Capitol News
February 2011
The Capitol has been abuzz with activity in January! Legislators were moving into their new offices and going to orientation and training sessions. They were sworn in January 12 and the place was swarming that day with their relatives and well-wishers. This is the year they get a 10 percent pay cut, from $79,650 a year in 2009-10 to $71,685 (some leadership positions also come with a stipend). Before the cut, Michigan lawmakers were the second highest paid in the country, and they will likely remain in the top five.
Then we held our breath awaiting Governor Rick Snyder’s State of the State address on January 19. How would he do compared to the polished performance of Jennifer Granholm? Would we finally hear some detailed plans for addressing the structural deficit? Would he attack public employee and retiree pay and benefits as predicted?
State of the State — Hope and fear were both dashed. The speech pleased and displeased in equal measure: Republicans sat in stony silence and Democrats stood and cheered as the Governor supported a new bridge across the Detroit River, something the Democrats championed and the Republicans opposed in the last legislative session. The reverse happened when he endorsed repeal of the item pricing law, a popular law on no one’s radar for repeal except for retail merchants who stand to save $2.2 billion.
The Governor proudly introduced his Michigan Dashboard, a snazzy graphic showing the status of 21 measures of state government achievement. You can view it at www.michigan.gov/midashboard. Some of the measures are unemployment rate, gross domestic product, personal income per capita, obesity in the population, third graders reading at grade level, debt burden per capita and violent crimes per 100,000.
Snyder announced that he would present a two-year budget in mid-February based on outcomes and results, not traditional line items and he wants it completed by May 31. Translation: a brief few pages of budget omitting detail so the Governor has maximum flexibility to use appropriations for his own priorities, not the priorities of the legislature. More stony silence on that one, this time from both sides of the aisle.
A surprise to most was his announcement that the education system needs to be viewed as P-20, not K-12 and that he would present a special message on education in April. Translation: the School Aid Fund is likely going to be shared with community colleges and perhaps other educational endeavors.
The only mention of us in the SOS was an oblique one: Snyder said we had an unsustainable financial model with more than $54 billion in pension and benefit liabilities. He promised a special message on government reform in March.
There was no mention of how he intended to address the projected $1.85 billion structural deficit for FY12. He reiterated his support for eliminating the Michigan Business Tax and replacing it with a flat 6 percent corporate tax (which would add another $1.5 billion to the deficit). This amounts to about 35 percent of the general fund and would require deep cuts in state, local government, and university programs.
The theory behind cutting corporate tax rates is that businesses will be more likely to locate or expand in a state if they can keep more of their profits. But the Congressional Budget Office in a January 2008 report said “increasing the after-tax income of businesses typically does not create an incentive for them to spend more on labor or to produce more” because decisions on whether to increase production depend on their ability to sell the product. Measures to increase consumer demand are better at stimulating the economy it is thought. The Governor’s budget will be presented February 17 and will likely tell us who will be the winners and losers in the effort to eliminate the deficit and give tax breaks to corporations. Eliminating or reducing tax expenditures (tax exemptions, deductions or credits) is another likely feature of Snyder’s budget proposal.
Attack on Public Employee Compensation — The Mackinac Center in Midland has been very busy putting out slams on public employee pay and benefits. See its Web site at www.mackinac.com. Another source is Business Leaders for Michigan. It is composed of the senior executives of the state’s largest corporations and universities with an aim of reforming the state’s fiscal, budget, tax, and investment policies. BLM held a Summit on January 31 about Michigan’s financial situation featuring major presentations from Treasurer Andy Dillon and Chief Budget Officer John Nixon. But the star of the show was the Governor, who introduced his Citizen’s Guide to Michigan’s Financial Health, a 21-page series of tables and text explaining Michigan’s economic and demographic trends, government revenue and expenditures, and Michigan’s fiscal health. Unless you were in another state or a cave, you no doubt read or heard the main headline coming out of the Summit: State Employees Make Twice as Much as Private Sector Workers! See the materials from the Summit at www.businessleadersformichigan.com/leadershipsummit.
A coalition of organizations to which SERA Council belongs, Citizens for Accountability in Reform, was ready to refute the claims immediately at the Summit and a few days later with a formal press conference at the Capitol featuring labor economist Professor Jeffrey Keefe of Rutgers University and a report he authored sponsored by the Economic Policy Institute. His study found that public-sector workers are underpaid compared to their private-sector counterparts!
Unlike the Governor’s study, Professor Keefe controlled for education, experience, hours of work, organizational size and some other factors when he compared public and private sector employees. And he used standard data from the U.S. Census Bureau and Bureau of Labor Statistics in the U.S. Department of Labor rather than the non-standard data the Governor’s study used. He concluded that full-time state and local government employees and school employees are under-compensated by 5.3 percent in Michigan compared to comparable private-sector workers. Additionally, public sector employees receive more of their compensation in the form of health insurance and retirement benefits than private sector workers. Specifically, state government employees’ total compensation (pay and benefits) is 9.67 percent lower than equivalent private-sector employees! See the report at www.accountabilityinreform.com.
When attacks on our pensions and state retiree health care benefits are made, we need to remember to reply that we took lower pay in return for better nonwage benefits in comparison to comparable private sector employees while we were working. Comparing now, many years later, just our health care benefit cost to average private sector active employee health care benefit cost is inaccurate and inappropriate.
Bills Introduced — The Dillon Public Health Care Pooling Plan is back, this time sponsored by Representative Tim Melton (D-Auburn Hills). HB 4140 was assigned to the Committee on Government Operations chaired by Majority Floor Leader Jim Stamas (R-Midland). There are no other co-sponsors although Representative Melton invited all his colleagues to join him on the bill. The fact that it was assigned to the Majority Floor Leader’s Committee means that the Republican Caucus intends to tightly control the bill.
Some other interesting bills have been introduced and are listed below. Remember that bills purporting to regulate classified employee pay and/or benefits would be unconstitutional if passed. More detail about bills is available through www.mileg.org:
- Several bills to eliminate retirement health care benefits for legislators (HB 4081, 4087, SB 26);
- A requirement to perform a health care beneficiary eligibility audit for public employers (HB 4139);
- Repeal of the sunset on the 3 percent state employee health care retirement fund contribution (HB 4159);
- Limit public employer contribution to 80 percent of health care premium for single employee or 75 percent for family coverage (HB 4172);
- Mandate 20 percent public employee health care contribution or 10 percent if there is a health care savings account with a high-deductible policy (SB 7);
- Increase penalties for financial exploitation of vulnerable adults (SB 80, 81);
- Place on the ballot a constitutional amendment for a 3-year salary reduction of 5 percent for public employees and eliminate right to a hearing about it (SJR B);
- Place on the ballot a constitutional amendment to empower the legislature to establish health care benefits for public employees and to disallow the Civil Service Commission, universities, or local governments to establish them or collectively bargain them (SJR C).
Civil Service Commission News — As expected, the Civil Service Commission approved over Office of the State Employer objections the addition of health care benefits for “Other Eligible Individuals” for the UAW Local 6000 units, SEIU Local 517M, Human Services Support units, and Non-exclusively represented employees. OEIs are other non-relative adults with whom a state employee has lived for at least a year. The vote was 3 (Abood, Blockett, Swanson) to 1 (Wardrop). I asked whether retirees would be extended this benefit but received no commitment. Tom Wardrop of Grand Rapids was earlier elected Chair of the CSC. The CSC next meets February 9.
To Sum It Up — In a recent newsletter, the Center for Michigan, an Ann Arbor non-partisan public policy think tank, described Michigan’s dilemma as retirement haves vs. have-nots. It noted that Michigan’s schools and state and local governments have an $18.2 billion unfunded pension liability and a $45.2 billion unfunded retiree health care liability. That’s about $31,000 per family of four in Michigan. Since pensions are constitutionally guaranteed and health care coverage is not, it suggests “1) Cuts in retiree health care coverage along with increases in co-pays and premium sharing; and, 2) Taxes on pensions Michigan is one of a handful of states that do not tax pensions, but given the unpaid liabilities, pressure will mount for retirees to kick in.”
This is going to be a battle royal. Invite your legislator to your chapter or other meetings and tell them what you think about changing the benefits you were promised and for which you worked and budgeted. Let them know your point of view in no uncertain terms.
Editor’s note: Mary Pollock is the Lansing SERA Chapter and SERA Council’s Legislative Representative. She may be contacted at 1200 Prescott Drive, East Lansing, MI 48823-2446; Phone 517-351-7292; E-mail michigansera@comcast.net.
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