School employees would no longer have to pay 3 percent of their paychecks to cover their retiree health care benefits under legislation the Senate approved Thursday, as the Legislature began movement on a linchpin to the Fiscal Year (FY) 2025 budget discussion.
Originally slated to move in the House Thursday, key reform dealing with the Michigan Public School Employees’ Retirement System (MPSERS) was voted on in the Senate Thursday afternoon, after the House struggled to marshal the support needed to move it.
The change comes after Gov. Gretchen Whitmer announced earlier this year that the school retiree health care fund was more than 100 percent funded. The state no longer needed to fund it at the same level. She wanted the $670 million that would have been spent on retiree health care steered to other education priorities. Republicans wanted it shifted to the teacher pension system, which is still $29.7 billion in debt.
The House and Senate Democrats, at least, agree that teachers hired before 2012 should no longer pay 3 percent of their paychecks to the fund, a requirement the legislature put into effect more than 10 years ago to stabilize the fund.
Logistically, SB 911 needed to pass one chamber Thursday to satisfy the constitutional five-day rule that a bill must sit in a chamber five days before it can be voted on. The Legislature wants to pass next year’s state budget before going on summer recess June 27.
Figuring out where this $670 million is going is a major part of the negotiations between legislative leaders and the governor’s office.
A state law passed by the Gov. Rick Snyder administration requires that Michigan spend more on MPSERS than it did the previous year, until the unfunded liability is completely paid for. SB 911 would eliminate that floor provision for the retiree health care piece of MPSERS.
SB 911 passed by a party-line, 20-17.
“What we found over the last six months was that the OPEB option of the teacher retirement system is over-funded,” said Sen. Darrin Camilleri (D-Trenton), chair of the Senate PreK-12 Appropriations Subcommittee. “That new money is now being realized in a way that would allow us to inject it back into the classroom to directly support students. If we did nothing, we would not be able to utilize that $670 million this year.”
Both the governor and the Senate, originally, proposed School Aid budgets that freed up MPSERS money for other types of education spending. Meanwhile, the House’s budget would decrease traditional school districts’ MPSERS obligations from 20.96 percent of their payroll expenses to 18 percent, with the intention of dropping obligations annually until they reach zero.
Outside the Capitol, groups like the Michigan Education Association, the Michigan Association of School Boards and the K-12 Alliance of Michigan want legislators to bring school districts’ payroll contributions down by 7.06 percent, to eliminate the 3 percent paycheck obligation and to not alter the state’s own MPSERS payment structure (maintaining a floor provision that includes OBEP).
When it comes to payroll contributions, traditional school districts – not including charter schools – must deposit nearly $21 into MPSERS for every $100 they’re spending on an employee’s payroll, whether it be a school bus driver or a history teacher.
After an afternoon floor substitute, SB 911 does not touch what districts need to pay, but Camilleri said he hopes education groups “have faith in the ongoing budget process.”
“We’ll be in a position to deliver on a significant – and again, historic – amount of money going directly back into the classrooms, that helps administrators and teachers and students all on the same budget,” he said.
Camilleri confirmed that Senate Democrats will not need immediate effect support from Republicans in order to unlock the dollars. Currently, due to the makeup of the Senate, at least six Republicans must back granting legislation immediate effect, in order for it to be activated while legislators are still in session.
If immediate effect is not granted, appropriations or policy changes cannot be implemented until 90 days after lawmakers adjourn for the year. Camilleri makes the case that although the new budget year begins in October, SB 911 does not have to be effective then in order for the money to be accessed.
“The way that the funding works, essentially, the dollars will not get realized until after the budget would take effect, regardless of whether or not immediate effect is granted on this bill,” Camilleri said. “We know that with the actuarial accounting practices that are a part of this, no matter when the bill is signed, if it has immediate effect or not, the timeline works out so that the money is unlocked.”
On the Senate floor, Senate Minority Leader Aric Nesbitt (R-Lawton) said a yes vote on SB 911 simply raids the teacher pension fund, and that the fiscal irresponsibility being exercised by Democrats could not be overstated.
“This haphazard maneuver will drive us back to the Granholm era, the lost decade of racking up debt, sticking future generations with the bill,” Nesbitt said.
Senate Majority Leader Winnie Brinks (D-Grand Rapids) described the opposing remarks as “a lot of political theater,” and that SB 911 actually puts money back in schools and provides teachers with raises, “that’s it.”
One vocal opponent to SB 911 – and the various MPSERS proposals overall – is Sen. Thomas Albert (R-Lowell). When serving in the House during the 2017-18 legislative term, Albert spearheaded legislation establishing the aforementioned floor provision.
“They keep saying we’ve paid the debt off. Well, it’s because they’ve artificially divided the debt up into two buckets – retiree health care and pension. It’s one debt. Read the statute,” Albert said. “They’re acting like we’ve just crossed the finish line. We’re not even at the start line. I mean, we have a long way to go to finally get out of this (debt).”
Albert indicated Republicans could be open to discussing the MPSERS obligations coming out of districts’ payrolls and employees’ paychecks, but the “red line” is touching the state’s own MPSERS responsibilities.
“The raiding of the pension fund is the red line. The district share…or the employee contributions? Those are policy decisions,” Albert said. “There’s just one thing to keep in mind, that no one’s really talking about; eliminating that 3 percent employee contribution costs $181 million, which the school districts are going to have to pick up.”
Article courtesy MIRS News for SBAM’s Lansing Watchdog newsletter
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