03-001117RP Florida League Of Cities, Inc.; City Of Caselberry; City Of Deerfield Beach; City Of Greenacres; City Of Kissimmee; And City Of New Port Richey vs. Department Of Management Services, Division Of Retirement Status: Closed DOAH Final Order on Wednesday, September 3, 2003.

Summary: Petitioners` challenge to Respondent`s proposed Rules 60Z-1.026 and 60Z-2.017, F.A.C., dismissed as Respondent`s rule meets all tests for correctness.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FLORIDA LEAGUE OF CITIES, )

INC.,; CITY OF CASELBERRY; )

CITY OF DEERFIELD BEACH; )

CITY OF GREENACRES; )

CITY OF KISSIMMEE; AND )

CITY OF NEW PORT RICHEY, )

)

Petitioners, )

)

vs. ) Ca se No. 03 - 1117RP

)

DEPARTMENT OF MANAGEMENT )

SERVICES, DIVISION OF )

RETIREMENT, )

)

Respondent, )

)

and )

)

FLORIDA PROFESSIONAL )

FIREFIGHTERS, INC., )

FLORIDA POLICE BENEVOLENT )

ASSOCIATION, INC., )

)

Intervenors. )

)

FINAL ORDER

Administrative Law Judge Don W. Davis of the Division of

Administrative Hearings (DOAH) held a final hearing in the

above - styled cause on July 29, 2003, in Tallahassee, Florida.

APPEARANCES

For Petitioners Florida Leagu e of Cities, Inc., City of

Casselberry, City of Deerfield Beach, City of Greenacres, City

of Kissimmee, and City of New Port Richey:

James W. Linn, Esquire

Glenn E. Thomas, Esquire

Lewis, Longman & Walker, P.A.

125 South Gadsden Street, Suite 300

Tallahassee, Florida 32301

For Respondent Florida Department of Management Services,

Division of Retirement:

Robert R. Button, Esquire

Assistant General Counsel

Department of Management Services

4050 Esplanade Way, Suite 260,

Tallahassee, Florida 32399 - 0950

For Intervenor Florida Police Benevolent Association, Inc.:

G. Hal Johnson, Esquire

Florida Police Benevolent

Association, Inc.

300 East Brevard Street

Post Office Box 11239

Tallahassee, Florida 32302

For Intervenor, Florida Professional Firefighters, Inc.:

Richard Sicking, Esquire

1313 Ponce de Leon Boulevard

Suite 300

Coral Gables, Florida 33134

STATEMENT OF THE ISSUE

Whether the proposed rules, 60Z - 1.026 and 60Z - 2.017,

Flori da Administrative Code, published in the Florida

Administrative Weekly on March 7, 2003 (Volume 29, No. 10, at

pages 979 - 80), constitute an invalid exercise of delegated

legislative authority.

PRELIMINARY STATEMENT

On March 28, 2003, the Florida League of Cities, City of

Casselberry, City of Deerfield Beach, City of Greenacres, City

of Kissimmee, and City of New Port Richey (Petitioners) filed a

petition challenging proposed rules 60Z - 1.026 and 60Z - 2.017 of

the State of Florida, Department of Management Services,

Division of Retirement.

At the final hearing, Petitioners presented the testimony

of Michael J. Tierney, expert witness — enrolled actuary, and

Kraig Conn, Deputy General Counsel for the Florida League of

Cities. Additionally, stipulated testimo ny was received for the

following Petitioners’ witnesses: Jeffrey Dreier, Financial

Director, City of Casselberry; Sally Siegel, Finance Director,

City of Deerfield Beach; Wadie Atallah, City Manager, City of

Greenacres; Mark E. Durbin, City Manager, City of Kissimmee; and

Richard Snyder, Finance Director, City of New Port Richey.

Respondent, State of Florida, Department of Management Services,

Division of Retirement, presented the testimony of Charles

Slavin, Actuary, Division of Retirement and Patricia Shoemaker,

Benefits Administrator, Division of Retirement. Intervenors

presented no witnesses. Petitioners' Exhibits 1 - 15 were

received into evidence.

A transcript of the final hearing proceeding was filed with

DOAH on August 12, 2003. The parties re quested and were granted

leave to file proposed final orders more than 10 days following

the receipt of the transcript. All parties submitted proposed

final orders or adopted a proposed final order submitted by

either Petitioners or Respondent. A review of those post -

hearing submittals has been completed and utilized where

practicable in the composition of this final order.

References to Sections of Florida Statutes are to Florida

Statutes 2003, unless otherwise noted.

FINDINGS OF FACT

1. Petitioner , Florida League of Cities, Inc. (“League”),

is a not - for - profit Florida corporation located at 301 South

Bronough Street, Suite 300, Tallahassee, Florida 32301. The

League is a wholly owned instrumentality of its 405 member

cities. The League’s purpose is to work for the general

improvement of municipal government and its effective

administration in this state, and to represent its members

before the legislative, executive and judicial branches of

Florida’s state government on issues pertaining to the we lfare

of its members. The League’s members include 175 cities with

pension plans for firefighters established pursuant to

Chapter 175; and 184 cities with pension plans for police

officers established pursuant to Chapter 185.

2. Petitioner Casselberry m aintains a local law pension

plan for its firefighters and police officers pursuant to

Chapters 175 and 185. Casselberry’s pension plan was in effect

on October 1, 1998. Casselberry’s pension plan meets all the

minimum benefit requirements of Chapters 17 5 and 185.

3. Casselberry’s police/fire pension plan provides

benefits in addition to or greater than the pension benefits it

provides to general employees that cost as much or more than the

total amount of premium taxes received by the City of

Casselbe rry.

4. Petitioner Deerfield Beach maintains a local law

pension plan for its police officers pursuant to Chapter 185,

Florida Statutes. Deerfield Beach’s pension plan meets all the

minimum benefit requirements of Chapter 185. Further, Deerfield

Beach ’s police pension plan provides benefits in addition to or

greater than the pension benefits it provides to general

employees that cost as much or more than the total amount of

premium taxes received by the City of Deerfield Beach.

5. Petitioner Greenacr es maintains a local law pension

plan for its firefighters and police officers pursuant to

Chapters 175 and 185, Florida Statutes. Greenacres’ pension

plan meets all the minimum benefit requirements of Chapters 175

and 185.

6. Greenacres’ police/fire pe nsion plan provides benefits

in addition to or greater than the pension benefits it provides

to general employees that cost as much or more than the total

amount of premium taxes received by the City of Greenacres.

7. Petitioner Kissimmee maintains a loc al law pension plan

for its firefighters pursuant to Chapter 175. Kissimmee’s

firefighter pension plan meets all the minimum benefit

requirements of Chapter 175.

8. Kissimmee’s firefighter pension plan provides benefits

in addition to or greater than t he pension benefits it provides

to general employees that cost as much or more than the total

amount of premium taxes received by the City of Kissimmee.

9. Petitioner New Port Richey maintains a local law

pension plan for its firefighters pursuant to Cha pter 175. New

Port Richey’s firefighter pension plan meets all the minimum

benefit requirements of Chapter 175, and provides benefits in

addition to or greater than the pension benefits it provides to

general employees. These benefits cost as much or mor e than the

total amount of premium taxes received by the City of New Port

Richey.

10. Chapters 175 and 185, govern the establishment and

operation of defined benefit retirement plans for municipal

police officers and firefighters employed by cities and sp ecial

districts. These Chapters also contain a revenue sharing

program that allows participating cities and districts to

receive a portion of the state excise tax on property and

casualty insurance premiums collected on policies covering

property within e ach jurisdiction.

11. In order to qualify for the annual distribution of

premium tax revenues provided by Chapters 175 and 185, the local

government pension plan must comply with the applicable

provisions of those statutes. Sections 175.351(1) and

185.3 5(1), respectively, of those Chapters were amended in 1999

by Chapter 99 - 1, Laws of Florida. The two Sections are

virtually identical and can be treated interchangeably for the

purposes of this proceeding. Section 175.351(1), in pertinent

part, reads as follows:

1) PREMIUM TAX INCOME. -- If a municipality

has a pension plan for firefighters, or a

pension plan for firefighters and police

officers, where included, which in the

opinion of the division meets the minimum

benefits and minimum standards set fort h in

this chapter, the board of trustees of the

pension plan, as approved by a majority of

firefighters of the municipality, may:

(a) Place the income from the premium tax

in Section 175.101 in such pension plan for

the sole and exclusive use of its

fir efighters, or for firefighters and police

officers, where included, where it shall

become an integral part of that pension plan

and shall be used to pay extra benefits to

the firefighters included in that pension

plan; or

(b) Place the income from the premium tax

in Section 175.101 in a separate

supplemental plan to pay extra benefits to

firefighters, or to firefighters and police

officers where included, participating in

such separate supplemental plan.

The premium tax provided by this Chapter

shall in all cases be used in its entirety

to provide extra benefits to firefighters,

or to firefighters and police officers,

where included. However, local law plans in

effect on October 1, 1998, shall be required

to comply with the minimum benefit

provisions of this chapter only to the

extent that additional premium tax revenues

become available to incrementally fund the

cost of such compliance as provided in

Section 175.162 (2)(a). When a plan is in

compliance with such minimum benefit

provisions, as subseque nt additional premium

tax revenues become available, they shall be

used to provide extra benefits. For the

purpose of this chapter, ‘additional premium

tax revenues’ means revenues received by a

municipality or special fire control

district pursuant to Sec tion 175.121 that

exceed that amount received for calendar

year 1997 and the term ‘extra benefits’

means benefits in addition to or greater

than those provided to general employees of

the municipality. Local law plans created

by special act before May 23, 1939, shall be

deemed to comply with this chapter.

(Underscored language was enacted by Chapter 99 - 1, Laws of

Florida.)

12. The above - quoted underscored language of Sections

175.351 and 185.35 became effective March 12, 1999. The

Division of Retireme nt advised all cities and districts that

they could use additional premium tax revenues received in

excess of the amount received for 1997 solely to pay for new

extra benefits adopted after March 12, 1999. The additional

premium tax revenues could not be used to pay for extra benefits

adopted before March 12, 1999. Consequently, responsibility for

the cost to local governments for extra benefits adopted prior

to March 12, 1999, is not defrayed by additional premium tax

benefits and must be absorbed by the particular local

government.

13. As established by testimony of Respondent's Actuary,

Charles Slavin, along with Article X, Section 14 of the Florida

Constitution and Part VII, Chapter 112, governmental pension

plans must be funded on a “sound actuarial b asis.” A plan is

actuarially funded when funded by contributions which, when

expressed as a percent of active member payrolls or a fixed

dollar amount, will remain approximately level from year to year

and will not have to be increased in the future, in t he absence

of benefit improvements. Actuarial funding is based on

reasonable assumptions, predictable events and variables so that

all the funds necessary to pay employees' future benefits are

accumulated by the expected date of benefit payments.

14. A pe nsion plan is funded on a sound actuarial basis

when a funding program has been established which, with the

payment of level contributions and investment returns over the

lifetime of the participants, will fund the difference between

the value of expected promised benefits and the available

assets. Although pension benefits increase in future years from

increased salaries and other facts, pension plans are usually

funded on a constant level percentage of payroll. Such funding

pays the normal fiscal cost a nd amortizes unfunded liabilities

as required by Chapter 112, Part VII. Payroll growth helps pay

for increases in the cost of benefits because employee

contributions, based on a level percentage of payroll produce

increased funding. Liability increases a re offset by payroll

growth.

15. Extra benefits for firefighters and police officers in

excess of those provided general employees, that were enacted by

local governments, prior to or after March 12, 1999, were

required by law to be funded on a sound act uarial basis.

Premium tax revenues to the local governments are not within the

control of those local governments since the amount of tax

levied is set by the legislature through statutory enactment.

Accordingly, inclusion of future revenues in future ye ars from

the premium tax is not a proper actuarial assumption in the

funding of extra benefits. Some local governments, despite this

categorization of the premium tax revenue, enacted special

benefits in reliance upon possible future increases in revenues

from the tax to fund special benefits.

16. All local government Petitioners in the present

proceeding meet the minimum benefit requirements of Sections

175.162 and 185.16. The cost of extra benefits enacted by

Petitioners prior to the effective date of Chapter 99 - 1

(March 12, 1999), generally exceeded the amount of the premium

tax received by Petitioners. Respondent's requirement that

Petitioners set aside additional premium tax revenues to fund

solely future benefit increases prevented the reduction of

future funds for future benefits.

17. Respondent's proposed rules, 60Z - 1.026 and 60Z - 2.017,

are identical with exception that one is applicable to Sections

175.351(1) and 185.35(1), respectively, and read as follows:

Use of premium tax revenues:

(1) For pension plans that were in effect

on October 1, 1998, that have not met the

minimum benefit requirements described in

Section 185.16, benefits shall be increased

incrementally as additional premium tax

revenues become available.

(2) For pension plans that were in effect

on October 1, 1998, that provide benefits

that meet or exceed the minimum benefits

described in Section 185.16, increases in

premium tax revenues over the amount

collected for calendar year 1997, must be

used in their entirety to provi de extra

benefits in addition to those benefits

provided prior to the effective date of

Chapter 99 - 1, Laws of Florida.

(3) For plans that were not in existence on

October 1, 1998, premium tax revenues must

be used in their entirety to provide extra

benef its.

18. Respondent interprets "additional premium benefits" as

defined in Sections 175.351 and 185.35 to mean premium tax

benefits greater than those received in 1997 and distributed to

cities in 1998, prior to enactment of Chapter 99 - 1. "Extra

benefit s" means benefits greater than those afforded general

employees and in addition to or greater than those benefits

enacted prior to the effective date of Chapter 99 - 1. These

definitions presume that amendments in Chapter 99 - 1 are to be

applied prospectivel y, or after the effective date of that

legislative enactment. Extra benefits enacted prior to that

date must be funded from premium tax dollars received prior to

that date.

19. No evidence was presented by Petitioners of

legislative intent that "addition al premium tax revenues" should

or could be used to fund existing extra benefits enacted prior

to Chapter 99 - 1.

CONCLUSIONS OF LAW

20. The Division of Administrative Hearings has

jurisdiction over this proceeding. See Section 120.56. The

rule challenge i n this proceeding was properly filed, having

complied with the requirements of Section 120.56.

21. Petitioners have standing to challenge the proposed

rule. Each city Petitioner administers on behalf of its police

officers, firefighters or both, a pensio n plan governed by

Chapters 175 and 185, and will be affected by the proposed

rules.

22. Each city Petitioner is a member of the Florida League

of Cities. The League meets the criteria for association

standing as set forth in Florida Homebuilders Associa tion v.

Florida Department of Labor and Employment Security , 412 So.2d

351 (Fla. 1982), because the League has shown that (1) a

substantial number of its members are affected, (2) that the

subject matter is within the League’s general scope of interest

and activity, and (3) that the relief sought is appropriate for

the League to receive on behalf of its members. See also Rule

28 - 106.205, Florida Administrative Code.

23. A proposed rule is an invalid exercise of delegated

legislative authority if, among ot her infirmities:

The rule enlarges, modifies, or contravenes

the specific provisions of law implemented;

* * *

The rule is arbitrary or capricious. A rule

is arbitrary if it is not supported by logic

or the necessary facts; a rule is capricious

if it i s adopted without thought or reason

or is irrational; or

The rule imposes regulatory costs on the

regulated person, county, or city which

could be reduced by the adoption of less

costly alternatives that substantially

accomplish the statutory objectives.

See Section 120.52(8)(c),(e), and (f).

24. Respondent has rulemaking authority to implement,

interpret, or explain the use of "additional premium tax

revenues" to fund "extra benefits" as expressed in Sections

175.351 and 178.35. (See Sections 120.536 (1), 120.54,

175.341(2), and 185.23(2)); Cf. Southwest Florida Water

Management District v. Save the Manatee Club , 773 So. 2d. 594

(Fla. 1st DCA 2000). Petitioners have not challenged

Respondent's rulemaking authority.

25. Petitioners challenge Responde nt's construction of

Sections 175.351 and 185.35, as expressed in Respondent's

proposed rules. Chapter 175 applies to municipalities and

special fire control districts that elect to receive insurance

premium tax revenues to subsidize pension plans for

fir efighters. Chapter 185 applies to municipal police officers'

pension funds. Participation in the revenue programs in

Chapters 175 and 185 is entirely voluntary. The provisions of

the two chapters are essentially identical.

26. Respondent's proposed ru les, 60Z - 1.026 and 60Z - 2.017

are essentially identical as well.

27. Respondent's proposed rules do not enlarge, modify, or

contrave the specific provisions of law implemented. The

proposed rules are not arbitrary or capricious. Further, the

proposed rul es do not impose regulatory costs which could be

reduced by the adoption of less costly alternatives that

substantially accomplish the statutory objectives.

28. Respondent's proposed rules are clear. Future extra

benefit increases are funded through fu ture increases in premium

tax revenues. Petitioners seek to have amendments enacted via

Chapter 99 - 1 applied retro - actively. Such an action is contrary

to well established principles of statutory interpretation that

absent explicit provisions to the cont rary, a legislative

enactment is to be applied prospectively. See Supreme Court of

Florida v. Lavazzoli , 434 So 2d 321 (Fla. 1983).

ORDERED

Based on the foregoing Findings of Fact and Conclusions of

Law, Petitioners' challenge to proposed rules 60Z - 1.02 6 and

60Z - 2.017 is dismissed.

DONE AND ORDERED this 23rd day of September, 2003, in

Tallahassee, Leon County, Florida.

S

DON W. DAVIS

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 23rd day of September, 2003.

COPIES FURNISHED :

Robert R. Button, Esquire

Department of Management Services

Division of Retirement

4050 Esplanade Way, Suite 260

Tallahassee, Florida 32399

G. Hal Johnson, Esquire

Florida Police Benevolent Association, Inc.

300 East Brevard Street

Post Office Box 11239

Tallah assee, Florida 32302

James W. Linn, Esquire

Lewis, Longman & Walker, P.A.

125 South Gadsden Street, Suite 300

Tallahassee, Florida 32301

Richard A. Sicking, Esquire

1313 Ponce de Leon Boulevard, Suite 300

Coral Gables, Florida 33134

Monesia Taylor Br own, Acting General Counsel

Department of Management Services

Division of Retirement

4040 Esplanade Way

Tallahassee, Florida 32399 - 1560

Erin Sjostrom, Director

Department of Management Services

Division of Retirement

Cedars Executive Center, Building C

2 639 North Monroe Street

Tallahassee, Florida 32399 - 1560

Scott Boyd, Acting Executive Director/

General Counsel

Joint Administrative Procedures Committee

120 Holland Building

Tallahassee, Florida 32399 - 1300

Liz Cloud, Chief

Bureau of Administrative Co de

The Elliott Building, Room 201

Tallahassee, Florida 32399 - 0250

NOTICE OF RIGHT TO JUDICIAL REVIEW

A party who is adversely affected by this Final Order is

entitled to judicial review pursuant to Section 120.68, Florida

Statutes. Review proceedings are governed by the Florida Rules

of Appellate Procedure. Such proceedings are commenced by

filing the original notice of appeal with the Clerk of the

Division of Administrative Hearings and a copy, accompanied by

filing fees prescribed by law, with the D istrict Court of

Appeal, First District, or with the District Court of Appeal in

the Appellate District where the party resides. The notice of

appeal must be filed within 30 days of rendition of the order to

be reviewed.