Court of Appeals Holds State Cannot Increase Taxes on Civil Service Employees

Okay, so the Court of Appeals didn't exactly say that, but that's certainly one interpretation of the court's opinion in AFSCME v State Employees Retirement System, published yesterday.  And it's a troubling one.

Here's the background:  The State Civil Service Commission has the authority under the Michigan constitution to fix the compensation for all civil service employees, although its decisions can be changed by 2/3 vote of the Michigan legislature within 60 days of the CSC's recommendation.  During the last days of the Granholm administration, the state and its civil service employee unions agreed to a collective bargaining agreement (CBA) that froze hourly wages for the fiscal year 2008-2009, but increased them by one percent for fiscal year 2009-2010 by three percent for fiscal year 2010-2011.  Various resolutions were introduced in the legislature to reject these increases, but none were passed.

Fast forward to 2011, in which the legislature enacted and the governor signed MCL 38.35, requiring a three percent employee compensation contribution to finance public employee retirement health care.

In a series of consolidated lawsuits, the unions and their employees argued that MCL 38.35 was unconstitutional, because it reduced employee compensation and had not been passed by 2/3 vote of the legislature within 60 days of the CSC's recommendation.  The court stated:

In the present case, civil service employees were not given the option of participating in the retiree health care funding act.  Moreover, there is no correlation between the three percent reduction in compensation for individual civil service employee and the contribution into the system.  That is, there is no escrow of the individual’s contribution into a fund for that individual.

So, requiring civil service employees to pay 3 percent of their compensation into the state retirement fund is unconstitutional because (1) it wasn't voted on properly, (2) employees have no option of participating or not, and (3) the individual's contribution isn't escrowed into a separate fund for that employee's benefit.

So what's the difference between the 3 percent contribution and taxes?  Taxes are not voted on according to the civil service schedule and rarely pass with 2/3 of the vote, employees have no option of paying taxes or not, and their individual "contributions" aren't escrowed for the employee's benefit.  According to the court's reasoning, therefore, any tax increase not voted on within 60 days of a CSC recommendation and passed with 2/3 of the vote is unconstitutional.

How does the court answer this?  With one sentence:

Taxes imposed by the federal and state government are standard rates that apply based on income levels.

In the words of Joe Pesci as the title character in My Cousin Vinny, "That's it??"  "Standard rates that apply based on income levels"  -- that's your reasoning?  How does that even relate to the issues here? 

The CSC set the compensation levels.  The legislature did nothing to change those levels, other than order a deduction for retirement savings.  That does not change the total compensation ordered by the CSC.  If it does, so do taxes.  The court is clearly wrong here, unless it also believes that civil service employees are exempt from tax increases unless the legislature enacts them by 2/3 vote within 60 days of any CSC recommendation.  Of course, the court won't go that far, but that is the inescapable conclusion of its opinion.

The only way out of this box is to say, as the court tried but could not bring itself to say, that taxes are different.  No reason, no logic, just a statement, as though it is axiomatic:  taxes are different.

By the way, of the three judges on this panel, one was elected and two were appointed by Granholm.  All were Democrats before assuming their non-partisan positions on the bench.