Albert Lists ‘Top 3’ Spending Concerns, Focuses This Budget-Making Season

Sen. Thomas Albert (R-Lowell) sees Democratic-led proposals to re-purpose millions in designated debt payments for public school employees’ retirement system, as well as the absence of a long-term tax cut proposal, as an effort to keep historical hikes in government spending “afloat.”

“What we did last year was we bloated the size and scale of government. We had over 700 full-time equivalent positions that were added, lots of new programs, lots of increases to programs we already have … now we’re in a situation where we have to try to find money to keep that all afloat,” Albert said on Monday’s episode of the MIRS Monday podcast.

According to the Citizens Research Council of Michigan in February, the state’s projected year-end balances have dropped from $12.1 billion in Fiscal Year (FY) 2022 – between both the General Fund and School Aid Fund – to $6.1 billion in FY 2023 and to $1.7 billion for the ongoing FY 2024.

Last summer, Gov. Gretchen Whitmer signed off on more than $81.6 billion in state spending, including $2.1 billion in General Fund spending on one-time projects, for the present-day FY 2024 general government and education budgets.

The spending plan for FY 2024 represents an approximately 30 percent increase from the $62.7 billion in state appropriations for FY 2021, which she approved amid the COVID-19 pandemic in September 2020.

The four-year rise in state spending has been linked to better-than-expected General Fund revenues, as well as the deployment of federal COVID-19 recovery dollars.

However, according to the State Budget Office, $6.2 billion from the $6.5 billion Michigan received from the 2021 federal American Rescue Plan, in the form of pandemic recovery bucks, was appropriated for as of June 30, 2023.

On Tuesday, the Senate is scheduled to address 15 different budget bills. Going into this exercise, Albert described his “top three” biggest concerns with this year’s budget-making process.

1. The Rerouting Of Payments To The MI Public School Employees Retirement System (MPSERS) 

The Senate’s more than $20.3 billion School Aid Budget proposal, SB 751, consists of spending $631.7 million less on MPSERS unfunded liability, rerouting the money toward other forms of education spending.

Currently, the state must follow a floor provision, barring the government from making a MPSERS payment worth less than the previous year’s deposit until unfunded actuarial accrued liability (UAAL) is completely paid for. Although the state owed more than $34.96 billion in MPSERS pension UAAL in FY 2022, UAAL for employees’ healthcare benefits – or other-post-employment benefits (OPEB) was 126.9 percent funded as of Sept. 30, 2023.

Because of the status of OPEB UAAL funding, various Democrats are seeking to recognize two separate floor provisions – a floor provision that can be lifted for OPEB debt, and one that will be continued for pension UAAL.

“The raid of the $760 million for the pension fund for the schools is probably my number one issue. That can get complicated pretty quick, but it’s actually pretty simple to think about. The question at-hand is, is there one floor for the floor funding requirement? Or are there two floors? I wrote the law in 2018 … it’s pretty clear to me … there’s one floor,” Albert said. “We have over $30 billion of debt, and what’s that actually mean right now? What does it mean when you have that much debt?”

Looking at the 20.96 percent of payroll costs that school districts must contribute to MPSERS, and how much Michigan collects for the School Aid Fund, Albert said the state spends 32 cents of the dollar on MPSERS.

“If we take our foot off the gas pedal now, it’s just gonna get worse. Those interest costs are just going to continue to rise,” Albert said. “We’re going to be taking more money out of the classroom, and we’re gonna be putting pensioners’ benefits at risk, and it’s just a very imprudent decision.”

2. Adding More State Employees To Michigan State Police’s (MSP) “Pension Plus” Retirement Program 

Some of the Senate budget recommendations link spending to SB 165, SB 166 and SB 167, which have not been voted on yet by the chamber as a whole.

They were moved out of the Senate Labor Committee in September, and would allow corrections, conservation and motor carrier officers to access the lifetime pension that MSP troopers receive through their hybrid retirement system, the “Pension Plus” plan.

If MSP troopers take their oath of office on or following June 10, 2012, they can access a retirement plan with both a pension and 401(k) – or similar component. Upon reaching 55 years old after 25 years of service, or after serving 10 years and turning 60 years old, plan recipients can access lifetime pension benefits. SB 165, SB 166 and SB 167 would allow new hires to automatically enter the “Pension Plus” plan, and permit others to drop their 401(k) in exchange for the pension benefits.

“There’s a proposal to move a lot of state employees into the state trooper pension … I have a lot of issues with that. I put forth a better proposal to enhance their defined contribution rate,” Albert said. “I do think there’s a good argument that what they’re currently getting now is not enough to save for retirement, based on what their wages are. So I think there’s some room there to have a good conversation and come up with a better solution.”

SB 756 – the $2.1 billion corrections budget proposal the Senate will be moving from General Orders on Tuesday – puts aside $16.45 million from the General Fund to give corrections officers access to the “Pension Plus” plan. Meanwhile, SB 759 – a more than $562.8 million spending plan for the Department of Natural Resources, which already moved out of the Senate – puts aside $800,000 total ($269,200 from the General Fund) for conservation officers.

3. Let Budget Make Room For 4.05 Percent Income Tax Rate 

Both the Attorney General and the Michigan Court of Appeals have determined that an automatic income tax rollback – from 4.25 percent to 4.05 percent – was limited to the 2023 tax year. The income tax rollback was part of a 2015 deal during the past Gov. Rick Snyder’s administration, stating in statute that the income tax would drop if Michigan’s General Fund increased by more than 1.425 times the rate of inflation, which it did after the COVID-19 pandemic.

“If it’s true if the courts find that the language wasn’t written well enough, and it was ambiguous enough that we could have this be a temporary reduction, and increase it back from 4.05 to 4.25 (percent), it doesn’t mean there’s nothing holding us back from the Legislature codifying the 4.05,” Albert said. “Personally, if you want to get my attention, let’s lower taxes.”

He explained there are different ways legislators could explore lowering taxes beyond “just the income tax rate,” saying that the city of Detroit has a city income tax rate, corporate income tax rate and property taxes of roughly 90 mils.

“The one thing about the city of Detroit is everybody is connected to it. If Detroit does poorly, the rest of the state (is gonna do) poorly, so maybe we just look at the city of Detroit and see if there’s something we can do there to unleash growth and have it kind of spread throughout the state,” he said.

Article courtesy MIRS News for SBAM’s Lansing Watchdog newsletter

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