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Cypen & Cypen
APRIL 9, 2003

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001

By Recommended Order dated April 2, 2003, a Florida Administrative Law Judge has recommended that City of Miami, General Employees and Sanitation Employees’ Retirement Trust affirm its prior decision requiring Manohar Surana, former City of Miami Finance Director, to forfeit his retirement benefits in accordance with Section 112.3173, Florida Statutes. Surana had pled guilty to a federal crime: conspiracy to commit bribery, extortion and money laundering. The parties stipulated that conspiracy to commit bribery and extortion is not a felony under Florida law. Thus, the issue was whether or not conspiracy to commit money laundering “matches” up under Shields v. Smith, 404 So.2d 1106 (Fla. 1st DCA 1981). Under the Shields case, a federally adjudicated crime can be the basis for forfeiture of retirement benefits if the crime otherwise satisfies the criteria comparable to the state offense that would support a forfeiture. The Administrative Law Judge found that when the factual allegations of the indictment are considered, it is apparent that the case holds all elements needed to prove the Florida crime of money laundering. And, because the amount of the conspiracy to launder money was greater than $20,000.00, the Florida crime supports imposition of punishment for a felony. Having determined that a “specified offense” as provided in Section 112.3173, Florida Statutes, had been committed, the Administrative Law Judge had little trouble in finding the other elements of forfeiture: that the acts were committed in a knowing and willful manner with intent to defraud the public or the employing agency of the right to receive the public employee’s faithful performance of his public duty, that such act was committed in an attempt to obtain a profit or gain for some other person and that such acts were committed using the powers or duties of public employment. Following recognized procedure, within fifteen days from the date of the Recommended Order, all parties have the right to submit written exceptions to the Pension Administrator. Eventually, the Retirement Trust will consider those exceptions and enter a final order. Surana v. City of Miami, General Employees and Sanitation Employees Retirement Trust, Case No. 02-1060 (Fla. DOAH, April 2, 2003).

For the tax years from 1991 onward, Arizona revised statutes subject to Arizona individual income taxation those portions of federal employees’ compensation that they are required to contribute toward federal employee retirement plans, while leaving untaxed the corresponding mandatory contributions of state employees to state employee retirement plans. That income taxing scheme, to the extent it taxes federal employees’ mandatory contributions to retirement plans but not those of employees of state and local governmental units that have elected to “pick up” such contributions pursuant to 26 U.S.C. §414(h), violates the intergovernmental tax immunity doctrine as codified in 4 U.S.C. §111. The latter section, adopted as the Public Salary Tax Act of 1939, provides that the United States consents to taxation of compensation of federal employees by a duly constituted taxing authority if such taxation does not discriminate against the federal employee because of the source of compensation. The legislation is effectively a codification of the constitutional intergovernmental tax immunity doctrine and is interpreted according to development of that doctrine. And as a reminder to our readers, 26 U.S.C. §414(h) provides that, with respect to taxable years beginning after December 31, 1973, state and local governmental employers are permitted to “pick up” mandatory contributions that their employees would otherwise have made. Thus, the amounts “picked up” are automatically excluded from the employee’s federal gross income. However, Congress has not chosen to make this benefit available to federal employees. Kerr v. Killian, Case No. 1 CA-TX 00-0023 (Ariz., February 27, 2003) (Amended Opinion).

In an April 7, 2003 piece entitled “Double Dippers Doing Great,” the Chicago Sun-Times does a number on Illinois public officials who have retired and gone on to other governmental jobs. One prime example: an Illinois appellate court justice who retired and then went to work as counsel for the county forest preserve district; his pension and salary total more than his old pay as a judge. So what? There is no “double dipping” when a retiree receives the pension he has earned and also receives pay for work he is currently performing. “Double dipping” occurs when a person receives compensation from more than one source for the same service. We don’t understand how some people have such tunnel vision on this subject. As that former Judge said in an interview for the article, “if I had gone to work for General Motors, I don’t think we’d be having this conversation.” And that’s the point.

To assess relative state tax burdens accurately, the Tax Foundation, a nonprofit advocacy group, adjusts National Income and Product Account data collected by the U.S. Department of Commerce’s Bureau of Economic Analysis. One important comparison the Foundation makes is of the total tax burden in each state (including federal taxes) to just the state/local tax burden. In both cases, taxes are measured as a percentage of income. When federal taxes are included, the 10 states that impose the lowest total tax burdens in 2002 were

State Tax (in %)

1. Alaska 27.0
2. Oklahoma 29.0
3. (tie) West Virginia 29.1
Alabama 29.1
5. Tennessee 29.2
6. North Dakota 29.5
7. South Dakota 29.7
8. (tie) Mississippi 29.8
Montana 29.8
10. Louisiana 30.1

Meanwhile, the highest total taxes were levied in

State Tax (in %)

50. Connecticut 36.7
49. Washington 35.6
48. New York 34.7
47. New Jersey 34.3
46. Wyoming 34.1
45. Wisconsin 33.2
44. Minnesota 32.9
43. (tie) Michigan 32.8
Illinois 32.8
41. California 32.7

Complete rankings can be found in the “State Finance” section of the Tax Foundation’s website, Incidentally, the Tax Foundation annually calculates “Tax Freedom Day,” the day when Americans will finally have earned enough money to pay off their total tax bill for the year. This year, Tax Freedom Day will arrive on the 109th day of 2003 -- April 19, the same day as in 2002.

Illinois, whose largest-in-the-country unfunded liability is $32 Billion, will issue $10 Billion in general obligation bonds. By using bond proceeds to pay pension obligations, the State can free up approximately $2 Billion in general funds, according to a report from

Almost thirty years ago the United States Supreme Court eliminated holder’s actions -- suits brought by those who neither bought nor sold stock based on false or misleading information, but nevertheless lost money. However, federal courts did not preclude state courts from providing remedies under local law. Now, in a unanimous decision, the California Supreme Court has allowed a holder’s action to proceed. Yet, that court has also set up a hurdle that investors may not be able to clear: one must plead with specificity his reliance on public statements made by the company. Also, there will have to be evidence on the amount of losses attributable to fraud versus losses attributable to other legitimate reasons. Finally, because reliance may be specific to individual shareholders, groups of investors with different showings of reliance may not be suitable for class action certification. We found this report on Small v. Fritz Companies Inc., Case No. 03 C.D.O.S. 2983 (Cal. 2003) on Yahoo!Finance.

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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