, without clear and cogent reason to the contrary, give a statute a construction the legislature itself plainly refused to give," People v Adamowski, 340 Mich 422, 429; 65 N.W.2d 753 (1954), it only makes sense that we should not extend to the term "benefit" a broader meaning that the framers clearly rejected.
THE GOVERNOR'S BUDGET CUTTING POWERS UNDER CONST 1963, ART 5, § 20
Under Const 1963, art 5, § 20, the Governor is allowed to "reduce expenditures authorized by appropriations whenever it appears that actual revenues for a fiscal period will fall below the revenue estimates on which appropriations for that period were based." This provision obviously grants to the Governor vast budget cutting powers. Michigan Ass'n of Counties v Dep't of Mgt & Bdgt, 418 Mich 667, 684; 345 N.W.2d 584 (1984). However, it is true that "the governor may not reduce expenditures of the legislative and judicial branches or from funds constitutionally dedicated for specific purposes." Const 1963, art 5, § 20. The majority concludes that because health benefits are equal to financial benefits, they are constitutionally dedicated and cannot be cut by the Governor. "Our Conclusion is simply that health care benefits are 'financial benefits' within the meaning of Const 1963, art 9, § 24, and consequently fall within the obligation that the defendants acknowledge." Slip op, p 19. The majority's Conclusion, however, as stated earlier, is incorrect. Health benefits are not equal to financial benefits; consequently, they are not constitutionally dedicated under Const 1963, art 9, § 24 and can be cut through the Governor's budget-cutting powers granted to him by Const 1963, art 5, § 20.
The result reached by the majority is the correct one. The defendants should prevail, but not for the reasons articulated by the majority. Financial benefits simply do not include health benefits for purposes of Const 1963, art 9, § 24. As a result, these funds were not constitutionally dedicated under Const 1963, art 9, § 24 and could be cut by the Governor's budget-cutting powers granted to him under Const 1963, art 5, § 20. The defendants did not violate the constitution and should prevail. Because of my resolution of this issue, it is unnecessary to address the mandamus issue.
Dorothy Comstock Riley
Charles L. Levin