Capitol News

Home

About SERA

Join SERA Now

SERA Plus Benefits

Meeting Dates

Chair Talk

Capitol News

Retirement Matters

Insurance Information

SERA Council Directories

Michigan Government Links

Testimony

Letters and Press Releases

Resources

Links

June 2011

By Mary Pollock

All in all, the week before Memorial Day was a big week for our nerdy neophyte Governor and the House and Senate Republicans. In just a few short months they managed to significantly revise the income and business tax structure in Michigan and wring out a couple billion dollars in state government spending. Here’s how it happened.

Income tax bills — On April 28, the income tax bill, HB 4361 (H-1), and the other bills associated with it passed the House with the bare minimum 56 votes necessary. The bills were referred to the administration-friendly Senate Committee on Reforms, Restructuring, and Reinventing chaired by Senator Mark Jansen. Hearings were held May 10 and 11. Michigan SERA’s testimony team of Bob Kopasz, Chair of Michigan SERA Council; Dan McLellan, our legal advisor; Doug Drake, our tax policy analyst, and I testified on May 11. Thirty SERA members and supporters attended the hearing, all wearing prominent “No Pension Tax” stickers. In contrast to our testimony before House Tax Policy Committee, we had more detailed projections of cost, more legal arguments, and a break-out of retirees by county and by age and income. After testifying at the Committee, we sent our testimony and legal analysis to all Senators and the Capitol press corps.

SERA’s testimony is available on the SERA Web site www.mi-sera.org at the Testimony navigation button. Written testimony from all witnesses is available at the Senate Reform Committee’s Web page through www.mileg.org.

Getting to Four in Committee — The problem as of May 11 was that there weren’t four votes in the Senate Reforms Committee to get the bills out of Committee to the floor of the Senate. The Chair called a hearing for 9 a.m. May 12, but the meeting was recessed at the call of the Chair because the votes just weren’t there. So the SERA contingent trouped over to the Senate gallery to watch. While there, it was announced that Senate Reforms Committee was reconvening in 10 minutes, more or less a statement that the fourth vote had been found. Upon reconvening, no testimony was taken. Senator Colbeck, the only new Senator with no previous legislative experience and a Tea Party-endorsed Senator, was the changed vote. He explained that he did so to get the matter to the Senate floor where he reserved his right to support or not support the bills. The Committee NO votes were Senators David Robertson (R-Grand Blanc), Rebekah Warren (D-Ann Arbor) and Coleman Young II (D-Detroit).

Getting to Twenty in the Senate — The next hurdle was getting the 20 votes in the Senate. First a Republican sponsored substitute for HB 4361 was introduced and approved for consideration. HB 4361 S-5 had never been published for the public to see nor hearings held on it, so only Senators and other insiders knew what was being voted on exactly.

On May 6 and again on May 11, Michigan SERA wrote to Senate Democratic leadership asking for several amendments pertaining to public pension and senior exemptions and credits. As it turned out, all our suggested amendments and some unique variations of them were offered on the Senate floor in a well-organized series of 17 amendments, some procedural and some substantive. The first one tried to eliminate the eligibility to vote of Senators with a financial conflict of interest (owners of LLCs for instance) or eliminate or soften various aspects of the bill with which they disagreed. Highlights include:

• An amendment offered by Sen. Coleman Young (D-Detroit) to leave in place the current income tax exemption on all income from government pensions and some income from private sector pensions failed 19 to 18. Twenty votes are needed to pass. Seven Republicans joined the 12 Democrats in voting for this amendment. Hildenbrand did not vote, a significant and interesting choice since he later voted NO on the entire bill. Here s the roll call on the amendment:

Senate Roll Call 155 on The amendment

• An amendment was offered by Sen. John Gleason (D) to not repeal the $2,300 tax exemption for individuals who have a dependent age 65 or above living in the household. The amendment failed 16 to 22.
• An amendment was offered by Sen. Steve Bieda (D) to not repeal the income tax deduction for dividend, interest and capital gain income earned by senior citizens. The amendment failed 16 to 22.
• An amendment was offered by Sen. Tupac Hunter (D) to not reduce the homestead property tax credit individuals may claim against their income tax liability. The amendment failed 17 to 21.
• An amendment offered by Sen. Glenn Anderson (D) to prospectively repeal a provision exempting from income tax the pension income of government employees, if a court rules that this violates the constitution. The amendment failed 17 to 21.

Tie-breaking Vote — On the main bill the vote was 19 to 19. The seven Republicans voting with the 12 Democrats were Brandenburg, Colbeck, Hildenbrand, Hune, Jones, Robertson, and Rocca. Green’s apparent disapproval of the pension tax wasn’t enough to make him vote against the whole bill. Hildenbrand found the voting button and joined the Democrats on the final vote.Here s the total roll call vote:

Senate Roll Call 170 on 2011 House Bill 4361

The tie made it necessary for the Lieutenant Governor to break the tie to pass the measure.

Then the other specific pension bills were taken up. HB 4480 that would remove the pension tax exemption from the State Employees  Retirement Systems Act, failed to garner 20 votes twice because Democratic Minority Leader Gretchen Whitmer did not vote, making the vote 19-18. Reportedly she was withholding her vote to bargain some more money for the school aid budget bill. Finally on the third try, HB 4480 passed with the Lieutenant Governor again breaking the tie.

Senate Roll Call 195 on 2011 House Bill 4480

All the tax bills were quickly transported to the House where it was waiting to suspend its rules and immediately concur with the Senate versions with the bare minimum of votes, 56-52. The same 6 Republicans who voted with the Dems when the HB 4361 first passed the House voted again to oppose the bill.

Three Tiers — The income tax sets up a three-tier system for taxing pensions, depending on a retiree’s age (or the older of a married couple’s age at the time of filing). This is what the Senate Fiscal Agency’s final analysis says about the three-tier pension tax:

• For taxpayers born before 1946, there will be no change in the treatment of retirement or pension income. Public pensions, as well as social security benefits and several other categories of income (including social security income), will be completely exempt from taxation. A portion of pension and retirement income from private plans will continue to be exempt from tax ($45,120 for single filers or $90,240 for joint filers in tax year 2010, and adjusted for inflation), although the private pension exemption will continue to be reduced by the amount of any compensation and retirement benefits received for services in the armed forces as well as any public pension. However, the bill also reduces the private exemption by the amount of any retirement or pension benefits received under the Federal Railroad Retirement Act of 1974.
• For taxpayers born during the 1946 to 1952 period, the bill eliminates the current exemptions for retirement and pension income, although the exemptions for social security income and several other types of income exempt under current law will be retained while the taxpayer is less than 67 years of age. Until the taxpayer reaches age 67, the bill allows a new exemption that will exempt a portion of pension and retirement income ($20,000 for a single return or $40,000 for a joint return), regardless of whether the income is from a public or private pension. After the taxpayer reaches age 67, the bill keeps the exemption amount the same, but applies the exemption to all income, including retirement and nonretirement income. However, the bill retains the full exemption for social security income and select other types of income excluded under current law. Regardless of age, the bill eliminates the $20,000/$40,000 exemption if total household resources exceed $75,000 for a single return, or $150,000 for a joint return, or if a taxpayer claims the deduction for a military pension or railroad pension. The bill still allows a taxpayer to receive the standard personal exemption, regardless of age.
• For taxpayers born after 1952, the bill eliminates any exemption of public or private pension or retirement income other than social security income and certain other types of income until the taxpayer reaches 67 years of age. Once the taxpayer reaches age 67, the bill replaces the standard personal exemption and allows an exemption ($20,000 for a single return or $40,000 for a joint return) against all types of income, including social security income and other types of income (including retirement and nonretirement income). The bill allows a taxpayer to forgo the $20,000/$40,000 exemption and instead deduct 100% of social security income and continue to claim the standard personal exemption. If a taxpayer elects to claim the $20,000/$40,000 exemption, he or she will not be allowed to claim either the deduction for social security income or the standard personal exemption. Regardless of age, the bill eliminates the $20,000/$40,000 exemption if total household resources exceed $75,000 for a single return, or $150,000 for a joint return, or if a taxpayer claims the deduction for a military pension or railroad pension.

Bills Signed — The bills were signed by the Governor on May 25. The bill signing ceremony was at first planned for a small business in Holt, but because protests were planned, it was changed to the Governor’s press auditorium. The income tax bill is now PA 38 of 2011.

Next Stop, the Courts — On Friday, May 13, the day after the bills passed the Senate with concurrence of the House, Michigan SERA issued a press release headlined Michigan State Employee Retirees Association Resolves to Fight the Unconstitutional Raid on Public Pension Funds. We stated that we intend to “move to the courts to get a fairer hearing about the legality of raiding public pension funds through the back-door method of taxing public retirees.”

Advisory Opinion Requested — On June 2, the Governor announced that he was asking the Michigan Supreme Court to issue an advisory opinion on several issues that we identified in our testimony before the House and Senate.  Our attorney Dan McLellan says “Article 3, section 8, of the Michigan constitution provides that the governor may ask for an advisory opinion on legislation after it is passed but before it takes effect.  The Supreme Court will consider the request and either accept it or reject it (probably within one month or so).  If it accepts the request, the Attorney General will be asked to brief both sides of the argument but the Court will also solicit amicus (friend of the court) briefs from other interested parties (like SERA).  Thus, SERA will be able to at least argue its position.  This process will bypass the circuit court and the court of appeals as well as limit the ability of other parties (like SERA) to shape the arguments.  If the Court accepts the request, I would expect a final decision by the end of the year.”

The request asks the court, which has a 4-3 majority of justices nominated by the Republican Party, to rule on several issues:

• Does taxing public sector pension income violate the prohibition in Article IX, Section 24 of the Constitution on impairing pensions offered by the state or its political subdivisions?
• Does the tax violate Article I, Section 10 of the U.S. Constitution barring any impairment of contracts?
• Does basing income tax exemptions on total household resources or age and total household resources violate Article IX, Section 7 of the Constitution, which bars a graduated income tax?
• Does determining eligibility for the exemption to the pension tax based on a person’s date of birth violate the equal protection clauses of Article I, Section 2 of the Michigan Constitution and the 14th Amendment of the U.S. Constitution?

“Prompt review of these questions would be greatly appreciated as it will provided needed direction to me and the Legislature as to whether further reforms to the tax code are necessary to solve Michigan’s fiscal crisis,” Mr. Snyder wrote in a letter to Chief Justice Robert Young Jr. “In addition, it is anticipated that other interested parties will want to participate in the merits briefing of this request, and if so, I welcome those parties to raise any additional questions bearing on the act’s validity.”

Three Supreme Court seats are on the ballot in 2012, and the Republican majority on the court is at risk. By asking for an advisory opinion, the Governor has sped up the legal process to avoid the potential for a change in the high court’s make-up resulting from the November 2012 election where President Obama and incumbent U.S. Senator Debbie Stabenow will be at the top of the ticket.

Effective Dates — Unless stopped by the Michigan Supreme Court’s advisory opinion or other legal action, the income tax act will take effect on January 1, 2012, except the amendments to the individual income tax rate, which will take effect on October 1, 2011 for those who receive qualifying income such as wages. Whatever your age, the elimination of the senior-based tax preferences will mean your state tax withholding from your pension will need to be reconsidered. Hopefully the Office of Retirement Services will notify us of what is needed in the fall of 2011.

Budget Bills — On May 26, the budget bills came out of conference committees and passed both the House and Senate. This year there is just one big omnibus school aid fund bill, HB 4525, and one big general government bill, HB 4526. House Democrats introduced 112 amendments to the spending plan and all failed. If you want the plain English short version giving the highlights of changes, I recommend the House Fiscal Agency analyses of May 26, 2011, which can be found at www.michiganlegislature.org.

The budgets provide:

• 15% cut to Michigan’s 15 public universities; 4% cut to the 28 community colleges
• 9.4 % cut to public libraries
• Cuts to K-12 education including cuts to “categorical” programs in K-12
• Drastic cuts to graduate medical education that is essential to educating doctors and keeping them in Michigan
• Cuts to County Health Departments
• Elimination of statutory revenue sharing which will have a huge impact on funding public safety and community services

Pension Board Transparency — SERA testified in favor of HB 4156, a bill that would require local government pension boards to publish on their Web sites the minutes of meetings, travel expenditures of the Board, and the annual report. We asked that all pension boards, including the state-run pension boards, be included in the scope of the bill. As passed by the House, our suggestion was not included, but we have support for amending the bill when it reaches the Senate.

80-20 and Hard Cap Bills — We continue to watch SB 7 and SJR C. SB 7 requires that public employers pay no more than 80% of employee health care premiums. SJR C would put a constitutional amendment on the ballot removing the authority of the Civil Service Commission and the university boards to establish health care cost allocation requirements and giving that authority to the Legislature.

Newly introduced is HB 4572 would establish a hard cap on the employer contribution to health care insurance at $5,000 for a single employee, $10,000 for a couple, and $13,000 for a family. Changes would be based on the consumer price index (not the medical cost price index).

The House Fiscal Agency analysis says that for employees hired before April 1, 2010, where the state is covering 90 percent of the cost of health care coverage, the state pays $7,033 annually for a single employee, $13,954 for a couple, and $19,572 for family coverage. For employees hired after that date, the state is paying 80% of the cost. If the bill passes, it would shift $162.1 million to employees to pay for their health insurance.

More State Employee Pension Changes Proposed — HB 4701 and HB 4702 introduced May 31 would increase the 3 percent contribution toward retirement health care for active state employees to 4 percent starting October 1. If an employee under the defined benefit pension plan refuses to pay the 4 percent, they would be switched over to the defined contribution pension plan. Recall that the current required 3 percent contribution that started last November 1 is in litigation and currently the money is being withdrawn from employee checks and put into escrow. Employees won at the circuit court level, but the case surely will land at the Supreme Court. The Michigan Civil Service Commission has ordered the payments to cease since the authorization for them was never approved by the Commission. However, the state has refused to comply with the Commission’s order while the matter is being litigated.

According to a Gongwer News Service story about the bills, employees hired after 1997, who are under the state’s defined contribution retirement plan (401k-style), would be switched over to health savings accounts. Meanwhile, employees under the state’s defined benefit retirement plan, would keep the health insurance plan already in place.

But employees under defined contribution who have more than 10 years of service, would get a contribution to their new health savings account from the state. That amount would be actuarially calculated and the employee could access the account at age 55 with 30 years of service or at age 60 with 10 years of service.

Employees with more than four years of service, but less than 10 years, could access the health savings account at age 60 if they worked for at least 10 years by then. The contribution the state makes to their health savings account would also be actuarially calculated.

Employees under defined contribution who have less than four years of service would get a one-time $2,000 payment in their health savings account from the state. Future employees would also receive $2,000. But the state would no longer contribute any money toward retirement health care costs after these one-time payments are made.

SERA Resources — SERA’s testimony, press release, and links to the Michigan Legislature Web site are available at the SERA Web site, www.mi-sera.org.

I produce an e-mail “News of the Day,” a compilation of media stories about news of interest to SERA members such as the income tax battle. I also offer some commentary. This publication is a benefit of SERA membership. If you would like to receive this news, please let me know by e-mailing me at michigansera@comcast.net.

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.

Return to top of page

©2021 Michigan State Employee Retirees Association Council (MI-SERA)
Contact SERA Webmaster