MARKMAN, J.
Pursuant to Const. 1963, art. 3, § 8, this Court granted the Governor's request for an advisory opinion on the constitutionality of 2011 PA 38.
We answer all these questions, with the exception of whether 2011 PA 38 creates a graduated income tax, in the negative. That is, we hold that:
And we hold unanimously that:
Finally, we hold that:
Although Justice HATHAWAY agrees that those portions of the statutes that we sever ought to be struck down because they are unconstitutional, she nevertheless asserts that we are "judicially creating tax deductions and exemptions for individuals earning more than $75,000 annually...." Post at 723. This is an odd assertion, given that she too would "create tax deductions and exemptions for individuals earning more than $75,000" by striking down the amendments of these provisions in their entirety and thereby returning the law to its pre-2011 PA 38 status, in which taxpayers earning more than $75,000 received these same deductions and exemptions.
We emphasize that the questions before us are all constitutional questions. This Court is not deciding whether 2011 PA 38 represents wise or unwise, prudent or imprudent public policy, only whether 2011 PA 38 is consistent with the constitutions of the United States and Michigan.
On May 25, 2011, the Governor signed into law Enrolled House Bill 4361, which became 2011 PA 38. The particular provisions at issue here are MCL 206.30(7) and MCL 206.30(9) of the Income Tax Act,
MCL 206.30(9) provides:
Before the enactment of 2011 PA 38, public-pension benefits were completely deductible,
In addition, while 2011 PA 38 does not affect the available pension deductions of those people born before 1946, it does affect the pension deductions of those people born in 1946 and thereafter. MCL 206.30(9). For those people born on or
The Governor, in a letter dated May 31, 2011, requested an advisory opinion regarding the constitutionality of 2011 PA 38. On June 15, 2011, we granted this request, invited the Attorney General to submit briefs and argue as both opponent and proponent of the matters at issue, invited other interested parties to file briefs amicus curiae, and, on September 7, 2011, heard oral arguments.
"Statutes are presumed to be constitutional, and courts have a duty to construe a statute as constitutional unless its unconstitutionality is clearly apparent." Taylor v. Gate Pharm., 468 Mich. 1, 6, 658 N.W.2d 127 (2003). "We exercise the power to declare a law unconstitutional with extreme caution, and we never exercise it where serious doubt exists with regard to the conflict." Phillips v. Mirac, Inc., 470 Mich. 415, 422, 685 N.W.2d 174 (2004). "`Every reasonable presumption or intendment must be indulged in favor of the validity of an act, and it is only when invalidity appears so clearly as to leave no room for reasonable doubt that it violates some provision of the Constitution that a court will refuse to sustain its validity.'" Id. at 423, 685 N.W.2d 174, quoting Cady v. Detroit, 289 Mich. 499, 505, 286 N.W. 805 (1939). Therefore, "the burden of proving that a statute is unconstitutional rests with the party challenging it," In re Request for Advisory Opinion Regarding Constitutionality of 2005 Pa. 71, 479 Mich. 1, 11, 740 N.W.2d 444 (2007), in this case the opposing Attorney General. "[W]hen considering a claim that a statute is unconstitutional, the Court does not inquire into the wisdom of the legislation." Taylor, 468 Mich. at 6, 658 N.W.2d 127.
"The presumption of constitutionality is especially strong with respect to taxing statutes." Caterpillar, Inc. v. Dep't of Treasury, 440 Mich. 400, 413, 488 N.W.2d 182 (1992). "State legislatures have great discretionary latitude in formulating taxes." Id. "`The legislature must determine all questions of State necessity, discretion or policy in ordering a tax and in apportioning it. 1 Cooley, Taxation (4th
"`When reviewing constitutional provisions, the objective of such review is to effectuate the intent of the people who adopted the constitution.'" Straus v. Governor, 459 Mich. 526, 533, 592 N.W.2d 53 (1999), quoting Straus v. Governor, 230 Mich.App. 222, 228, 583 N.W.2d 520 (1998). "`The lodestar principle is that of "common understanding," the sense of the words used that would have been most obvious to those who voted to adopt the constitution.'" Id. "`Both sides have cited portions of the "Address to the People" and the record of the Constitutional Convention, both of which may properly be considered in interpreting constitutional provisions.'" Straus, 459 Mich. at 533, 592 N.W.2d 53, quoting Straus, 230 Mich.App. at 228 n. 2, 583 N.W.2d 520.
The first issue contained in the Governor's request for an advisory opinion concerns whether reducing or eliminating the statutory exemption for public-pension incomes as set forth in MCL 206.30 impairs accrued financial benefits of a "pension plan [or] retirement system of the state [or] its political subdivisions" under Const. 1963, art. 9, § 24. The first clause of Const. 1963, art. 9, § 24 provides, "The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby." Before § 24 was adopted, "[i]t had long been the general rule that pensions granted by public authorities were not contractual obligations but gratuitous allowances which could be revoked at will by the authority because the pensioner was not deemed to have had any vested right in their continuation." Advisory Opinion re Constitutionality of 1972 Pa. 258, 389 Mich. 659, 662, 209 N.W.2d 200 (1973).
Const. 1963, art. 9, § 24, however, says nothing about whether these pension benefits can be taxed. And given the broad authority to tax granted to the Legislature
Again, Const. 1963, art. 9, § 24 provides that "[t]he accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby." A tax exemption is not an "accrued financial benefit" of a pension plan. "Accrue" means "`to increase, grow,'" "`to come into existence as an enforceable claim,'" to "`vest as a right,'" "`to come by way of increase or addition: arise as a growth or result,'" "`to be periodically accumulated in the process of time,'" to "`gather, collect, accumulate,'" "`to happen or result as a natural growth,'" to "`arise in due course,'" to "`come or fall as an addition or increment,'" and "to
A pension-tax exemption is not an "accrued" benefit because it does not "grow over time." During a state employee's working years, his or her pension-tax exemption, as opposed to the pension itself, cannot be said to be growing or accumulating because it does not even "come into existence" or "vest" until after the employee has retired and begins to collect his or her pension benefits. That is, one does not have a right to a tax exemption until one has received the funds that are subject to the exemption. Absent those funds, there is no tax exemption. And once a retiree has begun to receive his or her pension benefits, the tax exemption itself still does not "grow over time," but remains fixed. Therefore, a tax exemption is not an "accrued financial benefit."
The second clause of Const. 1963, art. 9, § 24 states, "Financial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities." This clause confirms that a tax exemption is not an "accrued financial benefit" protected by § 24 because it would be impossible to fund a tax exemption, as opposed once again to the pension itself, in the year that the service was rendered in light of the fact that an exemption's value is entirely a function of the tax rate of the taxpayer at
Finally, the constitutional convention debates reinforce this conclusion. As this Court explained in Studier, 472 Mich. at 657, 698 N.W.2d 350:
The "deferred compensation" protected as a "contractual obligation" by § 24 is the pension payments themselves earned by the retiree, while the tax exemption is something distinct and is not the subject of § 24.
For these reasons, reducing or eliminating the statutory exemption for public-pension incomes as set forth in MCL 206.30 does not impair accrued financial benefits of a "pension plan [or] retirement system of the state [or] its political subdivisions" under Const. 1963, art. 9, § 24.
The second issue contained in the Governor's request for an advisory opinion concerns whether reducing or eliminating the statutory tax exemption for pension incomes as set forth in MCL 206.30 impairs a contractual obligation in violation of Const. 1963, art. 1, § 10 or U.S. Const, art. I, § 10(1). Const. 1963, art. 1, § 10 provides, "No bill of attainder, ex post facto law or law impairing the obligation of contract shall be enacted." Similarly, U.S. Const, art. I, § 10(1) provides, "No State shall ... pass any ... Law impairing the Obligation of Contracts...." As discussed earlier, Const. 1963, art. 9, § 24 provides that an accrued public pension is a "contractual obligation." However, as also discussed earlier, "the obligation of [the] contract" specifically consists of the pension income, not the tax exemption of that income, and thus reducing or eliminating the tax exemption does not affect, much less impair, the obligation of the contract.
Several of the amicus curiae briefs argue that regardless of whether the tax exemption is an "accrued financial benefit" and thus a "contractual obligation" for purposes
Accordingly, "[i]n order for a statute to form the basis of a contract, the statutory language `must be "plain and susceptible of no other reasonable construction" than that the Legislature intended to be bound to a contract.'" Id. at 662, 698 N.W.2d 350 (citations omitted). That is, "[b]efore a statute, particularly one relating to taxation, should be held to be irrepealable or not subject to amendment, an intent not to repeal or amend must be so directly and unmistakably expressed as to leave no reason for doubt. Otherwise the intent is not plainly expressed." Harsha
For example, "[i]f the statutory language `provides for the execution of a written contract on behalf of the state the case for an obligation binding upon the state is clear.'" Studier, 472 Mich. at 662, 698 N.W.2d 350, quoting Nat'l R. Passenger Corp., 470 U.S. at 466, 105 S.Ct. 1441 (citation and quotation marks omitted). Statutes containing an express covenant not to amend the legislation are also deemed to create contractual obligations. Studier, 472 Mich. at 663, 698 N.W.2d 350. "But, `absent "an adequate expression of an actual intent" of the State to bind itself,' courts should not construe laws declaring a scheme of public regulation as also creating private contracts to which the state is a party." Id. at 662, 698 N.W.2d 350, quoting Nat'l R. Passenger Corp., 470 U.S. at 466-467, 105 S.Ct. 1441, quoting Wisconsin & Mich. R. Co. v. Powers, 191 U.S. 379, 386-387, 24 S.Ct. 107, 48 L.Ed. 229 (1903).
As was the case in Studier, none of the statutory tax exemption provisions that are at issue here contain any language "provid[ing] for a written contract on behalf of the state of Michigan or even use terms typically associated with contractual relationships, such as `contract,' `covenant,' or `vested rights.'" Studier, 472 Mich. at 663-664, 698 N.W.2d 350.
For these reasons, reducing or eliminating the statutory tax exemption for pension incomes as set forth in MCL 206.30 does not impair any contractual obligation in violation of Const. 1963, art. 1, § 10 or U.S. Const, art. I, § 10(1). In short, we are able to identify absolutely no provision within either constitution that provides that public employees, and only public employees, are entitled in perpetuity to receive pension income without having to pay taxes on that income and that such income alone will be forever exempt from having to support the costs of government. The opposing Attorney General contends that, come war, come natural disaster, come impending bankruptcy, only the pension income of public employees, among all individual income, will be off-limits from ever being used to pay the costs of government, including, significantly, the costs of public employees themselves. The opposing Attorney General, in our judgment, argues in behalf of a Constitution that does not exist, and we firmly reject those arguments.
The third issue concerns whether determining eligibility for income-tax exemptions on the basis of date of birth as set forth in MCL 206.30(9) violates the equal protection of the law under Const. 1963, art. 1, § 2 or the Fourteenth Amendment of the United States Constitution. Const. 1963, art. 1, § 2 states, in pertinent part, "No person shall be denied the equal protection of the laws...." Similarly, U.S. Const. Am. XIV, § 1 states, "[N]or shall any state ... deny to any person within its jurisdiction the equal protection of the laws."
The opposing Attorney General argues that a heightened standard of review—specifically, strict scrutiny—is required because there is a constitutional right to a tax-free pension. But, of course, this Court has determined this proposition to the contrary. For the reasons discussed with regard to the first two issues, there is no constitutional right to a tax-free pension. There is no right on the part of public employees, alone among all persons, to such a benefit. Furthermore, even if there were such a constitutional right, not all constitutional rights warrant application of the strict-scrutiny standard, only those that are considered "fundamental rights," i.e., those rights "traditionally protected by our society" and "implicit in the concept of ordered liberty." Phillips, 470 Mich. at 434, 685 N.W.2d 174 (citations and quotation marks omitted). The right to a tax-free pension has never been held to be a constitutional right, much less a fundamental right.
The rational-basis standard is "a relatively relaxed standard reflecting the Court's awareness that the drawing of lines that create distinctions is peculiarly a legislative task and an unavoidable one." Murgia, 427 U.S. at 314, 96 S.Ct. 2562. "Perfection in making the necessary classifications is neither possible nor necessary." Id. "Such action by a legislature is presumed to be valid." Id. Therefore, under the rational-basis standard, "`courts will uphold legislation as long as that legislation is rationally related to a legitimate government purpose.'" Phillips, 470 Mich. at 433, 685 N.W.2d 174, quoting Crego v. Coleman, 463 Mich. 248, 259, 615 N.W.2d 218 (2000). "The rational basis test does not test `the wisdom, need, or appropriateness of the legislation....'" Phillips, 470 Mich. at 434, 685 N.W.2d 174, quoting Crego, 463 Mich. at 260, 615 N.W.2d 218. Instead, "[t]his highly deferential standard of review requires a challenger to show that the legislation is `arbitrary and wholly unrelated in a rational way to the objective of the statute.'" Phillips, 470 Mich. at 433, 685 N.W.2d 174, quoting Crego, 463 Mich. at 259, 615 N.W.2d 218, quoting Smith v. Employment Security Comm., 410 Mich. 231, 271, 301 N.W.2d 285 (1981).
"This standard is especially deferential in the context of classifications made by complex tax laws." Nordlinger, 505 U.S. at 11, 112 S.Ct. 2326. "`[I]n structuring internal taxation schemes "the States have large leeway in making classifications and drawing lines which in their judgment produce reasonable systems of taxation."'" Id., quoting Williams v. Vermont, 472 U.S. 14, 22, 105 S.Ct. 2465, 86 L.Ed.2d 11 (1985), quoting Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 359, 93 S.Ct. 1001, 35 L.Ed.2d 351 (1973); see also Regan v. Taxation with Representation of Washington, 461 U.S. 540, 547, 103 S.Ct. 1997, 76 L.Ed.2d 129 (1983) ("Legislatures have especially broad latitude in creating classifications and distinctions in tax statutes.").
In this case, there is a rational basis for grounding a taxpayer's eligibility for the pension exemption upon date of birth: older persons, who are obviously more likely to be already retired or approaching retirement, have relied more on the exemption and will be less able to garner additional future income to offset the loss of the exemption. The United States Supreme Court "has acknowledged that classifications serving to protect legitimate expectation and reliance interests do not deny equal protection of the laws." Nordlinger, 505 U.S. at 13, 112 S.Ct. 2326.
The final issue concerns whether determining eligibility for income-tax exemptions and deductions on the basis of total household resources as set forth in MCL 206.30(7) and (9) creates a graduated income tax in violation of Const. 1963, art. 9, § 7. Const. 1963, art. 9, § 7 provides, "No income tax graduated as to rate or base shall be imposed by the state or any of its subdivisions." A graduated income tax is generally understood to be a tax on income that imposes a proportionately greater tax burden on the earnings of higher-income taxpayers than on that of lower-income taxpayers.
It is also uncontested that a taxpayer's "base" consists of his or her net taxable income and that exemptions and deductions reduce a taxpayer's base by reducing the amount of a taxpayer's income subject to taxation.
MCL 206.30(7) conditions a taxpayer's entitlement to the personal exemption on his or her income. If a taxpayer's income is less than $75,000 for a single return or $150,000 for a joint return, the taxpayer is fully entitled to the $3,700 personal exemption. However, if a taxpayer's income is between $75,000 and $100,000 for a single return or between $150,000 and $200,000 for a joint return, the taxpayer is only entitled to a declining proportion of the exemption, and this proportion depends entirely on the extent to which the taxpayer's income exceeds the threshold levels of $75,000 for a single return or $150,000 for a joint return.
With regard to the $20,000/$40, 000 deduction, MCL 206.30(9) conditions a taxpayer's entitlement to the $20,000 deduction
The supporting Attorney General argues that the "base" language only prohibits taxation that is piggybacked on the federal tax liability. In support of this argument, he cites the Address to the People, which stated, in pertinent part:
This language certainly does indicate that one purpose of using the term "base" was to prevent piggyback taxation, in which tax graduation is achieved by means of imposing a state income tax defined in terms of a particular percentage of the graduated federal income tax. However, nothing in the Address—and, even more significantly, nothing in the text of the Constitution itself—suggests that this was the only intended purpose of using "base." The necessary implication of the supporting Attorney General's argument is that the constitutional ratifiers intended to prohibit one, and only one, specific means of creating a graduated base, while permitting all other means of creating a graduated base. We do not believe that such an implication can fairly be drawn from a provision of the Constitution that states, "No income tax graduated as to ... base" shall be imposed by the state. Const. 1963, art. 9, § 7 (emphasis added).
This Court's understanding of the "base" language was also expressed by the delegates during the constitutional convention debates. For example, Delegate Van Dusen explained:
That the delegates understood their new constitutional provision to prohibit the imposition of a graduated income tax, directly or indirectly, is clear. As Delegate Van Dusen further explained:
And Delegate Henry Woolfenden explained:
And Delegate O. Lee Boothby explained:
Regardless of whether one today agrees or disagrees with the reasoning of the delegates in adopting Const. 1963, art. 9, § 7, one thing is clear: the delegates' understanding of this constitutional provision was that it would prohibit a graduated income tax, plain and simple,
This clarity undoubtedly explains Attorney General Frank Kelley's understanding of § 7 in 1965:
Furthermore, this is also the understanding of § 7 adopted by this Court. In Kuhn v. Dep't of Treasury, this Court held that tax credits for property tax and city income tax liability did not violate Const. 1963, art. 9, § 7 because, as the Court of Appeals had explained,
That this Court focused on the fact that a taxpayer's entitlement to the credits was not determined by the taxpayer's income— and ultimately upheld the credits—suggests that it may have believed that basing a taxpayer's entitlement to a credit on his or her income might run afoul of Const. 1963, art. 9, § 7.
Indeed, in Butcher v. Dep't of Treasury, we recognized that "by closely examining the credits, exclusions, and exemptions ... challenged [in Kuhn ], we at least implied that a constitutional violation can occur by the use of income criteria for determining their amounts" and that "`[t]he dispositive question [was] whether the credit at issue indirectly creates a progressive or graduated income tax rate.'" Butcher v. Dep't of Treasury, 425 Mich. 262, 273-274, 389 N.W.2d 412 (1986), quoting Butcher v. Dep't of Treasury, 141 Mich.App. 116, 121, 366 N.W.2d 15 (1984) (emphasis in the original). We held that the credit at issue, i.e., the property-tax credit, did not create a graduated income tax even though it was income-dependent because it was "in effect a property tax rebate that employs the income tax as a vehicle for its reconciliation" and, thus, "art. 9, § 7, which is concerned only with income taxes, [was] inapplicable...." Butcher, 425 Mich. at 276, 389 N.W.2d 412 (emphasis added).
We conclude that determining eligibility for income-tax exemptions and deductions on the basis of total household resources as set forth in MCL 206.30(7) and (9) creates a graduated income tax in violation of Const. 1963, art. 9, § 7.
Pursuant to MCL 8.5, these portions of 2011 PA 38, in our judgment, can be severed from the remainder of the act, which is constitutional with respect to all the issues raised.
This Court has long recognized that "[i]t is the law of this State that if invalid or unconstitutional language can be deleted from an ordinance and still leave it complete and operative then such remainder of the ordinance be permitted to stand." Eastwood Park Amusement Co. v. East Detroit Mayor, 325 Mich. 60, 72, 38 N.W.2d 77 (1949). The only unconstitutional portions of the act at issue here are those that ground eligibility for the personal exemption and for the $20,000/$40, 000 deduction on the taxpayer's income.
We are convinced that severing these unconstitutional provisions is not inconsistent with the manifest intent of the Legislature. MCL 8.5. First, there is no indication in the act that the drafters of 2011 PA 38 intended a different severability rule than MCL 8.5 to apply. Second, this is the remedy expressly requested by the supporting Attorney General, who represents the views of a majority of the Legislature. And third, it seems clear to this Court that the Legislature "would have passed the statute had it been aware that portions therein would be declared to be invalid and, consequently, excised from the act." Pletz v. Secretary of State, 125 Mich.App. 335, 375, 336 N.W.2d 789 (1983); see also Eastwood Park Amusement, 325 Mich. at 73, 38 N.W.2d 77 (stating the general rule that unconstitutional provisions may be severed even absent a severability clause if, among other conditions, "it is clear from the ordinance itself that it was the intent of the legislature to enact these provisions irrespective of the others")
In addition, we are convinced that the remainder of the act can be given effect without the invalid portions. See MCL 8.5. When the unconstitutional language is severed, what remains is complete in and of itself, logical in its formulation and organization, and clearly in furtherance of the Legislature's stated goal of addressing "deficiencies in state funds."
In view of what we perceive to be the Legislature's intentions, and because severing the invalid portions does not render the remaining portions of 2011 PA 38 "inoperable," MCL 8.5, we sever the unconstitutional portions of MCL 206.30 as follows:
If the Legislature disagrees with this Court's determination that what remains in 2011 PA 38 after severance is "operable" pursuant to MCL 8.5, or believes that this determination is otherwise inconsistent with its intent, the Legislature is, of course, free to modify MCL 206.30 as it sees fit, subject only to the constraints of the state and federal constitutions.
For all of these reasons, we hold that:
And we unanimously hold that:
Finally, we hold that:
Although Justice HATHAWAY agrees that those portions of the statutes that we sever
We reemphasize that the questions before us are all constitutional questions. This Court is not deciding whether 2011 PA 38 represents wise or unwise, prudent or imprudent, public policy, only whether 2011 PA 38 is consistent with the constitutions of the United States and Michigan.
ROBERT P. YOUNG JR., C.J., MARY BETH KELLY and BRIAN K. ZAHRA, JJ., concur.
CAVANAGH, J., (concurring in part and dissenting in part).
I concur in result only with part III(C) of the majority opinion because I do not believe 2011 PA 38 offends either the state or federal guarantees of equal protection under the law. Additionally, I concur in result only with part III(D) of the majority opinion because I agree that 2011 PA 38 violates the prohibition against a graduated income tax under Const. 1963, art. 9, § 7. However, I respectfully dissent from part III(A) of the majority opinion because, in my view, 2011 PA 38 violates Const. 1963, art. 9, § 24 as to those pension benefits that will have accrued before January 1, 2012, when 2011 PA 38 goes into effect. I would hold that the right to the statutory tax exemptions provided by the former MCL 206.30(1)(f) and similar statutes is an accrued financial benefit that attaches to the pension benefits at the time they accrue and that the right to the deferred exemption is therefore a contractual obligation that may not be diminished or impaired. See Const. 1963, art. 9, § 24. As applied to any pension benefits that accrue after January 1, 2012, however, I do not believe that 2011 PA 38 would violate Const. 1963, art. 9, § 24.
The first sentence of Const. 1963, art. 9, § 24 provides that "[t]he accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby." Therefore, the critical question is whether the tax exemption contained in the preamendment version of MCL 206.30(1)(f) constitutes an accrued financial benefit of a public pension plan or retirement system. If the answer is affirmative, then the tax exemption is a contractual obligation that may not be diminished or impaired.
I believe that the ratifiers of the 1963 Constitution intended the term "accrued financial benefit[]" to encompass statutory tax exemptions for public pensions. Rather than choosing a precisely limited term—such as "monetary payment" or "cash distribution"—the framers chose to include in article 9, § 24 the broader, generalized term "financial benefits." In Musselman v. Governor, 448 Mich. 503, 514, 533 N.W.2d 237 (1995), this Court explained that a general rule is broader than "a set of specific commands" and that a general rule "governs possibilities that could not have been anticipated at the time." Given that a general rule is intended to encompass possibilities that may not yet exist, the term "accrued financial benefits"
Indeed, Michigan has a long history of exempting public pensions from taxation. Annuity payments to employees in city library employees' retirement systems have been exempt from all state, county, township, city, village, and school district taxes since the 1920s, and state employee pensions have been similarly exempt since 1943 under the State Employees' Retirement Act (SERA). See MCL 38.705; MCL 38.40. Because these public-pension exemptions were firmly in place long before the 1963 Constitution was ratified, the financial benefits they provided to covered employees would certainly have been known to the framers and the ratifiers. In 1969, the Legislature enacted 1969 PA 332, which amended § 30 of the Income Tax Act, MCL 206.30, and extended the state's longstanding tax exemptions to the benefits received from all public pension and retirement systems. See MCL 206.30(1)(f), as amended by 2009 PA 134.
Concluding that the right to the tax exemption at distribution is both a "financial benefit" and an "accrued benefit" is consistent with this historical background. Specifically, there is no dispute that the various tax exemptions for public pensions provide a financial benefit because they result in a greater net monetary payment to retirees. There is likewise no dispute that taxing pension benefits diminishes those payments because removing the exemption will result in a reduced net monetary payment to retirees.
Turning to the phrase "accrued benefit," the majority relies in large part on the definition in Studier v. Mich. Pub. Sch. Employees' Retirement Bd., 472 Mich. 642, 698 N.W.2d 350 (2005), to hold that "[a] pension-tax exemption is not an `accrued' benefit because it does not `grow over time.'" Ante at 696, quoting Studier, 472 Mich. at 654, 698 N.W.2d 350. In holding that health-care benefits were not accrued financial benefits, the Studier majority concluded that the "ratifiers of our Constitution would have commonly understood `accrued' benefits to be benefits of the type
Although I do not take issue with the majority's recitation of the various dictionary definitions of "accrue," I do not see how these definitions mandate that the benefit must "increase or grow over time." Id. Indeed, not all the definitions the majority provides encompass the idea of accumulation over time. For example, the quoted definitions of "accrue" include "to come into existence as an enforceable claim," "to vest as a right," and "to become a present and enforceable right or demand." Ante at 695-96 (citations and quotation marks omitted). None of these definitions requires accumulation over time. Instead, these definitions acknowledge that a right can accrue immediately.
As I stated in my Studier dissent, "[t]he term `accrued financial benefits' was meant to include benefits that an employee had worked in reliance on and continued to work in reliance on." Studier, 472 Mich. at 676, 698 N.W.2d 350 (CAVANAGH, J., dissenting). Like the health-care benefits at issue in Studier, I believe that our public employees have "worked in reliance on and continued to work in reliance on" Michigan's contractual promise that their pension benefits—once accrued—would not be taxed by the state at the time of distribution. Given Michigan's longstanding exemptions for state employees and city librarians, I believe that this interpretation is well within the common understanding of the people at the time of ratification. See Goldstone v. Bloomfield Twp. Pub. Library, 479 Mich. 554, 570-571, 737 N.W.2d 476 (2007) (CAVANAGH, J., dissenting).
Regardless, I believe that the tax exemption for public pensions fits even the Studier majority's narrow interpretation of "accrued benefit," because the financial benefit provided by what is essentially a deferred tax exemption does "increase or grow over time." Specifically, the increase in the value of the tax exemption correlates precisely to the increase in the value of the employee's retirement account. As the value of an employee's retirement account grows over time, so too does the amount of money that will be exempt from taxation upon distribution, resulting in a financial benefit that increases with one's length of service to the public employer. Thus, I believe that the tax exemptions at issue here fit even the Studier majority's narrow definition.
In my view, the financial benefits of a pension plan—including any right to a tax exemption at distribution—accrue as an employee performs work for the public employer. See comments of Delegate Richard Van Dusen, 1 Official Record, Constitutional Convention 1961, p. 771) ("And with respect to work performed, it is the opinion of the committee that the public employee should have a contractual right to benefits of the pension plan, which should not be diminished by the employing unit after the service has been performed.");
Thus, while I agree that one generally cannot have any vested right in the continuation of any tax law, Detroit v. Walker, 445 Mich. 682, 703, 520 N.W.2d 135 (1994), this is not true if the Constitution provides otherwise, see Shivel v. Kent Co. Treasurer, 295 Mich. 10, 15, 294 N.W. 78 (1940). I believe that article 9, § 24 provides otherwise. As I have explained, the Legislature is free to amend the tax exemptions, and indeed has seen fit to do so with 2011 PA 38 and similar acts. Accordingly, because article 9, § 24 protects the pension benefits that have already accrued from diminishment or impairment, and because I believe that the right to the tax exemption at distribution is essentially a deferred tax exemption that accrues simultaneously with the benefits themselves, I do not believe it is constitutional for the state to tax any pension benefits that will have accrued before January 1, 2012.
In contrast to the majority, I do not perceive any conflict with Const 1963, art 9, § 2, which provides that "[t]he power of taxation shall never be surrendered, suspended or contracted away." (Emphasis added.) The key phrase in article 9, § 2 is "power of taxation," which is a far different concept from actual taxation. In W. A. Foote Mem. Hosp., Inc. v. City of Jackson Hosp., Auth, 390 Mich. 193, 211 N.W.2d 649 (1973), this Court concluded that article 9, § 2 was not violated when the Legislature chose to grant a tax exemption. Id. at 214-215, 211 N.W.2d 649. This Court held that rather than surrendering its power of taxation by granting the exemption, the Legislature was affirmatively exercising its taxation power and discretion. Id. at 215, 211 N.W.2d 649. Likewise, in enacting MCL 206.30(1)(f), the Legislature again exercised its discretion by creating a tax exemption, but did not forever surrender its power to tax. The import of article 9, § 2, of course, is that the Legislature can repeal or amend the tax exemption created by MCL 206.30(1)(f), as it has chosen to do in 2011 PA 38. And while the Legislature may properly tax any pension benefits that accrue after January 1, 2012, when 2011 PA 38 goes into effect, in my view, article 9, § 24 protects from taxation any pension benefits that will have already accrued.
I also find it unavailing for the majority to argue that the second sentence of article 9, § 24 supports the majority's conclusion that § 24 was never meant to include a tax exemption because a tax exemption cannot be funded yearly. As the convention comments indicate, the second sentence of § 24 was intended to ensure the annual funding of pension liabilities. See 2 Constitutional Convention 1961, Official Record, p 2659. A tax exemption is not a liability. A tax exemption does not represent money the state must pay out; it only limits what the state may take in. Offering a tax exemption as a financial benefit for its employees allows the state to attract and retain talented and dedicated employees without incurring any yearly funding obligation for the benefit given. Therefore, the second sentence of § 24 is irrelevant to whether a tax exemption is
In addition, it is well established that "an advisory opinion does not constitute a decision of the Court and is not precedentially binding in the same sense as a decision of the Court after a hearing on the merits." Advisory Opinion re Constitutionality of 1972 Pa. 294, 389 Mich. 441, 461 n. 1, 208 N.W.2d 469 (1973). With this premise in mind, I believe the majority opinion sweeps far too wide in attempting to foreclose the myriad possible challenges premised on individual factual circumstances. For example, how does the removal of the tax exemption affect collective-bargaining agreements, in which the rate of future pension benefits was calculated, at least in part, in reliance on Michigan's longstanding exemption for pension benefits? As Justice LEVIN cautioned in a previous advisory opinion, "[w]hen a court holds an act to be constitutional it does no more than deny a particular claim of unconstitutionality. It ought not, by premature expressions on generalized abstract claims, to appear to foreclose persons differently situated from advancing more concrete claims of unconstitutionality." Id. at 484, 208 N.W.2d 469 (LEVIN, J., concurring). Footnote 9 of the majority opinion does just that: it attempts to foreclose differently situated persons from advancing concrete claims, and it does so with "premature expressions on generalized abstract claims."
Likewise, I believe the majority opinion reaches too far by attempting to foreclose future challenges to the Legislature's revocations of the individual exemptions contained in SERA, MCL 38.40(1); the Public School Employees Retirement Act, MCL 38.1346(1); the Michigan Legislative Retirement System Act, MCL 38.1057(1); the city library employees' retirement system act, MCL 38.705; and the Judges Retirement Act, MCL 38.2670(1).
I, therefore, respectfully dissent from the majority's decision because I believe that Const 1963, art 9, § 24, requires the state to keep its promise. I would hold that 2011 PA 38 is unconstitutional as applied to any pension benefits that will have accrued before January 1, 2012.
I respectfully dissent from the majority's conclusion that 2011 PA 38 does not violate Const. 1963, art. 9, § 24. In my view, removing the tax exemptions formerly provided by MCL 206.30(1)(f) and similar statutes violates article 9, § 24, but only as applied to any public-pension benefits that will have accrued before January 1, 2012, when the new law goes into effect. As to pension benefits that accrue after January 1, 2012, taxation of those benefits must be limited as stated in part III(D) of the majority opinion, because I agree with the majority that 2011 PA 38 violates the prohibition against a graduated income tax under Const. 1963, art. 9, § 7.
MARILYN KELLY, J., concur.
HATHAWAY, J., (dissenting).
I dissent from the majority's decision in this matter because the majority allows unconstitutional limitations on retirement-based income-tax deductions to remain in place and engages in policymaking decisions that should properly be left to the Legislature and the Governor. The majority not only fails to strike down provisions of 2011 PA 38
On May 25, 2011, the Governor of Michigan signed 2011 PA 38 into law. Among the various changes to the tax code enacted in 2011 PA 38 is a sliding scale for limitations on deductions of retirement income based on age and income level. The act also imposes a sliding scale for limitations on income exemptions based on income level. Opponents of the act argue that these changes violate the United States and Michigan Constitutions, while supporters of the act contend that its provisions are consistent with the Legislature's power to tax.
On May 31, 2011, the Governor asked this Court to render an advisory opinion on issues pertaining to whether certain provisions of 2011 PA 38 are constitutional.
This Court agreed to hear oral argument on the Governor's questions and requested that the Attorney General provide briefing in support of and in opposition to the constitutionality of the statutory sections at issue. In re Request for Advisory Opinion Regarding Constitutionality of 2011 Pa. 38, 489 Mich. 954, 798 N.W.2d 353 (2011).
The first issue is whether reducing or eliminating the statutory deduction for public-pension income as described in MCL 206.30 impairs accrued financial benefits of a "pension plan [or] retirement system of the state [or] its political subdivisions" under Const. 1963, art. 9, § 24. I conclude that it clearly does.
The starting point for this analysis is the language of article 9, § 24, which protects accrued retirement benefits of public employees.
Before the enactment of the current version of MCL 206.30,
In reviewing this statute, we must examine the language of the statute itself, and the effect or impact of this new tax on the benefits received by public employees born in or after 1946, to determine whether "accrued financial benefits" are "impaired or diminished." This statute, without question, imposes a new tax on public-employee pensions that did not previously exist. It does so by restricting and limiting the pension and retirement deductions set forth in MCL 206.30(1)(f) on the basis of age and income level. These restrictions and limitations create various degrees of tax liability.
It is undisputed that public-employee pensions and retirement plans are an "accrued financial benefit" for purposes of article 9, § 24. As stated in Studier v. Mich. Pub. Sch. Employees' Retirement Bd., 472 Mich. 642, 654, 698 N.W.2d 350 (2005), "the ratifiers of our Constitution would have commonly understood `accrued' benefits to be benefits of the type that increase or grow over time—such as a pension payment or retirement allowance that increases in amount along with the number of years of service [an] employee has completed." Accordingly, MCL 206.30(9) clearly implicates an accrued financial benefit. The inquiry then becomes whether that accrued financial benefit is diminished or impaired by the imposition of a state tax directly on that pension.
In analyzing this issue, the effect or impact the provision will have on public pensions cannot be ignored. MCL 206.30(9) has no impact on public pensions for those persons born before 1946. However, all persons entitled to receive public pensions born in or after 1946 will be directly impacted. These public employees with vested pensions will have their benefits reduced. This is a direct financial impact. For example, before the enactment of MCL 206.30(9), a retiree born after 1952 who earned annual public-pension benefits of $20,000 would receive the full $20,000 annually. Under MCL 206.30(9), however, that retiree's $20,000 pension is no longer deductible. That $20,000 is subject to the state's 4.35 percent income tax rate, which results in an $875 reduction in the total amount of money that the retiree will receive annually. This is a direct tax on a public pension that will in most instances be deducted directly from the pension benefit at the time of distribution. This results in a financial reduction in the benefit to the pension recipient. A financial reduction of a benefit is a diminishment or impairment under
The majority opines that MCL 206.30(9) only reduces or eliminates tax deductions based on retirement and pension benefits and does not directly reduce the benefits themselves. The majority reasons that "tax deductions" do not amount to an accrued financial benefit and, therefore, the deductions do not fall within the purview of article 9, § 24. I find the majority's reasoning unpersuasive and erroneous because it creates an unnecessary distinction. Simply stated, a tax is a tax, whether it comes in the form of a direct tax increase or the elimination of a deduction. The elimination of this tax deduction results in a new tax, which is directly imposed on vested pensions. The pension benefits are irrefutably "accrued financial benefits." The majority disregards this. The majority also disregards the fact that the payout of pension benefits is reduced. But the impact remains the same: pension benefits, which are accrued financial benefits, will be diminished or impaired because they will be directly reduced by this tax. As former Attorney General Frank Kelley correctly stated in an opinion of the Attorney General:
The public-pension tax exemptions themselves have become part of the accrued financial benefits for vested employees, and reducing or eliminating them violates the Constitution.
The next issue is whether reducing or eliminating the statutory deduction for vested public-pension income as described in MCL 206.30 results in a "law impairing the obligation of contract" under article 1, § 10 of the Michigan Constitution. I conclude that it does.
Const. 1963, art. 9, § 24 specifies that accrued financial benefits of public-retirement and pension plans are constitutionally mandated and protected "contractual obligation[s]...." Const. 1963, art. 1, § 10 provides that "[n]o bill of attainder, ex post facto law or law impairing the obligation of contract shall be enacted." Stated plainly, article 9, § 24 creates an undiminishable, unimpairable contractual obligation with regard to accrued financial benefits of retirement income, and article 1, § 10 prohibits the Legislature from passing laws that impair contractual obligations. Therefore, if a statutory provision reduces the constitutionally afforded contractual obligations surrounding accrued financial benefits of retirement income, that statutory provision violates these constitutional provisions.
As explained in the discussion of the previous issue, MCL 206.30(9) reduces the accrued financial benefits of public retirement and pension plans. By reducing the amount of benefits that public employees receive as part of the contractual obligation owed them by public entities, MCL 206.30(9) impairs that contractual obligation. Thus, the reduction of such benefits violates the constitutional protections afforded to contractual obligations and must be struck down.
The third issue before us is whether the income-based criteria for determining tax liability in MCL 206.30 create a graduated income tax in violation of article 9, § 7 of Michigan's Constitution. Like the majority, I conclude that they do.
Article 9, § 7 of Michigan's Constitution prohibits a graduated income tax. That provision states: "No income tax graduated as to rate or base shall be imposed by the state or any of its subdivisions." This Court has previously stated that article 9, § 7 was designed to prohibit a graduated income-tax system that is similar to the federal tax system, in which tax rates increase as income increases. Kuhn v. Dep't of Treasury, 384 Mich. 378, 389, 183 N.W.2d 796 (1971). The income-based criteria contained in sections MCL 206.30(7) and (9),
The supporters of MCL 206.30 argue that it does not directly create higher tax rates for higher levels of income because the tax rate remains flat at 4.35 percent. The supporters argue that it is irrelevant whether the effective tax rate increases as "household resources"—meaning income— increase, as long as the 4.35 percent tax rate remains intact. However, the argument that MCL 206.30 is constitutional because it does not directly do what the Constitution prohibits is unpersuasive. In Butcher v. Dep't of Treasury, 425 Mich. 262, 273, 389 N.W.2d 412 (1986), this Court stated:
While the income-based criteria in MCL 206.30(7) and (9) do not directly increase the tax rate or base proportional to income level, the effect of imposing those criteria is to create a graduated tax rate tied to income level.
For example, consider two single retirees born after 1952 who have reached the age of 67. Retiree A earns $100,000 a year, and Retiree B earns $50,000 a year. Under MCL 206.30(9), Retiree A is not entitled to a $20,000 deduction in taxable income because he or she makes more than $75,000, while Retiree B makes less than $75,000 and is entitled to the deduction. Thus, Retiree B only pays taxes on $30,000 of taxable income. With a tax rate of 4.35 percent on taxable income, Retiree A pays $4,350 in taxes, which is an effective rate of 4.35 percent on $100,000. Meanwhile, Retiree B pays $1,305 in taxes, which is an effective rate of 2.61 percent on $50,000. The result is a graduated tax rate based on level of income. The same calculations produce similar results for the income-based reduction and elimination of personal exemptions for all taxpayers found in MCL 206.30(7). All income-based criteria for limiting and restricting taxable income using income brackets are unconstitutional.
Accordingly, I would hold that both MCL 206.30(7) and (9) are unconstitutional.
The final issue is one created by the majority's perplexing resolution of this
The majority claims that it is simply severing the unconstitutional portions from the statute. However, the statutory rules of severability do not permit such an outcome. Those rules are contained in MCL 8.5, which provides:
Under these rules, this Court must consider whether an entire section has to be struck down or whether the unconstitutional portions of that section can be severed from the remainder of the statute. Unconstitutional language can be severed when "the remaining portions are not determined by the court to be inoperable...."
In this matter, the majority attempts to justify its result by stating that the Legislature was aware that portions of 2011 PA 38 could be held unconstitutional and that those portions could be severed to keep the rest of the act constitutional. The majority asserts that members of the Legislature would have known which words from each section it passed could be held unconstitutional. This is groundless guesswork by the majority.
Moreover, the majority attempts to justify its restructuring of sections MCL 206.30(7) and (9) by arguing that the Attorney General requested this remedy in the brief supporting the law. This argument overlooks a fundamental tenet of statutory analysis: the Court's primary obligation is to ascertain legislative intent.
In this advisory matter, the Governor asked this Court to opine on whether MCL 206.30(7) and (9) are unconstitutional. Our proper role is to advise the Governor if either of these subsections violates the Constitution. Now that we have done so, it is up to the Legislature to determine whether the Income Tax Act should be redrafted—and, if so, how—in light of our ruling. Accordingly, I would follow the established rules of statutory construction and refrain from judicially creating deductions and exemptions that the Legislature clearly did not intend. I would leave to the Legislature the important role of deciding the best tax policy for the citizens of this state and limit the judiciary to its proper role of reviewing statutes to determine whether they are in accordance with our Constitution.
I would hold that MCL 206.30(9) is unconstitutional because it clearly violates article 9, § 24; article 1, § 10; and article 9, § 7 of Michigan's Constitution. Furthermore, I would hold that MCL 206.30(7) is unconstitutional because it also clearly violates article 9, § 7 of Michigan's Constitution. The majority not only fails to strike down parts of MCL 206.30 that are clearly unconstitutional, but also redrafts parts of this statute to provide tax exemptions and deductions that the Legislature clearly did not intend.
In sum, I would follow the established rules of statutory construction and refrain from judicially creating deductions and exemptions for individuals earning more than $75,000 annually and couples earning more than $150,000 annually, which the Legislature clearly did not intend. Moreover, I would leave to the Legislature the important role of deciding the best tax policy for the citizens of this state and
Thus, although there was much discussion at the constitutional convention of creating a contractual right to receive pension benefits, there was absolutely no discussion of creating a contractual right to tax-free pension benefits. It would seem that if the delegates had intended to create the latter right, they would at least have mentioned this in passing, particularly in light of the general proposition established in their new constitution against "surrender[ing], suspend[ing] or contract[ing] away" the Legislature's taxing authority. Const. 1963, art. 9, § 2. Even more telling is the lack of any reference to a contractual right to tax-free pension benefits in the Address to the People. Given that neither the actual language of § 24 nor the Address to the People mentions such a right, the ratifiers would have had absolutely no reason to suppose that, by adopting § 24, they would be creating a contractual right to tax-free pension benefits.
The fact that the language "are exempt" was put in the present tense indicates that the Legislature simply intended pension and retirement incomes to be exempt from taxation while this statutory language remained the law. However, it does not indicate any intent to forever prohibit a future Legislature from changing this law and making pension and retirement incomes subject to taxation. See also Sheehy v. Pub. Employees Retirement Div., 262 Mont. 129, 134, 864 P.2d 762, 765 (1993) ("[The statute] provides that state retirement benefits are exempted from state tax. The use of the present tense `are' indicates that the statute is a statement of current policy regarding public employment. The statute contains no manifestation of legislative intent to create private and enforceable contractual rights...; nor does it make or imply any promises regarding ongoing or future tax treatment of state retirement benefits.") (italics omitted).
The Michigan Legislative Retirement System Act formerly provided, "All retirement allowances and other benefits payable under this act and all accumulated credits of members, deferred vested members, and retirants in this retirement system are not subject to taxation by this state or any political subdivisions of this state." MCL 38.1057(1), as amended by 2002 PA 97 (emphasis added). The city library employees' retirement system act formerly provided:
And the Judges Retirement Act provided, "Distributions from employer contributions made pursuant to [MCL 38.2664(1) and (3)] and earnings on those employer contributions, and distributions from employee contributions made pursuant to [MCL 38.2664 714(3)] and earnings on those employee contributions, are exempt from any state, county, municipal, or other local tax." MCL 38.2670(1), as amended by 2002 PA 95 (emphasis added).
Each of these acts was amended to remove the statutory exemption from state taxes consistently with 2011 PA 38. See 2011 PA 41, 2011 PA 42, 2011 PA 43, 2011 PA 44, and 2011 PA 45. For example, as amended by 2011 PA 41, the State Employees' Retirement Act, MCL 38.40, now provides, in relevant part:
It is clear that the Legislature can use such nomenclature when it wishes to. For instance, when enacting 1982 PA 259, which requires the state treasurer to pay the principal of and interest on all state obligations, the Legislature provided in MCL 12.64: "This act shall be deemed a contract with the holders from time to time of obligations of this state." (Emphasis added.) Similarly, when enacting the State Housing Development Authority Act, 1966 PA 346, the Legislature provided in MCL 125.1434: "The state pledges and agrees with the holders of any notes or bonds issued under this act, that the state will not limit or alter the rights vested in the authority to fulfill the terms of any agreements made with the holders thereof, or in any way impair the rights and remedies of the holders until the notes or bonds, together with the interest thereon, with interest on any unpaid installments of interest, and all costs and expenses in connection with any action or proceeding by or on behalf of such holders, are fully met and discharged. The authority is authorized to include this pledge and agreement of the state in any agreement with the holders of such notes or bonds." (Emphasis added.)
Cf. Lind v. Battle Creek, 470 Mich. 230, 235, 681 N.W.2d 334 (2004) (YOUNG, J., concurring) ("The Michigan Equal Protection Clause, Const. 1963, art. 1, § 2, unlike the federal counterpart contained in the Fourteenth Amendment, explicitly prohibits discrimination on the basis of race.") (emphasis omitted).
Pre-38 PA 38 PA 38
Income Exemption Tax Base Exemption Tax Base
$ 10,000 3,600 6,400 3,600 6,400
$ 50,000 3,600 46,400 3,600 46,400
$ 87,500 3,600 83,900 1,800 85,700
$100,000 3,600 96,400 0 100,000
The personal exemption is tied to inflation: in 2010 it was set at $3,600; in 2011, it will be $3,700. The exemption is kept constant here for demonstration purposes. Under the pre-2011 PA 38 exemption, every taxpayer receives a $3,600 personal exemption off the top of household income, and thus each taxpayer's base is reduced by the set amount irrespective of income. However, 2011 PA 38 alters the personal exemption system by phasing out the personal exemption at $75,000 and completely eliminating it at $100,000. Thus, the two right columns on the chart illustrate how the current income tax exemption would be affected by the new incomedependent provisions and how the exemption phase-out is precisely the kind of graduated income tax base that the Constitution prohibits: the two highest earners illustrated have larger tax bases on which they must pay the flat 4.35 percent tax rate, and their tax bases are larger to the extent that the exemption does not apply to them for no other reason than their higher incomes. By basing an income exemption solely on income, 2011 PA 38 effectively delays the point from which the tax clock will begin to run on income for some, but not all, taxpayers. Accordingly, it is contrary to a flat-tax system.
Further, in asserting as Justice HATHAWAY does that this Court should strike down the deduction and exemption sections in their entirety, we conclude that, just as the Legislature did not "intend" that this Court strike down the limited portions of the law that the Court determines to be unconstitutional, the Legislature also did not "intend" that the entirety of these sections be struck down. Moreover, if we were to strike down these entire sections, and return the law to its status before 2011 PA 38 was passed, deductions and exemptions would still apply to those taxpayers earning $75,000 or more, just as they did before the enactment of the law. Thus, at least in this respect, Justice HATHAWAY'S proposed remedy is no different from ours: both would allow taxpayers earning $75,000 or more to receive these deductions and exemptions.
In my view, there is a strong argument that the tax exemption provided by SERA is an inherent part of the deferred compensation embodied in pension plan. Nevertheless, given my belief that the tax exemptions are "contractual obligations" under Const. 1963, art. 9, § 24, it is not necessary to opine on whether the tax exemption statutes found within the individual retirement acts—such as the tax exemption previously found within SERA—create contractual obligations for purposes of the Contracts Clause, as have other jurisdictions. See, e.g., Hughes v. Oregon, 314 Or. 1, 21 n. 27, 838 P.2d 1018 (1992). Further, because I conclude that 2011 PA 38 violates article 9, § 24 of the Constitution, I do not find it necessary to conclusively opine on whether the statutory amendments also violate the Contracts Clauses of the Michigan and United States Constitutions. Nevertheless, it briefly bears mentioning that there is an arguable Contracts Clause violation in this case. Because I believe that the statutory tax exemptions are accrued financial benefits under article 9, § 24, these benefits are "contractual obligations" that implicate the Contracts Clauses. Accordingly, under the framework for Contracts Clause analyses set forth in Romein v. Gen. Motors Corp., 436 Mich. 515, 534-536, 462 N.W.2d 555 (1990), it is arguable that the modifications of the tax exemption statutes will amount to a substantial impairment of that contractual right. See Bailey v. North Carolina, 348 N.C. 130, 151, 500 S.E.2d 54 (1998). Finally, even if there is a legitimate purpose behind the statutory amendments, I question whether violating article 9, § 24 of the Constitution is a reasonable means of carrying out that purpose.
