Can Arkansas pay health insurance subsidies for public school employees even though they aren't state employees, and could other groups sue for equal treatment?

Plain-English summary

State Representative Debra Hobbs noticed an apparent puzzle in Arkansas law. Public school employees are not state employees (a proposition supported by AG Opinions 91-244, 99-028, and 2010-049), but the state subsidizes their health insurance through the State and Public School Life and Health Insurance Board under A.C.A. § 21-5-401 et seq. She asked whether that meant the state could subsidize health insurance for any non-state group (including taxpayers generally), and whether the existing subsidy invited an equal-protection challenge from groups that don't get it.

The AG addressed both questions through the lens of Arkansas's public-purpose doctrine. State expenditures must serve a primarily public purpose; private benefit can only be incidental. The fact that public school employees are not state employees does not change the constitutional analysis. The legislature can spend public funds on any group, including non-state-employee groups, when the expenditure serves a primarily public purpose. Whether a specific expenditure crosses that line is a fact question for a court.

Here, supporting public-school-employee health benefits clearly served a public purpose because Article 14 of the Arkansas Constitution obligates the state to maintain a "general, suitable and efficient system of free public schools." The legislature has plenary power over school operations and policy. Funding the people who run those schools, including subsidizing their health insurance, fits squarely within constitutional duty. The AG cited Op. Att'y Gen. 98-197 and earlier AG opinions for the proposition that the legislature has the power to set employer insurance contribution rates.

On the equal-protection question, the AG said a non-school-employee group could of course sue, but it would lose. The challenged classification (school employees get subsidies, other private groups don't) doesn't touch a suspect class or a fundamental right, so rational-basis review applies. Under Williamson v. Lee Optical and Arkansas's parallel cases like Ester v. National Home Centers, the state need only show any conceivable rational basis for the classification, even a hypothetical one. Singling out school employees because of the state's constitutional duty to provide public education would easily survive that test.

Currency note

This opinion was issued in 2014. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

The case for public-school-employee health subsidies rests on three pillars:

The public-purpose doctrine. As articulated in Chandler v. Board of Trustees (1963), quoting the Wisconsin Supreme Court's leading 1865 case Brodhead v. City of Milwaukee: the legislature cannot tax and spend for a purely private purpose. Money raised by taxation must serve "the common interest and well-being of the community required to contribute." Public expenditures benefiting private entities are fine only when the private benefit is incidental, not the primary purpose.

Legislative discretion plus deference. Turner v. Woodruff (1985) confirms that the public-purpose determination is in the first instance a legislative call, with the judiciary giving "great weight" to legislative declarations. Statutes like A.C.A. § 21-5-403(3)(B) list public purposes the legislature found served by the school-employee health insurance program; those declarations carry significant weight in a constitutional challenge.

The constitutional duty to provide free public schools. Article 14, § 1 of the Arkansas Constitution requires the state to "maintain a general, suitable and efficient system of free public schools." Article 14, § 4 vests school supervision in officers provided for by the General Assembly. Wheels v. Franks (1934) confirms the legislature's plenary power "over the management and operation of the public schools." That makes subsidizing the people who staff public schools a textbook example of a constitutionally-mandated public purpose.

For the equal-protection analysis, the operative test is rational-basis review. Williamson v. Lee Optical (1955) lays the groundwork: classifications not involving suspect classes or fundamental rights are presumed constitutional, and the state need not even show a real rational basis if any conceivable one would do. Arkansas tracks this standard in cases like Seagrave v. Price (2002) and Reed v. Glover (1994). The bar for a challenger is essentially insurmountable when, as here, the classification ties directly to a constitutional duty.

Common questions

Why aren't school employees state employees in the first place?

Three lines of cases established this distinction for narrow purposes. Muse v. Prescott School District (1961) held that a public school teacher was not a state employee for Workers' Compensation Act purposes, which at the time covered only employees of the state and its agencies. Dermott Special School District v. Johnson (2000) treated school districts and their employees as "different from state employees" for sovereign immunity purposes under Article 5, § 20. Corbin v. Special School District of Fort Smith (1971) said the Uniform Administrative Procedure Act does not apply to local school districts. None of these cases hold that the legislature is barred from spending state money on school employees; they say only that particular statutes addressed to "state employees" don't capture them.

Could the state subsidize health insurance for, say, agricultural workers or small business owners?

In theory, yes, if the legislature found and a court agreed that the expenditure served a primarily public purpose. The mechanics are the same: legislative declaration of public purpose plus judicial review of whether the declaration is supportable. The AG was explicit that he could not opine in the abstract. Each program would have to be evaluated on its own facts. The question is always whether the public benefit dominates and the private benefit is incidental, not the other way around.

What kept the AG from giving a yes-or-no answer on the broader question?

The public-purpose analysis is factual. A court applying it would look at the actual structure of a program: who benefits, what the benefit costs, what public goal it serves, how it compares to private spending. The AG cannot do that work in an opinion. So his answer is essentially "the legal framework exists; whether any particular expenditure satisfies it depends on facts a court would have to find."

What if a court invalidated the school-employee subsidy program?

The AG noted the program had not been judicially challenged since its adoption in 1995 (Acts 1995, No. 1206 creating the State and Public School Life and Health Insurance Board). A successful challenge would have to overcome both the legislative declaration of public purpose and Article 14's constitutional mandate. The AG considered the program "well within the General Assembly's powers."

Why doesn't rational-basis review let any disgruntled group win?

Rational-basis review is the most deferential tier of constitutional scrutiny precisely because the alternative would invite courts to second-guess every legislative choice about who gets what benefit. The presumption is constitutionality. The challenger has to disprove every conceivable rational basis. In practice, that means a rational-basis challenge to a state benefit program almost never succeeds.

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

STATE OF ARKANSAS
THE ATTORNEY GENERAL
Dustin McDANIEL

Opinion No. 2014-070
October 13, 2014

The Honorable Debra M. Hobbs
State Representative
3901 Arnold Avenue
Rogers, Arkansas 72758-1640

Dear Representative Hobbs:

I am writing in response to your request for my opinion on several questions relating to state provision of health insurance to public school employees. As preface to your specific questions, you have offered the following summary of state statutory law and of various opinions issued previously by this office:

The Attorney General has opined on numerous occasions that public school employees are not state employees (see Attorney General Opinions 91-244, 99-028 and 2010-049). However, public school employees are provided health insurance through the State and Public School Life and Health Insurance Board, A.C.A. § 21-5-401 et seq.

Based upon your understanding of the recited opinions and subchapter of the Code, you have posed the following questions:

1. If the state provides health insurance for public school employees, who are deemed not state employees, can the state provide insurance for other special interest groups of non-state employees or Arkansas taxpayers generally?

2. Does providing health insurance for public school employees, who are deemed not state employees, expose the state to a lawsuit from other special interest groups of non-state employees or Arkansas taxpayers generally for not providing health insurance for them?

RESPONSE

With respect to your first question, the fact that the state has extended health-care subsidies to school-district employees neither empowers nor forecloses it from extending similar benefits to other groups. In each case, the operative inquiry will be whether the proposed expenditure would serve a public purpose, as distinct from only benefitting private individuals or entities. If a trier of fact determines that the expenditure would indeed serve a primarily public purpose, the expenditure will be deemed permissible. I take your second question to be whether the state's provision of health benefits to public-school employees would invite an equal-protection challenge from other groups claiming to be similarly situated. Needless to say, nothing keeps a member of a purportedly similar class from alleging that he has been denied equal protection in not having been provided such benefits. I strongly question, however, that such a challenge would succeed. Under the applicable rational-basis standard of review, which courts employ to test all classifications that involve neither a suspect class nor a fundamental right, the state could successfully defend itself against such a claim merely by establishing that the classification is reasonably related to a legitimate governmental end. In my opinion, the state's singling out for health-care subsidies individuals engaged in the crucial task of educating the state's children, a clear state obligation under Ark. Const. art. 14, would almost certainly pass muster under this test.

Question 1: If the state provides health insurance for public school employees, who are deemed not state employees, can the state provide insurance for other special interest groups of non-state employees or Arkansas taxpayers generally?

In my opinion, the legislature may expend public funds to any group so long as doing so serves a legitimate public purpose. Only a finder of fact, based upon a careful review of the surrounding circumstances, could determine in any particular case whether an expenditure meets this test. I will note, however, that, under what is generally known as the "public-purpose doctrine," the state cannot expend its funds in a manner that exclusively benefits private entities or individuals.

Implicit in your question is a suggestion that it might be inherently objectionable for the state to "provide[] health insurance" to public-school employees because such individuals are not "state" employees. You imply that the state's practice of providing such limited subsidies might open the door to automatically permit funding all groups comprising individuals "who are deemed not state employees," including any "other special interest groups" or "taxpayers generally." In my opinion, this suggestion is unwarranted.

You cite three Attorney General opinions, Ops. Att'y Gen. 91-244, 99-028 and 2010-049, as acknowledging that public-school employees are not state employees. None of these opinions, however, either (a) calls into question the propriety of the state's providing health-care subsidies to public-school employees; or (b) even remotely suggests that providing such subsidies to one group will automatically open the door to providing them to all other groups.

In the earliest of these opinions, my predecessor indeed opined that "school employees are generally not considered state employees." Based upon this characterization, however, he concluded only that a school-district employee would not fall within the range of a statute exclusively applicable to state employees. He never suggested that the legislature would be foreclosed from directing state resources to school-district employees in pursuit of a public purpose. In Opinion 99-028, another of my predecessors, while acknowledging that the legislation at issue in your request distinguishes between state and public-school employees, approved the legislature's grouping these two categories together under one or more health-insurance programs for purposes of making available "multiple benefit options." In Opinion 2010-049, I likewise acknowledged the distinction between state and public-school employees, opining only that, given this distinction, the Uniform Attendance and Leave Policy Act, which applies only to specified state employees, does not apply to the school-district employees.

The common conclusion in these opinions is not that school-district personnel either are or should be precluded by their status from receiving state benefits; rather, it is that specific statutes will control in determining whether they are entitled to receive such benefits in particular instances. These opinions at no point suggest that the legislature would be precluded from extending state funding to school-district personnel, or, for that matter, to any other group, upon finding that doing so would serve a public purpose.

These opinions, then, are in all respects consistent with the accepted proposition that a state expenditure will be warranted so long as it serves a "public purpose." The Arkansas Supreme Court has defined the public-purpose doctrine as follows:

No principle of constitutional law is more fundamental or more firmly established than the rule that the State cannot, within the limits of due process, appropriate public funds to a private purpose. A century ago the basic doctrine was simply stated in the leading case of Brodhead v. City of Milwaukee, 19 Wis. 624: "The legislature cannot create a public debt, or levy a tax, or authorize a municipal corporation to do so, in order to raise funds for a mere private purpose. It cannot in the form of a tax take the money of the citizens and give it to an individual, the public interest or welfare being in no way connected with the transaction. The objects for which money is raised by taxation must be public, and such as subserve the common interest and well[-]being of the community required to contribute."

The doctrine restricts public expenditures to those that serve primarily public purposes, with any benefit to a private individual or entity being merely incidental.

The determination and declaration of a public purpose supporting a state expenditure is normally the role of the legislature. As one of my predecessors has stated:

The determination of whether a particular expenditure is for a "public purpose" is to be made by the legislature. Although ultimately the propriety of a particular expenditure is resolved by the judiciary, great weight must be given legislative declarations of public purposes. Turner v. Woodruff, 286 Ark. 66, 698 S.W.2d 527 (1985).

Purely by way of illustration, applying the public-purpose doctrine to test the health-care subsidy for school-district employees is relatively straightforward, as are the contours of the subsidy program itself. The legislature has created "a single board to select health insurance and life insurance plan coverages for state and public school employees and retirees." It has further provided that any "state agency or school district" may accept state funding "to partially defray the cost of health and life insurance for state employees or public school employees," subject to the condition that the recipient "[u]se those funds only for the program." The Code obligates the state, through the Department of Education, to contribute a specified monthly amount "for each eligible employee electing to participate in the public school employees' health insurance program administered by the State and Public School Life and Health Insurance Board."

The terms of this funding regime, whose constitutionality has not been judicially challenged since its adoption in 1995, must be tested in light of the following principles:

It is well settled that the "Legislature is clothed by the constitution with plenary power over the management and operation of the public schools. It is for the Legislature to declare the policy with reference to the schools . . . ." Wheels v. Franks, 189 Ark. 373, 377, 72 S.W.2d 231 (1934). The Arkansas Constitution provides that the "supervision of public schools and the execution of the laws regulating the same shall be vested in and confided to such officers as may be provided for by the General Assembly." Arkansas Constitution art. 14, § 4.

Based upon these principles, my predecessor concluded that "it is well within the General Assembly's powers to have the State Board of Education set the employer insurance contribution rate." In my opinion, it is equally clear that legislature has the power to mandate, as a matter of public policy, that the state contribute directly to the health-care coverage of school-district employees who help fulfill the state's obligation to "maintain a general, suitable and efficient system of free public schools." It is likewise clear, in my estimation, that the General Assembly had the power to direct the State and Public School Life and Health Insurance Board to "[u]tilize the combined purchasing power of the state employee and public school personnel programs to foster competition among vendors and providers for the programs" and to "[w]ork in a concerted effort toward a common goal of parity between public school and state employee insurance programs."

I cannot in the abstract opine regarding the propriety under this standard of extending similar subsidies to "other special interest groups of non-state employees" and "Arkansas taxpayers generally." In each instance involving a challenge to any such subsidy, a finder of fact must first delineate the recipient group and then test the public purpose allegedly served by the proposed expenditure. I am neither authorized nor situated to conduct any such factual investigation. I will repeat, however, that the state's providing a benefit exclusively to private individuals necessarily offends the public-purpose doctrine.

Question 2: Does providing health insurance for public school employees, who are deemed not state employees, expose the state to a lawsuit from other special interest groups of non-state employees or Arkansas taxpayers generally for not providing health insurance for them?

In my opinion, any state classification-by-group in theory exposes the state to a lawsuit alleging an equal-protection violation. Although determining whether any such violation had occurred would ultimately turn upon the facts of any particular challenge, I question that the state's extension of health-insurance benefits to school-district employees would subject it to liability in the face of an equal-protection challenge brought by members of other groups.

Any discrimination of the sort at issue in your question implicates the constitutional guarantee of "equal protection" under the 14th Amendment to the United States Constitution and Article 2, §§ 2 and 3 of the Arkansas Constitution. The equal protection doctrine as set forth in both constitutions prohibits certain types of "classifications." A classification is the disparate treatment of those who are similarly situated. Classifications, however, do not in and of themselves violate the equal protection doctrine. In order to establish an equal protection violation arising out of a classification that does not affect a suspect class (such as a particular racial group) or a fundamental right (such as the right to vote), a challenger must show that the disparity is arbitrary. Stated differently, the disparity must be shown to have no rational basis, i.e., no rational relation to a legitimate governmental end. In reviewing the constitutionality of a classification that does not affect a suspect class or a fundamental right, a court must not only presume the constitutionality of the challenged classification; it must also uphold the classification even without requiring a showing of an actual rational basis, so long as any conceivable rational basis for the scheme can be adduced, even a hypothetical one.

The classifications at issue in your request are not invidious examples of discrimination directed against a suspect class or abridging a fundamental right. It follows that a reviewing court would apply the extremely broad "rational basis" test, under which the challenged program would be upheld so long as any conceivable basis exists for its implementation.

With respect to state health-care subsidies, various rationales might be proposed as possibly having prompted the legislature to single out school-district employees for receipt of such benefits. Perhaps prime among these is the impulse to provide such a benefit to individuals crucially involved in fulfilling the state's educational obligation. Nothing precludes the government from creating a classification in pursuit of such a policy priority.

Assistant Attorney General Jack Druff prepared the foregoing opinion, which I hereby approve.

Sincerely,

DUSTIN McDANIEL
Attorney General

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