TO:Tracey Strader, Executive Director, Tobacco Settlement Endowment Trust

MEMORANDUM

FROM: Jan Preslar

DATE: March 4, 2016

RE:Effect of Executive Salary Cap on TSET

Question Presented

TSET is currently recruiting for the position of Chief Executive Officer (CEO). You have asked if the legislature can cap the salary of the CEO of the Tobacco Settlement Endowment Trust (TSET).

Brief Answer

The TSET Board of Directors has been granted broad constitutional authority and discretion to make administrative and program expenditures authorized by Okla. Const. art. 10, § 40. This broad authority includes payment of its CEO’s salary. Although the Constitution provides that the Legislature may enact laws to further implement the provisions of the Constitution, a legislative cap on the TSET CEO’s salary is not in harmony with the spirit of Okla. Const. art. 10, § 40 and is unenforceable against TSET.

Discussion

Cap on Executive Salaries

Title 74 O.S. § 3601.2 provides that each executive branch agencyshall establish the salary of its chief executive officers “between the minimum and maximum of the range specified in the annual compensation reports required by paragraph 5 of Section 840-1.6A of this title, for full-time employees only.”

TSET is a state agency. Compare 1988 OK 61, and authorities cited therein. See also, 74 O.S. § 452.12(1). Moreover, TSET is an executive branch agency of state government. Compare 1998 OK AG 1 (Council on Judicial Complaints is necessarily an executive branch agency where it neither makes law nor exercises judicial power).

The annual compensation report issued by OMES, as required by paragraph 5 of 74 O.S. § 840-1.6A,[1] set the minimum salary for the TSET executive director at $95,910 annually and the maximum salary at $143,714 annually. (AAA Memo dated September 12, 2013.)

The Tobacco Settlement Endowment Trust

The Oklahoma Constitution created the TSET, the corpus of which is funded by revenues received by the State of Oklahoma from settlements with or judgments against tobacco companies. Okla. Const. art.10, § 40(A). The Constitution describes how annual certified earnings from the trust fund can be expended by the TSET Board of Directors to promote the health and well-being of Oklahomans. Okla. Const. art.10, § 40(E).

The Constitution further provides that the Legislature may enact laws to implement the constitutional provision. Okla. Const. art.10, § 40(E).[2] With regard to the Legislature’s power to implement constitutional provisions, the Oklahoma Supreme Court has said:

Whether a provision of a Constitution be self-executing or not be self-executing, supplemental legislation facilitating the carrying into effect of the rights secured, and safeguarding the rights against abuses, may be desirable; but such legislation must be in harmony with the spirit of the Constitution and must not curtail the rights reserved or exceed the limitations specified.

In re Initiative Petition No. 281 v. Rogers, 434 P.2d 941, 952 (Okla. 1967)(emphasis added).

Limitations on legislative authority may be implied as well as expressed in the Constitution. Bd. of Regents v. Baker, 638 P.2d 464, 466 (Okla. 1981). In Baker, the court found the Regents of the University of Oklahoma were not required to give its faculty 6% salary increases mandated by the Legislature for all state employees. The court said the Oklahoma Constitution established the Board of Regents as an independent body charged with the power to govern the University.

While constitutionally assured independence cannot be equated with complete immunity from legislative regulation, it is unnecessary for us to fully examine here the nature and extent of legislative regulation applicable to the Board. The determination of faculty salaries is clearly an integral part of the power to govern the University and a function essential in preserving the independence of the Board.

Id. (Emphasis added.)

The question here is whether the executive director salary cap legislation, 74 O.S. § 3601.2, is in harmony with the spirit of the Constitution or whether the legislation curtails the rights reserved to the TSET Board of Directors.

The Constitution specifically grants the TSET Board of Directors the power to expend annual earnings from the TSET Fund for, among other things, authorized administrative expenses.[3]The TSET Fund is an almost billion dollar fund and the executive officer appointed by the Board of Directors oversees combined operating and programs budgets of over $50 million. Consequently, a salary cap established for TSET’s executive officer by the legislature, though it may be prudent and desirable, is not in harmony with the spirit of the Constitution (In re Initiative Petition No. 281, 434 P.2d at 952) in that it could severely hamper the TSET Board of Directors’ ability to recruit and appoint a quality executive director with the necessary experience and skill to assist the voluntary Board of Directors in fulfilling its constitutional duties.

Conclusion

Although this is not an official Attorney General opinion, but solely the opinion of the author, I hope you find this information helpful.

[1] 74 O.S. § 840-1.6A(5) provides that OMES shall “[c]onduct an analysis of the rates of pay prevailing in the state in the public and private sectors for comparable jobs and report the findings to the Governor, the President Pro Tempore of the Senate, and the Speaker of the House of Representatives no later than December 1 of each year. Such analysis shall include all forms of compensation including fringe benefits. Information solicited by the Office of Management and Enterprise Services from public and private sector employers for such analysis, including but not limited to salaries, benefits, and compensation policies and procedures, shall be confidential and shall not be subject to disclosure under the Oklahoma Open Records Act”.

[2]In 2001, the Legislature created the Tobacco Settlement Endowment Trust Fund Act (“Act”) to implement the constitutional provision. See Okla. Sess. Laws ch. 274 (codified at 62 O.S. §§ 2301-2310). The Act’s stated purpose is to “further implement the provisions of Section 40 of Article X of the Oklahoma Constitution that…authorize[d] the Board of Directors of the Tobacco Settlement Endowment Trust Fund to expend trust fund earnings for specific purposes.” 62 O.S. § 2302. The Act provides that the Board of Directors shall be empowered to:

•“Appoint an executive director and other staff necessary to perform the duties of the Board of Directors.” 62 O.S. § 2309(A)(1).

•“Make and execute contracts and other instruments necessary or convenient to the exercise of its powers on such terms and for such period of time as the Board of Directors shall determine”. 62 O.S. §2309(A)(2).

•Adopt a budget, broken out into an operating budget and a programs budget. 62 O.S. §2310(A).

•Include in operating budget administrative expenses “salaries, travel, and other administrative expenses of the Board of Investors and Board of Directors of the Tobacco Settlement Endowment Trust Fund that cannot be identified with a specific program of the Board of Directors.” 62 O.S. §2310(A)(1)(a).

•Include in operating budget administrative expenses, though not limited to, expenses associated with “regular board and committee meetings; staff meetings; personnel or human resource management; board legal services; board consultant services; central purchasing and procurement; board budgeting; accounting and auditing; and public information activities.” 62 O.S. §2310(A).

[3] The Legislature has placed a limit on the operating expenses of TSET, saying administrative expenses of the TSET Board of Directors shall not exceed 15% of annual certified earnings of the trust fund. 62 O.S. § 2310(A)(1)(c). The constitutionality of the 15% cap on administrative expenses is not at issue here and need not be addressed.