When the Maine Bureau of Accounts and Control reduced a July 1993 payment to the Maine State Retirement System by $4 million to capture a health insurance fund surplus, did that violate the constitutional ban on diverting retirement appropriations?

Plain-English summary

In 1991, Maine voters approved Me. Const. art. IX, § 18, providing that "Funds appropriated by the Legislature for the Maine State Retirement System are assets of the System and may not be diverted or deappropriated by any subsequent action." That was a strong rule: once the Legislature has appropriated money for MSRS, the appropriation is locked in. The Legislature cannot later take it back, and the executive branch cannot act on a prior legislature's instructions to claw it back.

The 115th Legislature, dealing with the State's budget crisis, had directed in P.L. 1991, ch. 780 § W-1 that MSRS transfer $3 million (later raised to $4 million in P.L. 1993 ch. 6 § E-2 by the early 116th Legislature) from its health insurance surplus funds to the Retirement Allowance Fund, with a corresponding reduction in the State's June or July 1993 payment to MSRS. The maneuver was designed to use surplus health insurance fund balances to ease the FY 1993 budget shortfall.

On July 19, 1993, the State Controller acted on those statutes and reduced the July 1993 MSRS payment by $4 million. The Executive Director of MSRS asked the AG whether the transfer was constitutional.

The AG said no. The General Appropriation Act of 1993 (P.L. 1993, ch. 410), enacted by the 116th Legislature for FY 1994 and FY 1995, made an unreduced appropriation to MSRS through the personnel-services lines of the various state agencies. When the Controller reduced the July payment by $4 million, the Controller was diverting funds that the current legislature had appropriated to MSRS. That violated § 18.

The fact that the Controller acted on a prior legislature's authorization did not save the action. One legislature cannot constitutionally direct future legislatures to deappropriate retirement funds. The 116th Legislature, in passing the FY 1994 appropriation for MSRS, was constitutionally required to make the deappropriation decision itself, and it did not. Moreover, having made the unreduced appropriation, the 116th Legislature is now barred by § 18 from directing the Controller to take the funds back.

The AG's remedy was straightforward: the General Fund must refund the $4 million to MSRS. The 117th Legislature, convening in 1995, could of course make a separate, valid deappropriation for FY 1996 by including a specific provision in that year's General Appropriation Act.

Currency note

This opinion was issued in 1994. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. The MSRS has since reorganized as the Maine Public Employees Retirement System (MainePERS); verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What does Me. Const. art. IX, § 18 actually say?

"Funds appropriated by the Legislature for the Maine State Retirement System are assets of the System and may not be diverted or deappropriated by any subsequent action." The text was adopted in 1991. The key concept is that once appropriated, the funds become "assets of the System," not General Fund money the Legislature can reach.

Why couldn't the prior legislature's authorization save the Controller?

Because one legislature cannot bind the future legislative judgment about pension funding. The 116th Legislature, when it enacted the FY 1994 General Appropriation Act, had to decide on the MSRS appropriation. It chose to make an unreduced appropriation. The prior legislature's instructions to deappropriate could not override that current legislative choice. Even if the 115th Legislature had the constitutional power to direct the Controller to act, the 116th's act of making an unreduced appropriation displaced that direction. And once the 116th appropriated, § 18 locks it in.

What's the difference between the Retirement Allowance Fund and the Health Insurance Fund?

The Retirement Allowance Fund pays retirement benefits. The State Retiree Health Insurance Fund and State Retired Teachers' Health Fund cover health insurance for retirees. The 1991 statute moved money between them to capture surplus health insurance balances as offset against the State's pension contributions. The constitutional violation occurred not in moving health-insurance surplus into the Retirement Allowance Fund, but in reducing the State's pension contribution from the General Fund as the offset.

What should happen now?

The AG's recommendation was a refund: the $4 million should go back from the General Fund to MSRS. If the Legislature wants to recapture the health insurance surplus in a future fiscal year, it must do so by an express provision in that year's General Appropriation Act, not by relying on stale instructions to the Controller.

Background and statutory framework

Me. Const. art. IX, § 18 (adopted 1991): "Funds appropriated by the Legislature for the Maine State Retirement System are assets of the System and may not be diverted or deappropriated by any subsequent action."

P.L. 1991, ch. 780 § W-1 (115th Legislature's supplemental appropriations act): Directed MSRS to transfer $3 million from health insurance surplus funds to the Retirement Allowance Fund, with the State Controller to reduce the June 1993 monthly payment to MSRS by the same amount in lieu of a corresponding direct payment.

P.L. 1993, ch. 6 § E-2 (116th Legislature, very early in the session): Increased the transfer amount from $3 million to $4 million.

P.L. 1993, ch. 410 (the 116th Legislature's General Appropriation Act for FY 1994 and FY 1995): Made an unreduced appropriation to MSRS through the personnel-services lines of the various state agencies.

The mechanics of MSRS funding: appropriations to MSRS for State employees are not made as a specific line item, but flow through the personnel-services portions of each agency's budget. The Retirement System calculates each month, based on actual State payroll, the State's required employer contribution at legislatively set rates and informs the Controller. The Controller pays MSRS from the General Fund.

The opinion did not rest on case law. It grounded its conclusion in the text of § 18 and in the structural point that the legislature making the FY 1994 appropriation was the body constitutionally required to decide whether to reduce the MSRS payment, and it made an unreduced appropriation. A prior legislature's instruction to the Controller could not substitute for that current legislative judgment, and once the appropriation was made, § 18's express deappropriation prohibition locked it in.

Citations

• Me. Const. art. IX, § 18 (MSRS deappropriation prohibition)
• P.L. 1991, ch. 780 § W-1 (115th Legislature's $3M transfer direction)
• P.L. 1993, ch. 6 § E-2 (116th Legislature's increase to $4M)
• P.L. 1993, ch. 410 (the General Appropriation Act of 1993, FY 1994 and FY 1995)

Source

• Landing page: https://www.maine.gov/legis/lawlib/lldl/agops/agops.htm
• Original PDF: https://lldc.mainelegislature.org/Open/AG/Opinions/1994/ag_19940307a.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

94-2

MICHAEL E. CARPENTER
ATTORNEY GENERAL

STATE OF MAINE
DEPARTMENT OF THE ATTORNEY GENERAL
STATE HOUSE STATION 6
AUGUSTA, MAINE 04333

March 7, 1994

Claude R. Perrier
Executive Director
Maine State Retirement System
State House Station 46
Augusta, ME 04333

Dear Mr. Perrier:

I am writing in response to the inquiry from your Department as to the constitutionality of a transfer of funds by the Bureau of Accounts and Control of the Department of Administrative and Financial Services from the Retirement System to the General Fund. The transfer occurred on July 19, 1993 in furtherance of the direction of the Legislature in two statutes, P.L. 1991, ch. 780 and P.L. 1993, ch. 6, in which the Legislature sought to assist in the resolution of the State's budget crisis by effectively transferring a $4 million surplus from the health insurance funds administered by the Maine State Retirement System to the General Fund. However, because the Legislature did not reflect the transfer in making appropriations to the Retirement System for the 1993-94 and 1994-95 fiscal years in the General Appropriation Act of 1993, it is the opinion of this Department that the transfer of such funds during that period runs afoul of the recently enacted constitutional provision preventing the diversion or deappropriation of funds appropriated to the Retirement System once they have been appropriated by the Legislature.

In 1991, the Legislature and the voters approved an amendment to Article IX, Section 18 of the Maine Constitution, which provides:

Funds appropriated by the Legislature for the Maine State Retirement System are assets of the System and may not be diverted or deappropriated by any subsequent action.

The general effect of this provision is that once the Legislature has made an appropriation of funds constituting the employer's share of retirement contributions of State employees or teachers, which appropriation is generally accomplished through the General Appropriations Act passed by the First Regular Session of each Legislature for the succeeding two fiscal years, the Legislature may not subsequently reduce the amount of that appropriation, or authorize the Executive Branch to take action causing such a reduction. The question which your Department has posed is whether the action of the Bureau of Accounts and Control with regard to the $4 million surplus in the health insurance funds violates this provision.

In order to determine whether the action of the Bureau violated the constitutional provision, a summary of the history of legislative action on the question must be undertaken. At its Second Regular Session in 1992, the 115th Legislature enacted Section W-1 of P.L. 1991, ch. 780, the so-called "Supplemental Appropriations" Act, which made adjustments to the State budget for the remainder of fiscal year 1992 and fiscal year 1993. Section W-1 directed the Maine State Retirement System to transfer $3 million from the "surplus in the State Retiree Health Insurance Fund and State Retired Teachers' Health Fund to the Retirement Allowance Fund." This transfer was to occur shortly before the close of fiscal year 1992, that is before July 1, 1993. The State Controller (the official in charge of the Bureau of Accounts and Control) was then directed to reduce by $3 million the June 1993 monthly payment to the State's health insurance carrier (Blue Cross and Blue Shield of Maine), and instead to make such a payment in July of 1993 whilst reducing the State's monthly payments to the Retirement System at that time by the same amount. In this way, the Legislature proposed to save $3 million for the fiscal year 1993 budget, by in effect crediting to that budget a surplus which had accumulated in the Retirement System's health insurance funds. The amount of money involved was subsequently changed to $4 million at the beginning of the First Regular Session of 116th Legislature. P.L. 1993, ch. 6, § E-2.

The State Controller was therefore under a clear legislative direction to reduce the payments made by the General Fund to the Retirement System by $4 million in July 1993. The problem which your question presents is whether this direction, which is contained in acts of the Legislature relating to fiscal year 1993, could have been undertaken by the Controller without further legislative authorization in the General Appropriations Act for fiscal year 1994.

Generally, appropriations to the Maine State Retirement System for State employees are not the subject of a specific legislative appropriation, but are included within the personnel appropriations for each of the various State agencies. After the general appropriation is made, the Retirement System calculates each month the number of State employees actually on the payroll of each agency and informs the State Controller as to the actual amount of money required to be paid by the General Fund in satisfaction of the employer contribution at the rates set by the Legislature. It was from the July 1993 payment that the $4 million in issue was deducted. The General Appropriation Act of 1993, P.L. 1993, ch. 410 makes no specific reference to this particular deduction. Thus, it must be assumed that the deduction was made from the funds appropriated by the Act for retirement purposes which are contained in the personnel services appropriations of the various State agencies.

That being the case, the deduction of the $4 million from the July 1993 payment by the State Controller violated the constitutional provision quoted above. That provision prohibits the Legislature from diverting or deappropriating funds once they have been appropriated to the Retirement System. As just indicated, in the General Appropriation Act of 1993, the Legislature made an appropriation of funds, through the personnel services portions of the budgets of the various State agencies to the Retirement System. In reducing a payment made pursuant to that appropriation, therefore, the State Controller was diverting to another purpose funds already appropriated to the Retirement System. The fact that the Controller took this action pursuant to Legislative authority enacted by a previous Legislature does not save its legality since, regardless of whether the prior Legislature had any constitutional authority to direct the Controller to take such action in a future fiscal year, the Legislature making the general appropriation for fiscal year 1994 was constitutionally required to make the direction anew, in view of the unreduced appropriation to the Retirement System which it made. Moreover, having once appropriated the money in question to the Retirement System, the 116th Legislature is now prohibited by Article IX, Section 18 of the Maine Constitution from directing the Controller to make the reduction.

In view of the foregoing, it is the opinion of this Department that the $4 million in question should be refunded by the General Fund to the Retirement System. If the 117th Legislature, upon its convening in 1995, wishes to accomplish the reduction in fiscal year 1996, it may of course do so by including a specific provision to that effect in the General Appropriation Act for that year.

I hope the foregoing answers you question. Please feel free to reinquire further if clarification is necessary.

Sincerely,

MICHAEL E. CARPENTER
Attorney General

MEC:sw

cc: Governor John R. McKernan, Jr.
Senator Michael D. Pearson
Representative Lorraine N. Chonko
Chairs, Joint Standing Committee on Appropriations and Financial Affairs
H. Sawin Millett, Jr.
Commissioner of Administrative and Financial Services
David A. Bourne
State Controller