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May 28, 1998 Special Supplement

Stephen H. Cypen, Esq., Editor

GOVERNOR CHILES VETOES HOUSE BILL 3075

In our May, 1998 Newsletter we contemplated issuing a special edition dealing with HB 3075, which we hoped would become law on or before Midnight May 27, 1998. We did not contemplate having to issue a special edition advising of Governor Chiles's veto of HB 3075. Unfortunately, on May 27, 1998 at 3:11 P.M., Governor Chiles filed with the Secretary of State his veto and signed objections to said bill. Because the Governor's letter clearly demonstrates the type of misinformation generated by opponents of the bill, we are reproducing the letter in its entirety:

Dear Secretary Mortham:

By the authority vested in me as Governor of Florida, under the provisions of Article III, Section 8, of the Constitution of the State of Florida, I do hereby withhold my approval of and transmit to you with my objections to Committee Substitute for Committee Substitute for Committee Substitute for House Bill 3O75 enacted during the 100th session since statehood in 1845, during the Regular Session of 1998, and entitled:

An act relating to municipal firefighters' pension trust funds and municipal police officers' retirement trust funds....

Committee Substitute for Committee Substitute for Committee Substitute for House Bill 3O75 is designed to realize a number of important policy objectives. Using state financial incentives, it aims to secure a minimum level of pension benefits for firefighters and police officers throughout Florida. It seeks to provide, contingent upon available revenues, additional benefits to firefighters and police officers over and above those provided to general employees. And finally it attempts to ensure better state oversight and greater accountability of firefighter and police officer pensions [sic] plans.

This legislation is the product of a long and highly contentious debate. Many of the claims made about its adverse impacts on municipalities and special districts have been wildly overstated, more the result of mistrust and misinformation than close analysis and careful consideration. It does not suffer from most of the ills held against it. It can provide a positive framework within which pension policy for firefighters and police officers can be resolved. But to do so, it must first correct those defects that have contributed directly to the misapprehensions that it has aroused. In large measure, this means the legislation must be made more clear before it should be allowed to become law.

During the course of the legislative debate on Committee Substitute for Committee Substitute for Committee Substitute for House Bill 3O75, I proposed a number of changes intended to clarify the effects of the legislation. I hoped that those changes would reinforce the general intent that this legislation avoid a direct, immediate impact on local finances. I believed that the changes would have helped to avoid future litigation and establish a sound basis for state oversight. Unfortunately, my proposed changes were not adopted. As it stands, Committee Substitute for Committee Substitute for Committee Substitute for House Bill 3O75 contains provisions which are confusing and frequently misleading.

Several of the bill's most important provisions revolve around the use of the insurance premium tax. "In all cases," the tax is to "be used in its entirety to fund extra benefits to firefighters, or to firefighters and police officers." The case for this provision is compelling, but its practical effect raises concerns precisely because the bill does not clarify how it would affect the revenues currently used to fund local plans, how "in its entirety" is to be understood, or how the incremental growth in insurance premium taxes is to be treated, notwithstanding other statutory provisions such as section 175.162(2), Florida Statutes. It is such ambiguities that have helped create the factual divide between those who believe that the bill's compensation and disability provisions would be prohibitively costly to local governments and those who argue there will be no cost.

This legislation addresses the much discussed and critical issue of how "extra benefits" are defined. Here the legislation follows the suggestion of the Court in Florida League of Cities v Department of Insurance 540 So.2nd 850 (1st DCA 1989) and offers a valuable statutory distinction. Unfortunately, it neglects the way in which these "extra benefits" will actually be measured. Similar ambiguities and oversights affect the provisions governing the ways by which member contribution rates may be adjusted in section 175.071(2), Florida Statutes, and the authority of the board of trustees in section 175.351(1), Florida Statutes.

There may have been a time when such weaknesses could be overcome by an agency through administrative rule. Not so long ago, the Division of Retirement likely could have interpreted the bill's requirements broadly. The Division's rules, for example, may have resolved concerns about the implications of the provision that insurance premium tax revenues be used in their entirety to fund extra benefits. Concerns over the effect of changes in "compensation" and disabilities similarly may have been quieted. Similarly, such rules might have clarified the relative authority of the Board of Trustees and the local government.

Today, this tack is less likely to succeed. The revisions enacted in 1996 to the Administrative Procedures Act directed that rules be tied strictly to specific statutory authority, and that rules be adopted with provisions that extend no further than authorized by the enabling law. Rules, the revisions make clear, are not the appropriate vehicle to correct errors in the law, to extend the reach of the law beyond that which the Legislature has specified in the law, or to rectify inconsistencies or ambiguities. As a result, the interpretation of Committee Substitute for Committee Substitute for Committee Substitute for House Bill 3O75 that can be incorporated into state rules will be highly circumscribed, making it unlikely the intentions motivating this legislation can be achieved. The most likely result of an attempt to embed a broad interpretation in the rules is likely to be a period of prolonged administrative litigation.

There is, of course, the remote possibility that a carefully construed rule could be adopted, found consistent with the expression of legislative intent pertaining to specific provisions of the law, and deemed necessary to accomplish the expressed objectives of specific provisions of the legislation. Such a rule might even avoid prolonged legal challenges and avoid the most costly implications commonly attributed to this bill. It is unlikely, though, even in this optimal circumstance, to be costless to all the municipalities and special districts affected. Several local governments have adopted interpretations of Chapters 175 and 185 that differ from the provisions of the legislation. Even under the most salutary construction, local governments are likely to experience some expense. This is a prospect the legislation might well have avoided if it had addressed a period of transition and review. In an effort to deftly resolve a troubled set of policies, this legislation sets loose another set of troubles.

I agree with the basic tenets of this legislation. The state insurance premium tax has been rebated to local government to provide additional benefits to firefighters and police officers over and above that provided to general employees when such money is available to do so, provided the local government's pension plan is in compliance with state law. The pension funds of firefighters and police officers should be properly accounted for and spent. This policy recognizes the special hazards and exceptional service these employees provide in good times and bad. It provides an incentive to insure that these employees are given a set of minimum benefits in their retirement.

These principles are at the core of this legislation. It is particularly troublesome then, that even on this point, the legislation is not totally consistent. The bill exempts a total of 16 supplemental plan municipalities from complying with the definition of "compensation" and the provisions regarding the composition of pension boards. The reasons for exempting these municipalities from these provisions of the bill are unclear. For the most part, the exemptions appear to have little immediate impact. Their long term impact is less certain. But they undercut the laudable effort of the legislation to establish uniform policies and proper accountability in this vitally important area.

This legislation passed each House of the Legislature handily. The breadth and scope of the support it earned is indicative, I believe, of the high regard in which elected officials at all levels hold our firefighters and police officers. The pensions of our firefighters and police officers must be protected. I am concerned, however, that this legislation actually makes the existing situation worse in some important ways. It promises a whole new round of litigation and wrangling between local governments and the representations [sic] of the firefighters and police officers. It will color the tone of collective bargaining and will muddy local finances for officials, employees and taxpayers alike. It may even cause some governments to opt out of participation in the insurance premium tax, with the possible diminution of benefits.

These possibilities can be avoided through additional work and further refinement of this legislation. It will require a renewed sense of engagement from all those involved. But it is surely what our constituents expect.

For these reasons, I am withholding my approval of Committee Substitute for Committee Substitute for Committee Substitute for House Bill 3O75, and hereby veto the same.

  Sincerely,
  /s/
  LAWTON CHILES

In accordance with Article III, Section 8, of the Florida Constitution, the Secretary of State is required to submit the Governor's objections to the house in which the bill originated at the next regular or special session, where the objections shall be entered on its journal. If each house shall, by a two-thirds vote, re-enact the bill, the bill shall become law, the veto notwithstanding.

The Governor's veto message is quite self-explanatory, and anything we would say at this point would be in the nature of gilding the lily.

 

BUT "STAND-ALONE" BILL BECOMES LAW

When Governor Chiles failed to veto it by May 22, 1998, Senate Bill 1462 became a law. To be designated Chapter 98-134, SB 1462 virtually mirrors the investment provisions of now-vetoed HB 3075. The following are some highlights of the new law:

  1. Although bonds must still hold a rating in one of the three highest classifications by a major rating service, stocks need not hold any rating.

  2. Subject to a local provision permitting a greater equity investment, the board of trustees may invest, at cost, up to 50% of the fund's assets in equities.

  3. The board of trustees may invest up to 10% of plan assets in foreign securities.

  4. An absolute majority of the board is required for all acts and decisions. (In other words, if your plan provides merely for acts and decisions by a majority of a quorum, the new law will override that provision.)

  5. The secretary of the board of trustees shall keep a record of all persons receiving retirement payments, noting the time when the pension was allowed and when the pension shall cease.

  6. At least once every 3 years, the board of trustees shall retain a professionally qualified independent consultant who shall evaluate the performance of any existing professional money manager. The term "professionally qualified independent consultant" is defined, and includes, among other things, one who, at a minimum, offers services on a flat-fee basis. (We do not interpret this provision as requiring the board to opt for a flat-fee basis, but only that the board have the choice.)

  7. To assist the board in meeting its responsibilities, the board may (1) employ independent legal counsel at fund expense; (2) employ an independent actuary at fund expense; and (3) employ such independent professional, technical or other advisers as it deems necessary at fund expense. However, if the board chooses to use the municipality's legal counsel, actuary or other advisers, it must do so only under terms and conditions acceptable to the board.

The new law takes effect October 1, 1998. While it may be true that half a loaf of bread is better than none at all, what about one-tenth a loaf? Enough said.

Copyright, 1996-2004, all rights reserved.

Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.


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