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How The MPERS Contract Came To Be Embedded in the Maine Constitution

Is The Maine Public Retirement System Unconstitutional?


According to the Maine Public Employees ComprehensiveFinancial Report of 2010, the Maine Public Employees Retirement System was established in 1942 to provide services for retiring public employees. No information is given about how the Public Employees Retirement System was legally structured in 1942. In the report MPERS is described as “an independent public agency of the State of Maine that traces its history to 1942”. Wikipedia uses the same term but when the link is clicked it reveals that Wikipedia has no idea what "independent public agency" means.  An online search for history of MPERS between 1942 and 1985 comes up empty.

 In 1985 during the administration of Governor Joseph E Brennan, the Maine Legislature passed a statute announcing its intentions of using general taxpayer monies to provide for retirement funds and death benefits for public employees, a faction which, incidentally, includes the Legislature.
§17050. Legislative intent
It is the intent of the Legislature to encourage qualified persons to seek public employment and to continue in public employment during their productive years. It is further the intent of the Legislature to assist these persons in making provision for their retirement years by establishing benefits reasonably related to their highest earnings and years of service and by providing suitable disability and death benefits. [1985, c. 801, §§ 5, 7 (NEW).]
In 1993 under the administration of Governor John R McKernan, by a special act of legislation, the Maine Public EmployeesRetirement System became a corporate instrumentality of the state.[
Title 5:ADMINISTRATIVE PROCEDURES AND
SERVICES
Part 20: STATE RETIREMENT SYSTEM
Chapter 421: GENERAL PROVISIONS
Subchapter 3: ESTABLISHMENT AND
ADMINISTRATION
§17101. Establishment1. Purpose.  There is established a retirement system, the functions and operations of which are under the supervision of the board, for the purpose of providing retirement allowances and other benefits under this Part for employees.
[ 1993, c. 410, Pt. L, §14 (AMD).]
5. Body corporate and politic.  The retirement system is a body corporate and politic and an incorporated public instrumentality of the State and the exercise of powers conferred by this Part are held to be the performance of essential government functions.
[ 1993, c. 410, Pt. L, §16 (NEW).]
Article IV Part Third Section 14 of the Maine Constitution prohibits the Legislature from chartering corporations by special act of legislation with only two exceptions, one being municipal purposes and the other if the object of the corporation cannot be attained another way. Since the Maine Public Employees Retirement System was established in 1942 and it was not a corporate instrumentality of the state at that time, its objects had been attained in another way from 1942 to 1985, which arguably  makes the MPERS state corporation unconstitutional.

 In 1995 under the administration of Governor Angus King, contractual terms of agreement with the MPERS corporation were embedded in the Maine Constitution. Although MPERS itself is established only by statutory rule of law:

Maine Constitution
Article IX.
General Provisions.
Section 18.  Limitation on use of funds of Maine State Retirement System.  All of the assets, and proceeds or income therefrom, of the Maine State Retirement System or any successor system and all contributions and payments made to the system to provide for retirement and related benefits shall be held, invested or disbursed as in trust for the exclusive purpose of providing for such benefits and shall not be encumbered for, or diverted to, other purposes.  Funds appropriated by the Legislature for the Maine State Retirement System are assets of the system and may not be diverted or de-appropriated by any subsequent action.
Section 18-A. Funding of retirement benefits under the Maine State Retirement System.  Beginning with the fiscal year starting July 1, 1997, the normal cost of all retirement and ancillary benefits provided to participants under the Maine State Retirement System must be funded annually on an actuarially sound basis.  Unfunded liabilities may not be created except those resulting from experience losses.  Unfunded liability resulting from experience losses must be retired over a period not exceeding 10 years.
Section 18-B.  Payment of unfunded liabilities of the Maine State Retirement System.   Each fiscal year beginning with the fiscal year starting July 1, 1997, the Legislature shall appropriate funds that will retire in 31 years or less the unfunded liabilities of the Maine State Retirement System that are attributable to state employees and teachers.  The unfunded liabilities referred to in this section are those determined by the Maine State Retirement System's actuaries and certified by the Board of Trustees of the Maine State Retirement System as of June 30, 1996.

A Constitution defines the philosophy and structure of government The Constitution does not write policy. Policy is suited to statutory law, which can be changed more readily than the Constitution can be amended. The Constitution is the philosophical basis of law with which policy law must be consistent. 

Tinkering with The Maine Public Employees Retirement Fund


 In 2009 Senator Peter Mills sponsored §1026-T.Innovation finance program which allows the Maine Public Employees Retirement System fund to be used for investment purposes. The act was passed by the Legislature and signed into law by Governor Baldacci.
§1026-T. Innovation finance program 
1. Established.   The authority may create and oversee a state innovation finance program, referred to in this section as "the program," to increase the supply of venture capital to the economy of the State by improving access by innovative businesses in this State to venture capital funds. Investment performance of the program may be partially guaranteed by refundable tax credits issued by the authority to the retirement system. This section does not mandate or require any investment by the retirement system or give the retirement system any economic development responsibilities, its sole responsibility being to safeguard, invest and increase retirement system assets consistent with its fiduciary duty to its members. [ 2009, c. 633, §4 (NEW)]
  Refundable tax credits as authorized by this subsection may be redeemed only as necessary to offset 80% of any realized loss of capital in the program. [2009, c. 633, §4 (NEW).]
 A certificate of tax credits issued by the authority under this section is binding on the State and constitutes a solemn contractual commitment of the State protected under the contract clauses of the Constitution of Maine, Article I, Section 11 and the United States Constitution, Article I, Section 10. Once issued, as long as the retirement system is not in default under its agreement with the authority with respect to any certificate of tax credits, the certificate may not be modified, terminated or rescinded until the certificate expires, is redeemed or is released by the retirement system. [2009, c. 633, §4 (NEW).]
 §5219-EE. Maine Public Employees Retirement System innovation finance credit
1.Credit allowed.   The Finance Authority of Maine is authorized to issue to the Maine Public Employees Retirement System, referred to in this section as "the retirement system," a refundable credit against the taxes imposed by this Part in an amount certified by the Finance Authority of Maine as equal either to $4,000,000 or 80% of any loss of capital sustained in the innovation finance program established under Title 10, section 1026-T, whichever is less. Upon receipt of a certification as provided in Title 10, section 1026-T, subsection 4, paragraph E, the Department of Administrative and Financial Services, Bureau of Revenue Services shall pay the amount certified to the retirement system as provided in that subsection.
3. Limitations.   A credit under this section may not be redeemed for any loss occurring after July 1, 2028. Pursuant to Title 10, section 1026-T, total credits redeemed may not exceed $20,000,000.
[ 2009, c. 633, §5 (NEW).]

The first and last sentences of §1026-T. Innovation finance program: 1  contradict each other. The first sentence identifies the purpose of 1026-T. Innovation finance program  as "To increase the supply of venture capital to the economy of the State " The last sentence says "its sole responsibility being to safeguard, invest and increase retirement system assets consistent with its fiduciary duty to its members." The means by which §1026-T. Innovation finance program will "increase the supply of venture capital to the economy of the State"is by "by improving access by innovative businesses in this State to venture capital funds."

§ 1026-T. Innovation finance program is written to serve dual special interests groups-one identified as "innovative businesses" and the other is the Maine Public Employees Retirement Fund. It is important to note the dual special interests that the statutory rhetoric claims to serve for the purpose of extrapolating the future evolution of both public policy and the Maine Constitution. One must ask if the special interest group, The Maine Public Employees Retirement Fund can have their contractual agreement embedded in the Maine Constitution, can it come to pass that the private and special interest business partners of the state will do the same?

To insure against the possibility of further special private interest contracts being embedded in the Maine Constitution, the MPERS contract needs to be removed from the Maine Constitution with the repeal of  Article IX Section 18-A & B. There should be no further public consent to changes in the contract. The reason for embedding the MPERS contract into the Maine Constitution is so that it cannot be easily changed. That works both ways. Let the Legislature seek a way to convert this special interest corporation back to the private sector, while protecting the interests of those public employees who are currently affected the best as possible. Then, in the future the MPERS contract can be easily changed as needed without asking public consent.

§1026-T. Innovation finance program:1B uses the authority of the Maine and United States Constitutions to enforce its contract with the Maine Public Employees Retirement System by referencing protection under the contract clauses of the Constitution of Maine, Article I, Section 11 and the United States Constitution, Article I, Section 10. Yet Section 1 of §1026-T. Innovation finance program, begins with words identifying its purpose as the creation and overseeing of a state innovation finance program to improve access by "innovative businesses" in Maine to venture capital funds. By such a statement of purpose §1026-T violates The Maine Constitution, Article IX, General Provisions, Section 18 which states that the Maine Public Employees Retirement System is created for the exclusive purpose of providing employee benefits and shall not be diverted to other purposes.

There is wiggle room to argue that the investment program is income of MPERS but the fact that §1026-T states as its purpose the intent to create venture capital funds is problematic for such an argument. In addition, §5219-EE. Maine Public Employees Retirement System innovation finance credit, in allowing for the potential creation of a new public liability valued at four million dollars with a total limit of twenty million dollars, violates the Maine constitutional limit of two million dollars on liabilities established under the Maine Constitution, General Provisions, Section 14.
Maine Constitution
Article IX.
General Provisions
Section 14.  Authority and procedure for issuance of bonds. The credit of the State shall not be directly or indirectly loaned in any case, except as provided in sections 14-A, 14-B, 14-C and 14-D. [1]  The Legislature shall not create any debt or debts, liability or liabilities, on behalf of the State, which shall singly, or in the aggregate, with previous debts and liabilities hereafter incurred at any one time, exceed $2,000,000, except to suppress insurrection, to repel invasion, or for purposes of war, and except for temporary loans to be paid out of money raised by taxation during the fiscal year in which they are made
Are the contractual terms of agreement embedded into Maine’s Constitution to be granted a higher sanction of authority while Article IV Part Third, Sections 13 & 14, and Section 8 on Taxation, Article IX, General Provisions, Section 14, and Municipal Home Rule to be routinely disregarded by our law makers?

The full function of the Maine Public Employees Retirement System as an instrumentality of the state is revealed in  §1026-T, enabling MPERS to be used as a venture capitalist fund.

The creation of a liability risk for the general taxpayers not sharing in gains is unconscionable on the part of the Maine Legislature and MPERS. In 2011 the Maine taxpayer’s debt to MPERS had reached 4.4 billion dollars 

§1026-T Maine Public Employees Retirement System innovative financing cannot be said to be a public benefit as it creates a low risk-high yield investment opportunity for one faction of the public while creating a liability for loss on the investment for the taxpayers of Maine

In the private sector the faction responsible for 80% of the losses is entitled to 80% of the gain. Like many other acts distributing refundable tax credits, this act socializes the risk while privatizing the gain.

Public Employees constitute a private faction with special interests as articulated by James Madison in Federalist Paper #10

By a faction, I understand a number of citizens, whether amounting to a majority or a minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adverse to the rights of other citizens, or to the permanent and aggregate interests of the community.” James Madison, Federalist Paper #10
It is averse to the rights of the taxpayers of Maine to make them liable for the loss on investments while the gains are exclusively granted to a special interest faction





[1] Section 14-A.  Authority to insure industrial, manufacturing, fishing, and agricultural mortgage loans. Section 14-B.  Authority to insure revenue bonds of the Maine School Building Authority. Section 14-C.  Authority to insure mortgage loans for Indian housing. Section 14-D.  Authority to insure Maine veterans' mortgage loans, and to appropriate moneys and issue bonds for the payment of same.

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