Excerpt from Judge Govendo's 6/29/09
JUDGMENT FOR DAMAGES AND
ORDER THEREON - Civil Action 06-0367:
PUBLIC LAW 15-15

Public Law 15-15 was enacted by the Commonwealth Government in response to an ongoing financial crisis. It sought to alleviate this financial strain by suspending payment of all government obligations to the fund for fiscal years 2006 and 2007. This Court, having the authority to review the constitutionality of statutes enacted by the legislature, finds that this law is unconstitutional on two grounds: (1) it violates Article III, Section 20 of the CNMI Constitution and (2) it violates the Contracts Clause of the CNMI Constitution. Tenorio v.Superior Court, 1 N.M.I. 1, ¶16 (1989).
 Public Law 15-15 is Unconstitutional Because it Unlawfully Diminishes or Impairs the Accrued Benefits of the Fund Pursuant to Article III, Section 20(a) of the CNMI Constitution.
 The retirement system for government employees is addressed in Article III, Section 20(a) of the Constitution of the Commonwealth of the Northern Mariana Islands. This section states that “Membership in an employee retirement system of the Commonwealth shall constitute a contractual relationship. Accrued benefits of this system shall be neither diminished nor impaired.” N.M.I. Const. art. III, § 20(a). This section creates a constitutional right of Government employees to their retirement fund.
 Public Law 15-15 was enacted for the express purpose of allowing the Commonwealth Government to avoid its financial obligations to the Retirement Fund. By failing to pay its mandatory employer contributions, the Government (Legislative and Executive branches) has created a situation where the solvency of the Fund is threatened. The Retirement Fund now faces the possibility of bankruptcy in a few years. As such, the Court finds that this law clearly impaired the sacred obligation that the Government has towards its former and present employees. Therefore, Public Law 15-15 is unconstitutional because it diminished and impaired  the obligations established pursuant to Article III, Section 20(a) of the CNMI Constitution.
 -4- Public Law 15-15 is Unconstitutional Because it Violates the Contracts Clause of the CNMI Constitution.  The United States Constitution holds that no state shall pass any law which impairs a contractual obligation. U.S. Const. art. I, §10, cl. 1. The Covenant to Establish a Commonwealth of the Northern Mariana Islands in Political Union with the United States, Section 501 made this clause applicable to the CNMI. Furthermore, the CNMI Constitution adopted this clause in Article 1, Section 1.
 A Contracts Clause analysis must begin with the threshold question of whether a state law has operated as a substantial impairment of a contractual relationship. There are three components of this analysis: (1) Whether there is a contractual relationship; (2) Whether the law impaired the relationship; and (3) Whether the impairment was substantial. Gen. Motors Corp. v. Romein, 503 U.S. 181, 186 (1992) (quoting Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244 (1978).

When applying the facts of the present matter to this analysis, we must first examine whether a contractual relationship exists. The Retirement Fund is a mandatory program for employees of the Commonwealth Government. This program is addressed in the CNMI Constitution, where it is defined as a contractual relationship. N.M.I. Const. art. III, § 20(a).
Other courts have also held that the relationship between vested State employees and the State’s retirement system is contractual in nature. Bailey v. State of North Carolina, 348 N.C. 130, 140 (1998). Therefore, a contractual relationship exists sufficient to satisfy the first step of the analysis.

The next step is to determine whether this contractual relationship was impaired by Public Law 15-15. The accrued benefits of the Retirement Fund, as previously discussed, have been diminished and impaired by this law. Therefore, the contractual relationship has clearly been impaired by Public Law 15-15.
 The final component of the threshold analysis is whether this impairment was substantial.  The Government used Public Law 15-15 as the basis to avoid paying millions of dollars due as employer contributions. This Court would be hard-pressed to interpret a sum of this magnitude as being anything other than substantial. Therefore, all three components of the threshold inquiry are satisfied.

 Once this threshold inquiry is made the burden shifts to the opposing party to prove two things. The first is whether the law had a legitimate public purpose. Matsunaga  v. Matsunaga, 2006 MP 25, P 24. The next is whether the change in the rights and responsibilities of the contracting parties is appropriate in relation to the purpose which serves as justification. Id. A law that substantially impairs a contractual relationship can still be constitutional so long as it was created for a legitimate public purpose and the contractual interference is reasonable in relation to the contractual rights effected. Id.
 The Government asserted that Public Law 15-15 was enacted to address a financial crisis.  It argued that the CNMI is nearly broke and that Public Law 15-15 offered “... one of the few tools available to the Commonwealth to stabilize its finances...” Constitutionality P.L. 15-15, efiled by Defendants on March 13, 2009.2 The logic of attempting to balance the Government’s budget by threatening the future financial security of present and future retirees escapes this Court. However, the Court does agree that protecting public services and balancing the budget are legitimate public purposes. Therefore, the Government has arguably met its burden of proving that Public Law 15-15 was enacted to serve a legitimate public purpose.
 2 The “blame game” does not solve the present predicament of the Fund. However, the present crisis is a result of elected officials turning a blind eye to the health of the Fund over the last ten years and woefully ignoring the constitutional mandate imposed upon them. The Fund is also partially responsible for the mess that it is in. It has been too generous in allowing the grandchildren and great grandchildren of the first generation of retirees to obtain benefits long after the original retiree has died. The Fund was designed to provide for retirees and their spouses. It is assumed that when a person retires that his or her children are already grown up. The Fund is not for the children of the retirees’ children. This is unfair to future retirees who could possibly see the original retiree’s family avail themselves of the Fund for over eighteen years.

The present administration did the right thing in replacing defined benefit plan with the defined contribution plan. It stopped the bleeding and made it possible to ascertain how many retirees are left in the defined benefit plan, how long they and their spouses will live and how much money will be needed to take care of them.
-6- The final issue remaining is whether the Government’s decision to cease paying its obligations to the Retirement Fund was reasonable in relation to its desire to deal with the Commonwealth’s financial crisis. In deciding this issue the Court must examine the rationale behind the offending law as well as whether other viable options existed. The United States Supreme Court noted that:
“In applying this standard, however, complete deference to a legislative assessment of reasonableness and necessity is not appropriate because the State's self-interest is at stake. A governmental entity can always find a use for extra money, especially when taxes do not have to be raised. If a State could reduce its financial obligations whenever it wanted to spend the money for what it regarded as an important public purpose, the Contract Clause would provide no protection at all.” U.S. Trust Co. v. New Jersey, 431 U.S. at 25-26 (1977).

 The Commonwealth does not have free reign to ignore its contractual obligations when other policy alternatives exist. State of Nevada Employees Ass. v. Keating, 903 F.2d 1223, 1228 (1990). A Government should exhaust all other possible options before interfering with constitutionally protected funds. Stone v State, 664 S.E.2d 32, 43 (2008). The Commonwealth presented no evidence that it had identified and exercised all other possible options before enacting Public Law 15-15. The Court instead heard arguments that this was the only possible means of ensuring that other constitutionally guaranteed services were protected. These assertions fall flat in the face of several obvious and yet untried means of generating the needed revenue. Possibilities include selling Government properties located on Capital Hill, increasing taxation of foreign funded enterprises, such as the condominiums presently being built on the Lau Lau Bay Golf Resort, imposing a sales tax, diminishing tax rebates, curtailing all travel not funded by the Federal Government or even by auditing the Government agencies and reducing in force unnecessary employees.3 It was unreasonable for the Commonwealth to interfere with constitutionally protected retirement funds when other options were available and unexplored.

As such, Public Law 15-15 is unconstitutional for violating the Contracts Clause of both the United States and Commonwealth Constitutions.   Public Law 15-15 is clearly unconstitutional. It violates Article III, Section 20(a) of the Constitution of the Commonwealth of the Northern Mariana Islands by threatening the solvency of the Retirement Fund. Public Law 15-15 also violates the Contracts Clause by unreasonably impairing a contractual relationship. As such, this Court finds Public 15-15 unconstitutional on both grounds as asserted by the Plaintiff.