AFSCME Councils 6, 14, 65 & 96, AFL-CIO v. Sundquist

YETKA, Justice

(dissenting).

I respectfully dissent. Because I would hold that the mandatory 2% withholding *578provision is a tax that violates the state uniformity clause, Minn. Const, art. X, § 1, and an unconstitutional impairment of contract, Minn. Const, art. I, § 11, I would reverse the decision of the district court.

Nearly a year ago, in my dissent in In re U.S. Steel Corporation v. State of Minnesota, 324 N.W.2d 638 (1982), I wrote:

We all must remember that our constitutions — both state and federal — were intended to protect not only one citizen from another, but also to protect all citizens from oppressive acts of the government. If the legislature can strike an illegal blow at the mighty and be permitted to get away with it, it can more easily strike again at those least able to respond. I think there is a point at which to call a halt to such activity, and this is a good opportunity.

Id. at 647 (Yetka, J., dissenting). Here, public employees are the victims of an illegal act of the legislature less than a year later!

I surely agree that we must give great deference to a legislative act, but the constitution was written for the courts to interpret. We must not allow the constitutional language to be an illusionary protection only.1 To uphold the authority of the legislature to levy a tax on public employees, while excluding the general public, and unilaterally to deprive state employees of their contractual rights without sufficient justification constitute an abdication of this court’s responsibility to ensure that Minnesota citizens are protected from arbitrary and discriminatory legislative action.

Uniformity Clause

We have previously addressed what constitutes a tax. “Taxes are pecuniary charges imposed by the legislative power to raise money for public purposes — a burden imposed to supply the very lifeblood of the state.” Great Lakes Pipe Line Co. v. Commissioner of Taxation, 272 Minn. 403, 407, 138 N.W.2d 612, 615, appeal dismissed, 384 U.S. 718, 86 S.Ct. 1886, 16 L.Ed.2d 881 (1965), quoting In re Petition of S.R.A., Inc., 213 Minn. 487, 488, 7 N.W.2d 484, 485 (1942). “In a general sense, [a tax is] any contribution imposed by government upon individuals, for the use and service of the state, whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name.” Black’s Law Dictionary 1307 (rev. 5th ed. 1979); see also Staub v. Harris, 626 F.2d 275, 278 (3d Cir.1980).

The 2% withholding provision is a tax. It is an enforced contribution, exacted pursuant to legislative authority, and collected from public employees to address the general budget crisis facing the state. The form of the payment is not as important as is its substance. State employees are forced to pay 2% of their gross income to the state while non-public employees are not.

The majority and the district court emphasize several characteristics of the form and nature of the contribution and conclude that it is not, in fact, a tax. They stress that each contribution is credited to an individual account, that the money is refunded if the employee leaves public service (though only prior to vesting), and that the contribution is recouped in the form of *579retirement benefits. These justifications are either erroneous or irrelevant. Retirement benefits were not increased. The end benefits remained the same after the contribution as they did without it. Thus, the finding of the district court that the contribution inures to the benefit of the employee is clearly erroneous.2 While it is true that a favorable IRS ruling allowing an employee to deduct the state tax from the gross income is beneficial, some funds already had such a privilege prior to the passage of the new tax.

Further, the claim that the contribution is necessary to ensure the integrity of the pension fund and, therefore, of direct benefit to the employees is not persuasive. There is no evidence in the record that, prior to the contribution, the fund was in a less-than-adequate financial position. The district court, in its findings of facts, found that the fund was in a “reasonably good financial condition.” The Legislative Commission on Pensions and Retirement,3 in its report to the 1979-1980 Minnesota State Legislature, came to the same conclusion. To the extent that the fund is compromised, it is the result of the companion decrease in the state’s contributions to the fund. The legislature enacted both provisions in the same bill to combat the same problem — the state’s budget crisis. One cannot be reviewed without consideration of the other.

In light of our obligation to review statutes as a whole and to pierce form to evaluate the substance of legislation, I can only conclude that state employees received no greater benefit than did the public at large from the pension fund contributions. If all taxpayers were required to contribute an extra 2% of their income to the state coffers, no one would dispute that the contribution would constitute a tax. If a bird looks like a duck, quacks like a duck, and walks like a duck, it is most likely a duck. Likewise, if an act looks like a tax, raises revenue like a tax, and is mandatory like a tax, it is a tax.

The great majority of our citizens pay into the federal social security fund. Congress has mandated coverage for most workers. The payments are made to the federal government in the form of payroll deductions. Historically, these deductions have been referred to as “payroll taxes.” One need only pick up recent newspaper and magazine articles addressing recent amendments to that act and read the pros and cons of increasing the taxes to make the system solvent to conclude that the contributions are indeed taxes. Those taxes are dedicated for the specific purposes set forth in the Social Security Act. Minnesota has road user, motor vehicle, and gasoline taxes. These funds are also dedicated for specific state highway funding purposes, but are they any less a tax? To ask the question, it seems to me, is to answer it. Of course they are taxes and so is the levy the *580legislature has made on state employees in the act before us.

Concluding that the contribution constitutes a tax, I now subject the provisions to the standards of judging constitutionality in light of the state uniformity clause. In interpreting our state uniformity clause, we are not bound by federal court interpretation of the federal equal protection clause. Because I conclude that the statute fails to pass constitutional muster under the independent state basis mandated by our state uniformity clause, I do not address whether it would pass the “rational basis” test under the federal equal protection clause.

The first step in analyzing any statute under the uniformity clause “rational basis” standard is identifying the purpose the statute was intended to fulfill. Here we have both the expressed purpose to solve the state’s budget crisis, contained in the statute itself, and a purpose argued by the state’s attorneys that the 2% contribution is necessary to ensure the integrity of the pension fund because of the 4% cut in employer contribution.

No single approach has been followed by courts in identifying the appropriate purpose to apply in constitutional analysis. See Leedes, The Rationality Requirement of the Equal Protection Clause, 42 Ohio St.L.J. 639, 642-47 (1981). The United States Supreme Court has taken several different approaches, including hypothesizing any potential purpose, whether or not expressed by the legislature or the state’s advocates, see United States R.R. Retirement Bd. v. Fritz, 449 U.S. 166, 101 S.Ct. 453, 66 L.Ed.2d 368 (1980), and requiring that a deliberate choice of purpose be expressly stated in the legislation itself or actually discernible from legislative history, see Schweiker v. Wilson, 450 U.S. 221, 101 S.Ct. 1074, 67 L.Ed.2d 186 (1981). Between these two extremes is an approach that looks for something less than express statements, but falls short of out- and-out speculation. In the instant case, we have two conflicting purposes — an express purpose stated in the legislation itself and one advocated by the state’s attorneys.

I cannot accept the integrity of the fund as the proper purpose for analysis under the state uniformity clause. The entire statute must be examined, not any one provision in isolation. The legislature cannot create a purpose by one portion of the statute and then use the need created thereby to justify another portion, at least when the secondary portion impinges on the constitutional rights of state citizens.

The applicable purpose is the one expressly stated in the legislation, that is, the need to balance the state budget as opposed to the “need” to shore up the pension fund. The preamble to the act clearly states the purpose of the legislation. The fact that the legislature was in special session, called for the specific purpose of addressing the budget deficit, reinforces a narrow interpretation of the purpose for constitutional analysis. Finally, to adopt any other purpose would be to elevate form over substance and ignore the actual effect of the legislation.

The majority, in effect, consolidates multiple purposes. It does so in two ways. First, it says that the adverse impact on the pension fund caused by the deprivation of employers’ contributions will affect the state’s credit rating which will, in turn, exacerbate the state’s fiscal crisis by affecting the state’s ability to borrow. Second, the majority argues that the reduction in employer contributions threatened the soundness of the fund, thereby requiring that the legislature act to protect the fund.

Neither argument is sufficient. Although no one can deny the importance to the state of a good credit rating, the 6-month decrease in employer contributions is merely one of the numerous factors threatening the rating and the equally numerous measures being pursued to protect it. The majority’s argument is simply too attenuated to bring the increase in employee contributions within the ambit of the legislative purpose outlined in the bill’s preamble.

The second argument is superficially more persuasive, but also fails to withstand scrutiny. To begin with, there is something facile and dangerous in saying that creating *581a problem gives one carte blanche in resolving it, particularly where there is insufficient proof that the problem exists in the first place. True, there is evidence that the decrease in employers’ contributions may somewhat postpone full funding of the pension system. There is also evidence, however, that full funding is not, under any circumstances, envisioned during this century. When the state’s pension system was reformed in Í957, Act of April 29, 1957, ch. 935, 1957 Minn.Laws 1472, the target date for full funding was 1997. This date was pushed back to 2009 by the 1979 Legislature, Act of May 24,1979, ch. 184, § 1,1979 Minn.Laws 283, 285 (codified at Minn.Stat. § 356.215, subd. 4 (1982), and a procedure was adopted for revising the target date in light of changed circumstances in the future, see Legislative Commission on Pensions and Retirement, Report to the 1979-1980 Minnesota State Legislature at 6 (1979-1980). Nowhere are there signs of an imminent collapse of the system.

The majority repeatedly refers to the magnitude of the state’s economic crisis and the need for swift solutions. This may explain the legislature’s actions; it does not remove the taint of unconstitutionality. The constitutional entitlement to uniform treatment cannot be subverted in pursuit of credit ratings and quick fixes. Here, the money that is levied by the state can be traced directly to the general revenue fund. The statute states clearly that, in some pension plans, the state is withholding its contributions while, in others, the proceeds of the additional employee levies are to be paid directly to that fund.4 State employees are thus contributing millions to the state revenue fund to help balance the budget.

It has been argued that, since the legislature has the power to decrease employer contributions currently, it also has the power to raise employee contributions at sometime in the future to maintain the financial integrity of the pension funds. Taking both steps in the same act must, therefore, be permissible. This argument fails for two reasons. First, it is far from clear that the legislature may unilaterally decrease employer contributions. The contract clause discussion that follows in this dissent indicates that such an act would violate the state constitutional provision proscribing impairment of contract.

Second, even assuming that a decrease in employer contributions would not violate the contract clause, a subsequent increase in employee contributions would still run afoul of the uniformity clause. A delay in imposing a tax on public employees does not render the levy any less a tax. If the classification fails to address the purpose of the legislation, it fails constitutional muster whether enacted today or 2 years from now. The applicable purpose remains the curing of the state’s financial crisis. Funds previously incorporated into the general revenue fund through the decrease in employer contributions are merely replaced by subsequent employee contributions. The substance remains the same, though the form is manipulated to avoid constitutional barriers.

Any law passed by the legislature that imposes a tax,on citizens of this state must pass the two-step uniformity clause test of a legitimate purpose and a classification rationally related to that purpose. Here, the test is not met because the classification consisting of state employees does not rationally relate to the purpose of curing the state’s financial crisis.

*582The state admitted at oral argument that if the legislature had attempted to solve the entire $312 million shortfall by the levying of an increase in employee contributions to pension plans, it perhaps would have been illegal. If that is so, how can the $63 million be any less illegal? • On what theory would the larger levy be illegal and the smaller not?5

To me, nothing can be clearer than that the levy is a tax, a tax devoted to the general welfare of the entire citizenry of the State of Minnesota. If we uphold this scheme, what is to prevent the legislature from levying a special tax on steel workers only to help alleviate certain economic conditions on Minnesota’s Iron Range, on farm families to alleviate problems on the farms, or on other industrywide workers to help or maintain industries in the State of Minnesota? I can see no distinction.

I conclude that the act violates the state uniformity clause and the district court must be reversed.

Contract Clause

I would also hold that contract rights existed between the state and its employees and therefore disagree with the majority’s finding that no contract, express or implied, governed the levels of employee contributions. Since the 1950’s, the legislature has made it clear by a series of actions that it intended to guarantee that public pension funds would be actuarily sound and able to pay certain benefits. When it found those funds not sound, it increased contributions not only on the part of the employees, but the employers as well.6 As a matter of fact, from 1959 until 1973, it imposed a special 2½ percent levy on local political subdivisions, in addition to the normal employer-employee contributions, until pre-ex-isting fund deficits were eliminated. See Act of May 24, 1973, ch. 753, § 85, 1973 Minn.Laws 2266, 2308, repealing Minn.Stat. § 353.27, subd. 5 (1971).7 Increases in contributions since the 1950’s have been, in every instance, accompanied by increases in *583benefits.8 It is beyond belief that, in 1983, we could find there is no guarantee that the state will continue to match the employee contribution in at least the amounts heretofore made in the past.

For the same reasons, I take strong exception to the majority opinion finding no intent to promise specific levels of state contributions or pensions. For, as we held in Sylvestre v. State, 298 Minn. 142, 214 N.W.2d 658 (1973), insofar as it affected the judiciary, a sound pension system is one of the few inducements for public employment. Id. at 149, 214 N.W.2d at 663. It is similar to a deferred compensation plan where the state offers a pension in addition to the regular salary if a public employee works for a specified period of years. For the most part, state employees are paid far less than either their federal counterparts or those in private employment for similar work. There will be a shock wave felt throughout the state if public employees are now told, in effect, that never mind what your salary was or what your pension estimates were at the time you came to work 10 years ago, these can be changed anytime.9 Such a holding simply does not square with today’s reality nor is such a holding even consistent, in my opinion, with our recent decision in Christensen v. Minneapolis Municipal Employees Retirement Board, 331 N.W.2d 740 (Minn.1983).10

The legislature considered also a 2% across-the-board decrease in salaries, we are told. Undoubtedly, there was fear that if that course of action were taken, it would be violative of the impairment of contract clauses of the state and federal constitutions because the state had entered into a collective bargaining agreement and the legislature had ratified a contract with state employees that prohibited a cut for the period of that contract. A fiscal crisis that fails to justify a direct impairment of contract, however, cannot then be held to justify the same impairment, though accomplished in a circuitous manner.

The state emphasizes horror stories of possible layoffs in the tens of thousands in an apparent attempt to show that, even if the statute impaired contract rights, such an impairment was justified by the seriousness of the state’s fiscal crisis. The state’s scenario, however, envisions solving the entire $312 million shortage through layoffs and does not limit itself to the $63 million initially taxed to state employees. The con*584sequences of solving only $63 million of the shortage through layoffs are obviously far less serious and do not justify the state’s impairment of its employees’ contract rights. Further, the legislature did not sufficiently consider other fiscal relief measures before it resorted to the expedient of tampering with the pension fund. There is no indication that the sought-after $63.5 million was obtainable nowhere else than from public employees’ pockets.

Perhaps there is some validity to the argument that the legislature felt state employees ought to share in the cost of the solutions to the state’s financial, crisis. In my opinion, however, the legislature has passed far over the line on what is permissible and what is not in enacting this statute. Other jurisdictions have held that increases in public employee pension contributions without counterbalancing increased benefit to the employee constitute impairments of contract rights. Allen v. City of Long Beach, 45 Cal.2d 128, 287 P.2d 765 (1955); Marvel v. Dannemann, 490 F.Supp. 170 (D.Del.1980); Singer v. City of Topeka, 227 Kan. 356, 607 P.2d 467 (1980); Opinion of the Justices, 364 Mass. 847, 303 N.E.2d 320 (1973). California recently held that a decrease in employer contributions to a public pension reserve fund was an unconstitutional impairment of contract. Valdes v. Cory, 139 Cal.App.3d 773,189 Cal.Rptr. 212 (1983).

I conclude that the doctrine of promissory estoppel creates actionable contract rights in public employees as to the state pension fund. By decreasing employer contributions and increasing employee contributions, the legislature has substantially impaired its contract with state employees, an impairment not justified by the extent of the financial crisis the legislature acted to cure.

Under the circumstances of this case, I must conclude that the legislature has failed to act in a constitutional manner. Thus, I must dissent from the majority opinion. To do otherwise appears to me to be nothing less than abolishing the historical protection afforded by our constitutions and to say, in effect, taxpayers beware because there is no longer a limit on legislative authority to classify and to tax or to . rewrite state contracts at will. In this case, state employees are the victims; tomorrow, anyone else could be.

. As Justice Jackson stated in discussing the federal equal protection clause:

I regard it as a salutary doctrine that cities, states and the Federal Government must exercise their powers so as not to discriminate between their inhabitants except upon some reasonable differentiation fairly related to the object of regulation. This equality is not merely abstract justice. The framers of the Constitution knew, and we should not forget today, that there is no more effective practical guaranty against arbitrary and unreasonable government than to require that the principles of law which officials would impose upon a minority must be imposed generally. Conversely, nothing opens the door to arbitrary action so effectively as to allow those officials to pick and choose only a few to whom they will apply legislation and thus to escape the political retribution that might be visited upon them if larger numbers were affected. Courts can take no better measure to assure that laws will be just than to require that laws be equal in operation.

Railway Express Agency, Inc. v. New York, 336 U.S. 106, 112-13, 69 S.Ct. 463, 466, 93 L.Ed. 533 (1949) (Jackson, J., concurring).

. The majority cites Gossman v. State Employees Retirement System, 177 Neb. 326, 129 N.W.2d 97 (1964), for the proposition that pension contributions are distinguishable from taxes. In Gossman, the Nebraska Supreme Court considered the constitutionality of a state employee retirement system at the time of its creation. The court held that a 1 percent contribution by current employees to fund a prior service benefit fund was not a tax. The court, however, focused on the fact that the contribution was a voluntary one, arising from the acceptance of employment. Further, the contribution was for the purpose of providing benefits under the pension plan and was “not an exaction or tax for the purposes of carrying on the general functions of government." Id at 332, 129 N.W.2d at 102 (emphasis added).

In the instant case, the contribution did not result in the creation or maintenance of any retirement benefits. It was intended to replace funds no longer contributed by the state, such funds being diverted to the state’s general fund for the purpose of alleviating the general budget deficit.

. The Legislative Commission on Pensions and Retirement was originally established as an interim commission by the 1955 Legislature. Its purpose was to study public retirement problems in light of changes made by the 1955 Legislature. The commission was maintained as an interim commission by each successive legislature, with the exception of the 1961 session, until 1967. The 1967 Legislature established the current permanent commission, which has issued reports to each legislature up to the present.

. Moreover, the distinction between not putting money into the pension plan and taking money out is an elevation of form above substance. Both are deprivations of contributions to the fund. An analogy can be drawn to the concept of tax expenditures. It has been clear for some time that, despite superficial differences, direct government subsidies and tax preferences (deductions and credits) are substantively the same. Not taking money from taxpayers is the functional equivalent of giving money to taxpayers. The former is an indirect tax “expenditure” while the latter is merely a more direct expenditure. See Surrey, Tax Incentives as a Device for Implementing Government Policy: A Comparison with Direct Government Expenditures, 83 Harv.L.Rev. 705 (1970). Here, we are faced with the converse situation-not giving money to employee pension plans is functionally equivalent to taking money from the plans.

. Subsequent to the instant action, the 1983 Legislature amended the contribution provisions by requiring reimbursement to state employees of half the increased contributions, payable with interest at the time of the first annuity payment or upon withdrawal. See Act of June 8, 1983, ch. 301, §§ 225-26, 1983 Minn. Laws 1706, 1855-56. The new provisions are applicable from January 1, 1983, to June 30, 1985, and affect employees retiring during this period and participants whose contributions were increased by the legislation challenged here. While this recent enactment does lessen the impact of the original contribution provisions, it does not cure the taint of unconstitutionality.

. Since the current scheme of the state’s pension system was established in 1957, employer contributions have matched employee contributions. In the 1957 legislation, employee contributions were set at 6 percent. Employer contributions were gradually raised over a 2-year period until they too reached 6 percent. Act of April 29, 1957, ch. 935, § 7, 1957 Minn.Laws 1472, 1475. In 1973, when employee contributions were again increased and basic and coordinated plans were differentiated, the statute was amended to provide that employer contributions would be equal to those of employees. Act of May 24, 1973, ch. 753, § 28, 1973 Minn. Laws 2266, 2279. The express policy of the new pension system was to guarantee the financial integrity of the various pension funds by matching current employer contributions to employee contributions and by providing for adequate future financing. Legislative Committee on Retirement and Pensions, Report to the 1979-1980 Minnesota State Legislature, at 26-27 (1979-1980).

The exceptions to the policy of lock-step contribution increases noted in the majority opinion are not significant. The 1974 amendments to the Teachers Retirement Association levels of contributions consisted of a temporary percent difference enacted along with significant alterations to the operation of the fund itself. The contribution levels for correctional employee members of the state retirement system merely reflect the unique status of these employees pursuant to Minn.Stat. § 352.90 (1982), which provides special retirement benefits due to the potential for early retirement caused by the nature of the employment.

.The repealed section, originally enacted by the 1957 Legislature, provided:

An additional contribution shall be made to the fund based on two and one-half percent of the salary of each member not to exceed $4,800 in any calendar year for the purpose of amortizing the deficit in the fund. This contribution shall be made from funds available to the employing subdivision in the manner provided in section 353.28. This subdivision takes effect July 1, 1959.

Minn.Stat. § 353.27, subd. 5 (1957).

. The 1979 amendments to the Teachers Retirement Association pension plan, Act of May 31, 1979, ch. 293, § 10, 1979 Minn.Laws 641, 648-49, noted as an exception to this overriding policy in the majority opinion, did contain an $11,600,000 appropriation to fund post-retirement adjustments, id, and increased both employer and employee contributions by an identical ½ percent, see Legislative Committee on Retirement and Pensions, Report to the 1979-(1980) Minnesota State Legislature, at 6 (1979-1980).

. The majority correctly points out that the University of Minnesota faculty and other state employees were left out of the 2% levy. It attempts to justify the omission by inherent powers given the University Board of Regents. I cannot follow that logic. Whether one works for the State of Minnesota or one of its political subdivisions, if one employee must pay the 2% contribution, all should pay, or in my opinion, there is a denial of equal protection under both federal and state constitutions. Because the autonomy of the Board of Regents is created by state constitutional provisions, and analysis of these provisions here would involve us in additional constitutional analysis, 1 do not reach this issue here. The tax and contract analyses are dispositive of this appeal and further discussion of this issue is unnecessary.

.In Christensen, this court recognized a cause of action grounded in promissory estop-pel to challenge deprivation of pension benefits and other changes in pension terms and conditions. The majority opinion rejects this claim here and endorses the district court’s finding that, due to numerous modifications of contributions and appropriations in the past, any employee expectation in fixed contribution rates is unreasonable. This logic ignores the fact that the clear pattern of the modifications made by the legislature is one of increasing benefits and matching employer contributions. The modification in dispute in the instant case is drastically different in that employee contributions were raised and employer contributions lowered. There may be no reasonable expectation in fixed rates. There may be, however, a reasonable expectation in matching contributions and continued maintenance of benefits as well as salary.