May in the Michigan Legislature was filled with budget drama and House members positioning themselves for the August 7 primary. Who says this isn’t like making sausage?
Revenue Estimating Conference Brings Optimism
Personal income is up, our recovery is more robust than anywhere in the U.S. because of the auto industry bail-out/recovery, and there will be a little extra in the state coffers for FY 2012-13, the economists told us at the May 16 Revenue Estimating Conference. Overall, the state has $200 million more than expected in revenues, plus $150 million from reduced Medicaid and welfare caseloads. Economic headwinds to watch include the situation in the European economy, fuel prices, and federal taxation and budget decisions that must be made by the end of this year.
The revenue forecast was built on a projection that national gross domestic product would rise by 2.2 percent this year and 2.5 percent in 2013, and that housing starts would rise by 21.1 percent this year and 28.6 percent in 2013. Additionally, light vehicle sales are projected to improve to 14.4 million vehicles in 2012 and 15.1 million in 2013. The Detroit Three automakers will see a market share of about 45 percent in both years.
Meanwhile, Michigan’s unemployment rate will fall to 8 percent in 2013 and 7.6 percent in 2014. Wage and salary employment will rise by 1.6 percent in 2012 and 1.1 percent in 2013. The Detroit Consumer Price Index was projected to rise 2.6 percent in 2012 and 1.9 percent in 2013. The forecast also says the number of students in traditional public schools will be 11,100 less than estimated at the January Revenue Estimating Conference, but the number of students in charter schools will increase by 16,000 largely due to the recently enacted increase in cyber charter schools.
Budget Picks Winners and Losers
With the revenue forecast in hand, the Legislature and the Governor set about the business of appropriating money to state programs. After the huge state program cuts last year to help finance the $1.8 billion business tax cut, any little increase helped but didn’t restore most programs. Two new trooper schools, a summer jobs program for urban youth, Medicaid for autism treatments, $140 million for the rainy day fund, and $130 million for pre-funding school retiree health care were all wins for the Governor. He fought back the attempt to close the Ionia prison and privatizing a vacant prison. He lost his argument that we need to put $1.4 billion of additional revenue into improving roads.
K-12 schools, community colleges, higher education, community health, transportation, and state police saw increases while corrections and human services took cuts. The state workforce is now down to 45,000 employees so many state services are being delivered by private contractors.
The Republican-led House, up for re-election, wanted to be able to say on the campaign trail this summer that they have reduced taxes, especially in light of the new tax on pensions and abolition or reduction of senior tax breaks passed last year. The House approved an income tax rate drop from 4.35 percent to 4.25 percent starting October 1, 2012 instead of January 1, 2013. The plan also increased the personal exemption from $3,700 to $3,950 on October 1, 2012 and $4,000 on January 1, 2014. The Democrats pointed out that this was equivalent to a nickel a day in tax relief this year, and a dime a day next year, hardly a real tax reduction.
In response, a bill was introduced that would drop the rate to 4.2 percent on January 1, 2013, and drop the rate to 4.15 percent on January 1, 2014, with stepped decreases each year until it hits 3.9 percent on January 1, 2018. This would result in a $1.8 billion tax cut for individuals by 2018. These measures will need Senate approval and the Governor’s signature so are likely to see some tweaking.
School Employee Retirement Reform Update
Related to the budget negotiations is the Michigan Public School Employee Retirement System reform bill, SB 1040. During May, more Senate hearings were held and some substantial changes were made in the bill as it came out of committee. On the Senate floor, an amendment was approved to close the hybrid defined benefit/defined contribution pension plan and create a pure defined contribution plan for new employees. Budget Director John Nixon recently released data showing that closing the system would cost the state $1.772 billion between Fiscal Year FY2012 and FY2018 with $402 million needed this fiscal year and $354 million needed in FY2013, which begins in less than four months. The Governor, the House, and the school employee unions do not want the Senate plan with its upfront high costs. Negotiations over the differing viewpoints continue.
Protect Our Jobs Ballot Proposal Update
At its May 4 meeting in Lansing, the Michigan SERA Coordinating Council endorsed the campaign to put a constitutional amendment on the ballot guaranteeing collective bargaining rights. One provision in the proposed amendment would assure constitutionally-protected collective bargaining rights for state employee unions similar to that which the state police troopers achieved through a constitutional amendment in 1978. The troopers have the right to bargain retirement and pensions for their future retirees and can take action to protect current retiree pension and benefits. Since 1978 the troopers have negotiated favorable changes in their retirement system and avoided a defined contribution/401(k) pension plan foisted on other state employees in 1997.
Nearly 323,000 valid signatures will be needed by July 9, 2012, to get the amendment on the November ballot. SERA members are urged to sign the petitions and help with the campaign if they can. Call 313-744-JOBS (313-744-5627) for information about the campaign. SERA Chapter Presidents have information about the regional contact people for the campaign also. A Protect Our Jobs Fact Sheet is on the SERA Web site at www.mi-sera.org under Resources.
Public Pension Fund Transparency Bill Passes Senate
SB 797, a bill which would assure more transparency and standards for investing public pension funds, including investments for the state employees’ retirement system, was approved by the full Senate on May 29 with bi-partisan support by a vote of 30 to 5. The bill is now in the House Appropriations Committee. SERA’s testimony is available on our Web site, www.mi-sera.org under Testimony.
News of the Day
If you are a SERA member, you are eligible to receive News of the Day, a periodic e-mail about breaking news and media stories of interest to state employees and retirees. Write to email@example.com giving your name and chapter.
Editor’s note: Mary Pollock is the newly appointed 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 firstname.lastname@example.org.
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