The importance of this letter is whether the a 2/3 vote would be required which if so, would make it much more difficult for the Jindal administration to pass legislation it believes would be necessary to help balance the state budget which currently is $1.6 in deficit.
Here is the Tucker letter:
STATE OF LOUISIANA
HOUSE OF REPRESENTATIVES
JIM TUCKER POST OFFICE Box 94062
SPEAKER BATON ROUGE, LOUISIANA 70804
June 2, 2011
The Honorable Kirk Talbot State Representative
9523 Jefferson Hwy.
River Ridge, LA 70123
Re: HB 479
Dear Representative Talbot:
The question arises, does the HB 479 increase in employee contribution rate required of certain employees in LASERS constitute a tax, a fee or raise revenue in such a way as to require a 2/3 vote of the membership to pass?
There are several questions that should be asked to determine the characteristics of a fee, tax, charge:
1) Upon what or upon whom is the charge levied:
Case law tells us that a fee is usually charged for some type of formal permission to pursue some occupation, carry on some business or is charged for a "grant of a benefit". The charge is on the person requesting the permission or receiving the benefit. The benefit is one that is not shared by other members of society.
The case law also tells us that a tax is a charge on a benefit or right common to many persons for a benefit or benefits which do not primarily or directly benefit the payer, but which are shared by others besides the payer, for instance, the public in general.
2) What is the reason for the charge?
A fee is a charge which is regulatory in nature, levied under the state's police power. The charge is incidental to promoting public order, individual liberty and general welfare.
A tax is a charge to raise revenue under the state's taxing power. Revenue is the primary purpose for the charge and regulation is merely incidental.
3) What amounts of revenue are raised?
A fee generates funds to cover the cost of the regulation or service or the cost of conferring the grant or benefit. It is okay to include all incidental costs that may be likely to go along with the regulation that are not an expense of the direct
A tax is a charge which clearly and materially exceeds the cost of the regulation or the cost of conferring the special benefits on those assessed. The revenue realized is materially in excess of the cost and bears no comparative relation to the cost.
4) What is the state's recourse for non-payment?
In the case of a fee, the non-payment usually results in the requested permission to do something not being granted or the right or benefit not being granted.
In the case of a tax, the non-payment usually results in the state pursuing legal action to recover.
The definitive and much cited case regarding the question of whether an imposition of a charge or fee by the government constitutes a tax is Audubon Insurance Company vs Bernard, 434 So.2d 1072 (La. 1983), followed by Safety Net For Abused Persons vs. Segura. 96-1978 (La 4/8/97). 692 So2d 1038.. It is well settled in Louisiana that the nature of a charge is determined not by it's title, but by its incidents, attributes and operational effect. The nature of a charge must be determined by its substance and realities, not it's form. If the primary purpose of an assessment is to raise revenue, as opposed to the regulation of public order, that assessment would constitute a tax. Moreover, a tax is a charge that is unrelated to or materially exceeds the benefits of the regulatory purpose to be served.
HB 479 increases the employee contribution rate for certain (but not all) employees who are members of LASERS. The purpose and result is to raise revenue. The question then becomes, is the increase related to the regulatory purpose. The purpose of LASERS is to provide retirement benefits to state employees who are members of that retirement system. The increase in revenue generated by this bill would go to the state general fund.
As much as can be determined, past increases in employee contributions for current members of the retirement systems have been accompanied by a benefit enhancement. When current employees have been charged more, they have gotten something for it. Going from a contribution rate of 7.5% to 10.5% is not actually an increase of 3%, but in reality is an increase of 40%. Employees will be paying 40% more than what they pay now.
LASERS employees currently pay more than 50% of each year's cost of their benefit. The employees have consistently made their payments, while at times in the past, the employer (the state) has not. The employees are currently funding 53.15% of the benefit they will receive.
The executive budget, as reiterated in original HB 1, on page 11, lines 22-25, indicate that it is intended that the increase in revenue gained by the 3% retirement contribution increase required by HB 479, was to increase the state general fund (and not the retirement system itself) by $24.6M. Employees will pay an additional $70M into the system, supplanting $25M in state general fund payments and $45M in federal and other funds. The administration has admitted publicly numerous times that the reason for the increase in certain LASERS employee contributions is to fill a gap in general fund revenues.
Because the revenue that would be seen from the increase would be placed into the state general fund to provide for the general operations of state government and not for the benefit of the employees and therefore unrelated to the system purpose, and clearly and materially exceed any indirect benefit the employees and bears no comparative relation to the system, the increase in the contribution rate to members of LASERS could be considered a revenue raising measure. The determination of whether the increase is a tax or a fee makes no difference in the need for a 213 vote of the legislature to pass, as required by the Louisiana Constitution under Article VII requires 2/3 vote to enact either. Therefore, in order to pass this revenue raising measure, a 2/3 vote of the House is required.
cc: Representative Pearson Representative Fannin