Can the NC General Assembly give tax refunds or credits to former federal employees even though courts say the state owes them nothing?

Plain-English summary

At Senator John Kerr's request, the Attorney General was asked whether North Carolina could give refunds or tax credits to federal pensioners after courts had held the state was not legally required to provide that relief. The AG answered yes: the General Assembly could choose to do so if it believed the pensioners' prior federal service warranted relief.

Article I, Section 32 of the North Carolina Constitution bars exclusive privileges granted without consideration of public service. The opinion quotes the clause: "No person or set of persons is entitled to exclusive or separate emoluments or privileges from the community but in consideration of public services." That restriction does not mean a recipient must already have an enforceable claim against the state.

The AG relied particularly on Leete v. County of Warren, where a county paid a former manager despite having no legal obligation to do so. The Court of Appeals upheld the payment because it was given in consideration of his past public service. The AG concluded that prior federal employment also counts as public service. The choice whether to provide federal pensioner relief remains with the legislature.

Currency note

This opinion was issued in 1995. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and constitutional reasoning

The opinion cites Simonton v. Lanier and Plott v. Ferguson for the general rule against legislative privileges that lack a corresponding return of public service. It does not describe the facts or outcomes of those two cases.

It then quotes the two-part test from Town of Emerald Isle v. State: an exemption benefiting a particular group is permissible if it is intended to promote the general welfare rather than individual benefit and if the legislature has a reasonable basis to conclude that it serves the public interest. The opinion points to earlier decisions involving benefits for veterans and retired public employees as examples of benefits allowed under the clause.

Leete addressed the concern closest to the pensioners' situation. A county paid its departing manager $5,073.12 after he resigned. Although the county had no legal obligation to pay, the Court of Appeals upheld the payment as consideration for his prior public service. Quoting that case, the AG explained that "the primary inquiry under Article I, [Section] 32 is not whether the recipient has a legal or enforceable claim" but whether the government acted "in consideration of the recipient's public service."

The opinion applies that reasoning to federal pensioners. It says that if the General Assembly decides their prior federal service warrants relief, refund or credit legislation would be constitutional under the exclusive emoluments clause.

Common questions

Did the opinion require North Carolina to issue refunds?

No. It says the decision is within the General Assembly's discretion. It does not say that pensioners have an enforceable right to a refund.

Does a prior court ruling that the state owes nothing prevent voluntary relief?

No. The AG's answer was that the legislature may still provide relief in consideration of prior public service.

Did the opinion evaluate a particular bill or an enacted refund program?

No. It answered whether the legislature had authority to enact relief legislation. It did not evaluate the terms of any specific program.

Citations from the opinion

• N.C. Const. Art. I, § 32
• Simonton v. Lanier, 71 N.C. 498 (1874)
• Plott v. Ferguson, 202 N.C. 446 (1932)
• Town of Emerald Isle v. State, 320 N.C. 640 (1987)
• Hinton v. State Treasurer, 193 N.C. 496 (1927)
• Bromley v. Baxter, 225 N.C. 691 (1945)
• Bridges v. City of Charlotte, 221 N.C. 472 (1942)
• Leete v. County of Warren, 114 N.C. App. 755 (1994)

Source

• Landing page: https://ncdoj.gov/opinions/authority-of-the-general-assembly-to-provide-relief-to-federal-pensioners/

Original opinion text

At the request of Senator John Kerr, you ask our opinion whether the General Assembly may lawfully enact legislation giving refunds or tax credits to federal pensioners even though the courts have definitively held that the state has no legal obligation to provide such relief.

For reasons which follow, it is our opinion that the Legislature has the authority to provide relief to federal pensioners, notwithstanding the decisions of the federal and state courts that the state has no legal obligation to provide such relief. This decision would be within the discretion of the General Assembly should it believe that federal pensioners' prior public service as federal employees warrants such relief.

Article I, Section 32 of the North Carolina Constitution provides: "No person or set of persons is entitled to exclusive or separate emoluments or privileges from the community but in consideration of public services."

The exclusive emoluments provision of our State Constitution bars legislative grants which exempt some individuals from prohibitions that otherwise apply generally to all citizens of the state or which extend special privileges to select individuals or groups of individuals without a corresponding return of public service. Simonton v. Lanier, 71 N.C. 498 (1874); Plott v. Ferguson, 202 N.C. 446 (1932). However, not all special or exclusive emoluments are prohibited by Article I, Section 32. The Supreme Court of North Carolina recently held that "a statute which confers an exemption that benefits a particular group of persons is not an exclusive emolument or privilege within the meaning of Article I, Section 32 if: (1) the exemption is intended to promote the general welfare rather than the benefit of the individual, and (2) there is a reasonable basis for the legislature to conclude the granting of the exemption serves the public interest." Town of Emerald Isle v. State, 320 N.C. 640, 654 (1987).

Applying this test, the Supreme Court of North Carolina has held that government-conferred benefits do not violate Article I, Section 32 in a variety of circumstances even though the benefits were extended exclusively to small groups of individuals. See, Hinton v. State Treasurer, 193 N.C. 496 (1927) (home loan programs to World War I veterans did not violate the emoluments provision); Bromley v. Baxter, 225 N.C. 691 (1945) (donation of municipal land for World War II Veterans Center held not to violate the emoluments provision); Bridges v. City of Charlotte, 221 N.C. 472 (1942) (benefits received by retired state employees are deferred payments of salaries for services rendered and do not violate the emoluments provision).

The most recent appellate court decision that is directly in point is Leete v. County of Warren, 114 N.C. App. 755 (1994). In Leete, the Warren County Board of Commissioners made a payment of $5,073.12 to the county manager who voluntarily resigned. The trial judge enjoined the county for making the payment on the ground that it was an unlawful gratuity that violated Article I, Section 32. The Court of Appeals upheld the payment, notwithstanding the fact that the county had absolutely no legal obligation to pay this gratuity to the former county manager. The Court upheld the payment because of the county manager's past public service to the county. As the Court of Appeals reasoned:

"North Carolina Case law demonstrates that it is permissible to compensate public service previously rendered without violating the constitutional ban on private emoluments, even though the recipient may have no legal and enforceable right to the benefit. * * *

Hence, our Supreme Court has held, on more than one occasion, that the constitutional ban on exclusive emoluments is not violated by a governmental grant of certain benefits, paid out of public resources, to one class of citizens, but not to be enjoyed by all, if the grant is in consideration of public service. From these cases, we discern that the primary inquiry under Article I, [Section] 32 is not whether the recipient has a legal or enforceable claim against the governmental entity granting the benefit, but rather, whether the governmental entity took such action in consideration of the recipient's public service." Id., 758, 759

Here, since all of the federal pensioners were federal employees, and because federal employment like state employment is considered a public service, should the General Assembly determine that some benefits should be provided to these federal pensioners because of their prior public service, we believe such legislation would be constitutional.

Should you have any further questions, please contact us.

Andrew A. Vanore, Jr., Chief Deputy Attorney General