Gov. Michael O. Leavitt urges Legislature to authorize $50 million reserve to settle refunds for federal retirees

Governor Michael O. Leavitt asked the Utah House of Representatives on the opening day of a second special session in October 1993 to authorize him to offer a settlement to federal retirees affected by a recent Supreme Court ruling that found the state's retiree tax exemption discriminatory.

Leavitt said the decision created a retroactive liability the state could not easily absorb and proposed a package intended to limit the state's exposure while delivering refunds to eligible retirees. "We will set aside the necessary state funds. That would be $50,000,000," he said, and proposed that the state pay refunds but not retroactive interest in the circumstances created by the Court. "It is fundamentally unfair to require somebody to pay interest retroactively when they acted in good faith to that point," Leavitt said.

The governor described three groups of retirees in his estimate: about 12,000 who filed protective claims and are clearly eligible for refunds; roughly 8,700 he said the state believes should not be part of the class because they did not file protective claims; and about 14,000 who did not file returns or had no tax liability and therefore, he said, would not be owed refunds. Using the state tax commission's return analysis, Leavitt said the liability for the clearly eligible group was about $29.3 million and $13 million for the contested group, summing to roughly $42.3 million; he proposed a $50 million reserve to cover refunds, interest as negotiated, and administrative costs.

Leavitt proposed three specific measures: amend the state's interest statute so the state would not be required to pay retroactive interest tied to the Court's newly applied rule; reduce and index the ongoing interest rate going forward (he cited 12% as the existing figure and said it should be updated to reflect current economic conditions); and create an expedited filing procedure so checks could be issued by February 1994.

He also said the administration would "ignore the determination of class issue" for now by allowing retirees who believe they are owed money to file protected claims and amended returns through the end of the year to be included in the settlement. If retirees declined the settlement, Leavitt said, litigation would continue and the $50 million would be placed in reserve and earn interest at the state's current rate.

Leavitt asked the House to authorize him to make the settlement offer to the class and to set aside the funds. He framed the proposal as an equitable compromise intended to resolve an "extraordinary" fiscal obligation imposed retroactively by the Court and to avoid diverting funds from other state priorities such as gang-violence prevention and services for abused children.

Questions from members focused on procedural matters; Leavitt agreed to provide copies of his presentation charts and a concise summary of his proposal to members. He said staff would work to expedite the state tax commission's processing and that the administration hoped most eligible retirees would accept a prompt settlement rather than continue protracted litigation.

The transcript does not record a vote on the governor's request during the portion of the session provided; Leavitt asked for authority to make an offer but no formal authorization vote appears in the recorded segments.