Capitol News
September 2011
Getting ready for the Michigan Supreme Court’s oral argument on the pension tax, passage of SB 7, and a favorable Court of Appeals ruling dominated the news affecting state employee retirees this month. The legislature was on summer vacation all but one day in August and returned September 7.
Michigan Supreme Court Hears Pension Tax Arguments
Governor Rick Snyder asked the Michigan Supreme Court to render an advisory opinion as to whether certain provisions of the new income tax law, 2011 PA 38, are constitutional. Under PA 38, the current exemption from the income tax on public and private pensions would be limited to retirees born before 1946. For all other pensioners, it would be based on year of birth, age, and income level.
SERA Coordinating Council, Michigan Federation of Chapters of the National Active and Retired Federal Employees (NARFE), and AARP submitted a joint friend-of-the-court brief arguing that the pension tax was unconstitutional. We also filed a reply brief. Our briefs were written by Dan McLellan, recently retired General Counsel for the Michigan Civil Service Commission. We held a joint press conference to highlight our brief on August 10, the due date for filing, and had good press coverage, including an opening piece on public TV’s Off the Record hosted by Tim Skubick in which SERA Council Chair Bob Kopasz was interviewed.
Also filing friend-of-the-court briefs opposing the pension tax were the United Autoworkers, Michigan State AFL-CIO, SEIU (Local 517M), and the Michigan Education Association. Those filing briefs in favor of the pension tax were the Michigan Bankers Association, the Michigan Chamber of Commerce, Michigan Retailers Association (a joint brief) and Business Leaders for Michigan and Small Business Association of Michigan (a joint brief). The latter groups acknowledged that the revenue from the pension tax is helping to finance abolition of the Michigan Business Tax. View all the briefs and reply briefs.
On Wednesday, September 7, the Michigan Supreme Court heard oral argument in its elegant courtroom in the Hall of Justice. Supplemental seating was provided in the courtroom and in a conference room on the first floor to accommodate the 150 attendees. Several TV stations and all the capitol press corps were in attendance. The proceedings were also broadcast live on MGTV, a service of cable TV providers that is similar to C-SPAN.
The Attorney General elected to use in-house counsel to argue the two sides of the issue. The Attorney General’s Solicitor General John Bursch defended the pension tax and Deputy Solicitor General Eric Restuccia argued that the pension tax is unconstitutional. Restuccia was the Solicitor General under former Attorney General Mike Cox.
Restuccia argued that the elimination of the exemption from state income tax for public pension plans violates Article IX, Section 24 of the Michigan Constitution by reducing the accrued financial retirement benefits for public employees. That provision makes accrued public pensions a contractual obligation of the state that cannot be diminished or impaired. Not only does the pension tax diminish the public pension in violation of Section 24, but it violates Article I, Section 10 of both the Michigan and Federal Constitutions by impairing the State’s contractual obligations, he argued.
Because the new income tax law determines eligibility for income tax exemptions and deductions on the basis of total household resources, it creates a graduated tax base in violation of Article IX, Section 7 of the Michigan Constitution, Restuccia asserted. Pensioners with total income of $75,000 and above will have to pay a different and higher effective tax rate than those with incomes below that amount. Moreover, determining eligibility for income tax deductions on the basis of date of birth and marital status violates equal protection of the law under both the Michigan and the U.S. Constitutions.
Each advocate had 30 minutes to summarize their written briefs, rebut the other side’s arguments, and answer the Justices’ many questions. It was obvious from the questions that the justices were less interested in whether a tax on public pensions was constitutional than in whether the tax on high income pensioners violated the prohibition on a graduated income tax. . I didn’t leave the courtroom feeling that we’d won, but it is hard to predict where the votes will be on the 4 questions the court will address.
View a video of the entire proceedings through the State Bar of Michigan Virtual Court feature.
A decision is expected in October or November. The name of the case is In Re Request for Advisory Opinion Regarding Constitutionality of 2011 PA 38, SC Docket # 143157.
SB 7 Passes
SB 7 (H-6), the bill that would prohibit public employers from paying more than 80% of health care premiums or more than certain hard cap amounts similar to the private sector, passed the Senate on August 24 and was concurred in by the House the same day. The Governor is expected to sign the bill.
Under SB 7, public employers cannot pay more than $5,500 annually for individual employee health care, $11,000 for married couples or $15,000 for family plans. The legislation also gives schools and local municipalities the option to pay 80 percent of employee health care costs. Municipal governments could vote to opt out of both choices entirely, but school districts cannot opt out.
If a school district or local government ignores the new provisions, they could lose 10 percent of their state funding under the legislation.
SERA was successful in getting retirees excluded from the mandated 20% premium or hard cap on health care benefits. However, the bill doesn’t prohibit retirement systems from charging a retiree health care premium of any amount or capping the retirement system contribution.
SB 7 does not apply to state or university employees because under the Michigan Constitution, the Civil Service Commission has the authority to set employee health care benefit rates, which in turn are applied to pre-Medicare state retirees. Health care benefits are part of the collective bargaining process occurring at this time. If the unions and the state agree to an increased premium or other changes, it will affect pre-Medicare state retiree health care premiums. Medicare-eligible state retirees do not pay a premium for their Blue Cross/Blue Shield Medicare supplemental insurance at this time. Recall however, that Medicare-eligible retiree health care co-pays increased several years ago when active employees’ co-pays were increased.
The legislature attempted but failed to get around this Constitutional impediment to the imposition of SB 7 on state employees through consideration of Senate Joint Resolution C. SJR C would put a constitutional amendment on the ballot that, if passed, would shift authority for health care benefit cost allocation from the Civil Service Commission to the legislature. To reach the 2/3 super majority standard for putting a Constitutional amendment on the ballot, 11 House Democrats must join Republicans in voting for the measure. No Democrats would join the effort in several attempts. The Senate approved SJR C with the necessary 2/3 super majority.
In keeping with SB 7, House Speaker Jase Bolger announced that legislators and House employees’ health care insurance would be changing effective October 1 to reflect the new law.
Unions Win Court of Appeals Ruling on Forced 3% Wage Concessions
State employee unions won a major victory when the Michigan Court of Appeals on August 25 struck down an action taken under Gov. Granholm to require a three percent contribution from all state employees to their retiree healthcare funds.
The Michigan Civil Service Commission had approved collective bargaining agreements with all of the major unions representing state employees that included a three-year agreement on wages. A three percent wage increase for fiscal year 2010-2011 was approved by the CSC and included in the budget. The Michigan Constitution provides that the legislature may reject a wage increase if it does so by 2/3 vote within 60 days of the introduction of the budget.
Although several attempts were made, the legislature failed to pass a resolution overruling the wage increase by a 2/3 vote. However, it did pass a bill with a simple majority vote requiring all active state employees to contribute three percent of their salaries from November 1, 2010 through September 30, 2013 for state employee retirement health care funding. The measure was not considered or approved by the Civil Service Commission.
The state unions sued in the Court of Claims, which agreed that the legislature’s action was unconstitutional because the Civil Service Commission did not approve it. The court ordered the contributions put in escrow where it has accumulated to $59 million. The Court of Appeals has now agreed with the lower court’s ruling. The state may appeal the decision to the Michigan Supreme Court.
Other News
Withholding for new pension tax — If we don’t win our pension tax challenge in the Supreme Court or take other action after an adverse Michigan Supreme Court opinion to enjoin the implementation of the pension tax on January 1, those of you born after 1945 or married to someone born after 1945 may have 4.35% of your pension withheld unless you file a withholding certificate claiming a different exemption.
The Office of Retirements Systems will be sending every state retiree at least three communications urging you to go on-line to your ORS MyAccount to sign up for withholding exemptions or send them a withholding certificate. SERA has talked with Treasury and ORS about implementing withholding in the most efficient way possible and offered our assistance.
Treasury Department Information — The Michigan Department of Treasury has now provided a short explanation of the tax law changes. It includes:
Union negotiations — Five of the state unions decided to conduct coordinated (unified) bargaining this year. The unions released in June a three-point plan to save the state money: (1) Reduce the number of managers by increasing the management to staff ratios from 6 employees to one manager to 7 employees to one manager for an estimated cost savings of $75 million annually in wages alone; (2) Reduce spending on contractual services by 10 per cent in FY 2012 for a savings of more than $100 million; (3) Collaborate with front-line employees on performance improvement strategies.
The Governor apparently liked the idea of reducing the management to staff ratio because he sent a letter to the State Personnel Director asking for data on the issue.
The FY 2012 budget starting October 1 calls for $145 million in employee concessions. As of this writing, no concession agreement had been reached, but the state decided to delay sending layoff notices. The Civil Service Commission will be providing some data on manager to staff ratios.
Expected fall legislative topics — With the Republican majority in control of both houses and the Governor’s office, “reform” continues. Expected issues this fall: changing the personal property tax; reducing environmental barriers to business; raising the charter school cap; enabling more school privatization; changing the school employee pension from defined benefit or hybrid to defined contribution pensions; regulating medical marijuana; criminalizing the already federally prohibited “partial-birth” abortion procedure; authorizing a new International Trade Bridge from Detroit to Canada; addressing right-to-work legislation, especially for teacher unions; restricting or reducing welfare; eliminating the mandatory catastrophic care feature of no-fault auto insurance.
Our priorities for the fall are HB 4701, HB 4702, and the senior protections package of bills. HB 4701 would require current defined benefit active employees to pay 4% into the pension fund and eliminate overtime in the calculation of final average compensation. It would also end retiree health care benefits for those in the defined contribution retirement program.
Although he is using every legal avenue to fight it, the recall of Representative Paul Scott (R-Grand Blanc) will apparently be on the November ballot in his district. None of the other recall efforts made it to the November ballot. Scott is the Chair of the House Education Committee and the MEA has invested $25,000 and other resources to the recall effort.
News of the Day — Over 300 SERA members are now receiving News of the Day, a periodic e-mail about specific news of interest to SERA members. If you would like to receive this e-mail, please write to michigansera@comcast.net giving your name and chapter.
Capitol News Briefing — If your chapter would like a Capitol News Briefing or a presentation on specific legislative topics at a chapter meeting, please submit a request to michigansera@comcast.net. The cost to the chapter is my round trip mileage from Lansing. An updated PowerPoint presentation is available if you have a blank wall or a screen.
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