Using the same standards as the United States Supreme Court in
Spannaus
, the court deemed the impairment in
Cannon
to be severe. Then, applying the standards from
Blaisdell
, (cited herein), our supreme court held:
74 Op. Att'y Gen. 100, 110 (1985)
[T]he retroactive application of Chapter 38 will do little to protect the broad societal interests articulated in the legislative purpose. The marginal protection offered by Chapter 38, coupled with its severe impairment of the plaintiffs' MCERS contracts, indicates that it is neither reasonable nor of a character appropriate to the public purpose it was designed to meet.
74 Op. Att'y Gen. 100, 110 (1985)
Cannon
, 111 Wis. 2d at 562.
74 Op. Att'y Gen. 100, 110 (1985)
I now turn to the question of whether the contracts between those people who were members of the retirement systems referred to in section 71.03(2)(d) on December 30, 1963, and who are still working for the units of government therein listed, will be impaired by the proposed legislation.
74 Op. Att'y Gen. 100, 110 (1985)
Again, I must divide that particular class of persons into two sub-classes--first, those who by virtue of chapter 96, Laws of 1981, are members of the Wisconsin Retirement System (former members of the Milwaukee public school teacher's annuity and retirement fund and Wisconsin state teachers retirement system); and, secondly, the remainder.
74 Op. Att'y Gen. 100, 110 (1985)
As to the first group, section 40.19(1), as created by chapter 96, Laws of 1981, and effective January 1, 1982, applies. The Legislature clearly stated its intent:
74 Op. Att'y Gen. 100, 110-111 (1985)
Rights exercised and benefits accrued to an employe under this chapter for service rendered shall be due as a contractual right and shall not be abrogated by any subsequent legislative act. The right of the state to amend or repeal, by enactment of statutory changes, all or any part of this chapter at any time, however, is reserved by the state and there shall be no right to further accrual of benefits nor to future exercise of rights for service rendered after the effective date of any amendment or repeal deleting the statutory authorization for the benefits or rights....
74 Op. Att'y Gen. 100, 111 (1985)
Therefore, if a member of the first subset retires after March 8, 1984, to the extent that his or her pension is attributable to post-March 8, 1984 earnings, that aliquot portion will be subject to tax. The pre-March 9, 1984 portion will remain tax-exempt. This result occurs because of the specific reservation by the Legislature of its right to prospectively amend or repeal the statute, provided it does not abrogate any rights or benefits accrued to a member.
74 Op. Att'y Gen. 100, 111 (1985)
It is important to note that section 43 of chapter 96, Laws of 1981, repealed and recreated section 71.03(2)(d). The only change made was to include the public employe trust fund as the successor to the Milwaukee public school teacher's annuity and benefit fund, and to the Wisconsin state teachers retirement system. The tax exemption remained intact and unaltered for the remainder of the persons described in section 71.03(2)(d). When the legislature enacts a statute, it is presumed to act with full knowledge of the existing laws, including statutes.
Mack v. Joint School District No. 3
, 92 Wis. 2d 476, 489, 285 N.W.2d 604 (1979). Further, "a statute must be presumed to be valid and constitutional, 2 Sutherland
Statutory Construction
(3rd ed.) pp. 326-27, sec. 4509..."
In re City of Beloit
, 37 Wis. 2d 637, 643, 155 N.W.2d 633 (1968). The obvious implication of the grandfathering of the December 31, 1963, system members by the language contained in section 4 of chapter 267, Laws of 1963, and the reiteration of that exception in chapter 96, Laws of 1981, is that the Legislature, in order to pass a constitutional statute which would not impair contract obligations, had a prospective outlook. Retired and present employes were grandfathered; future employes (after January 1, 1964) would receive taxable pensions upon retirement.
74 Op. Att'y Gen. 100, 111-112 (1985)
It is my opinion that the remainder of the class (those persons mentioned in section 71.03(2)(d) other than former members of the Milwaukee and state teacher retirement systems) in all likelihood will be entitled to receive tax-exempt pensions upon their retirement. In other words, the likely effect of the proposed legislation is to unconstitutionally impair their obligations of contract. This is not to say, however, that these pensions remain irrevocably tax-exempt; only that the standards from
Spannaus
,
Blaisdell
and
Cannon
are not met by the proposed legislation. If subsequent legislation meets those standards, then the impairment may well be constitutional.
74 Op. Att'y Gen. 100, 112 (1985)
In rendering this opinion, I became aware of an Ohio Supreme Court case,
Herrick v. Lindley
, 59 Ohio St.2d 22, 391 N.E.2d 729 (1979). In that matter, the Ohio Supreme Court held that retirement pensions could be later taxed even though the recipients had retired at a time when Ohio law provided that such pensions were tax free. This case is distinguishable from the question before me in several important respects.
74 Op. Att'y Gen. 100, 112 (1985)
First, the Ohio case was submitted for the plaintiffs on a theory of vested rights. They argued that the vesting statute, when read together with the exemption statute, results in the pensioners having a vested right to a continuing tax exemption. In this case, however, the issue is not one of statutory construction. Rather, it is a question of determining the scope of a contract, and of determining whether or not impairment of that contract by taxation is constitutional. Of course, the right of contract must yield to the police power when the safeguarding of the vital interests of the people so dictates. Thus, a Wisconsin court would be faced with a balancing test to decide whether or not impairment is constitutionally permitted. The Ohio court only had a "yes-no" choice.
74 Op. Att'y Gen. 100, 112 (1985)
Secondly, the Ohio Supreme Court would have had to approve of the appellate court's use of statutory construction to allow the continuing exemption. The Ohio Supreme Court dismissed this contention: "A right to tax exemption must appear with reasonable certainty in the language of a statute, and may not depend on a doubtful construction of that language."
Herrick
, 391 N.E.2d at 733. In this case, resort to statutory construction is unnecessary.
74 Op. Att'y Gen. 100, 112-113 (1985)
Finally, the Ohio Supreme Court viewed the tax exemption as irrevocable if plaintiffs were to have prevailed. Thus, the state partially relinquishes its ability to deal with changing future fiscal conditions. "The power to tax being a fundamental governmental power, its impairment should not be based on a debatable construction of statutory construction."
Herrick
, 391 N.E.2d at 733. In Wisconsin, the retirement benefits could be taxed (
i.e.
, the contract obligations could be impaired) if the public interest and needs of the state outweigh the high value placed on the protection of private contracts.
74 Op. Att'y Gen. 100, 113 (1985)
Finally, I emphasize that this opinion is based on proposed legislation as it appeared on June 3, 1985. Subsequent amendments or declarations of legislative and public policy in connection with this legislation may well produce a different answer in the future.
Section 1276m, Assembly Amendment 1 to 1985 Assembly Bill 85 adds the following language at the conclusion of section 71.03(2)(d): "but such exemption shall not exclude from gross income tax sheltered annuity benefits. The exemption under this paragraph does not apply to benefits received by individuals who retire on or after March 9, 1984."