Capitol News
July 2012
The Michigan Legislature adjourned for summer vacation on June 14, but not before both houses quickly passed a small tax cut to start conveniently on October 1, just before the November 6 election and the House caused an international uproar over censoring two female members. The Legislature returns for one day on July 18 and again August 15, before returning for several weeks on September 11. The Governor has signed 603 bills in his first 18 months in office.
Tax Cut
After abolishing the Michigan Business Tax last year that brought in $1.8 billion and increasing individual income taxes (including a new pension tax) and cutting state services to pay for it, Republican House members up for re-election had a sudden change of heart. Two bills sponsored by Republican first-termers that restore $102 million to taxpayers are now law. PA 223 of 2012 would amend the Income Tax Act to reduce the individual income tax rate from 4.35% to 4.25% on October 1, 2012, rather than January 1, 2013, when the rate is currently scheduled to decrease.
PA 224 of 2012, would amend the Act to allow a taxpayer to claim a personal exemption in the amount provided under current law or in the following amount, whichever was greater, for each personal or dependency exemption allowable on the taxpayer’s Federal income tax return:
- $3,950 beginning on and after October 1, 2012, and before January 1, 2014.
- $4,000 beginning on and after January 1, 2014.
Currently, the amount of the personal exemption is $3,700. For each tax year beginning on and after January 1, 2013, the exemption must be adjusted for inflation, and will be phased out for single taxpayers with household resources between $75,000 and $100,000, and for married couples filing joint returns with household resources between $150,000 and $200,000. The exemption will not be allowed for a single taxpayer or joint filers whose total household resources exceed $100,000 or $200,000, respectively.
Democrats squawked that the tax relief amounted to a nickel a day, but the House and Senate passed the measures with wide margins.
School Employee Retirement Reform Update
The Legislature adjourned in June before completing its goal of passing SB 1040, the reform of the school employees’ retirement system. The Senate version closes the hybrid defined benefit/defined contribution pension plan and creates a pure defined contribution plan for new employees along with other changes. Closing the system would mean some up-front costs that are not in the FY2013 appropriations bills. It does not address “stranded costs,” those associated with schools privatizing services so there is a decreasing base of employees on which to calculate the annual required contribution. The Mackinac Center and the Laura and John Arnold Foundation in Houston are backing the Senate plan. Senate leaders say it can be paid for by ignoring the General Accounting Standards Board guidelines.
The Governor, the House, and the school employee unions favor the House version. It addresses stranded costs but doesn’t force a move to defined contribution. Gary Olson, former Senate Fiscal Agency Director, current Senior Policy Fellow at Public Sector Consultants, and consultant to the Coalition for a Secure Retirement, warned that “Any deviation from GASB accounting standards will likely cost the State of Michigan more in the long run than might be gained in short-term cost savings.” Olson had earlier concluded there needs to be “a balance between the future funding needs of MPSERS and fairness to the existing and retired employees of the system.”
Those advocating for MPSERS reform say it is important to pay down the state’s unfunded liabilities and reduce future costs. In the end the Senate decided to study the matter for 6 weeks and action is expected at the July 18 Senate session.
Protect Our Jobs Ballot Proposal Update
The union-led coalition supporting the ballot proposal to guarantee collective bargaining rights in Michigan submitted nearly double the number of signatures needed to put the measure on the November 6 ballot. On June 21, a ballot question committee, Citizens Protecting Michigan’s Constitution (CPMC) that fought a union-backed ballot proposal in 2008, asked the Secretary of State to reject the petitions, to refuse to process it further or to refer it to the Board of State Canvassers for certification to the ballot. CPMC is composed of the Michigan Chamber of Commerce, Business Leaders for Michigan, the Small Business Association of Michigan, and other employer organizations. CPMC claims that the ballot proposal rewrites the Michigan Constitution and repeals dozens of unidentified laws not contained in the petition language. A few days later, the Secretary of State said she had no legal authority to reject the proposal. CPMC is now preparing a court challenge.
Michigan SERA Coordinating Council endorsed the campaign to put a constitutional amendment on the ballot guaranteeing collective bargaining rights for public and private sector employees. 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.
Other News
- On June 19, Governor Snyder signed a large package of bills to protect vulnerable adults that have been in the works since 2006. The new laws will protect covered individuals from financial and other exploitation. Mr. Snyder also signed PA 179, which creates a Peace of Mind registry to store persons’ advance directives on their health care wishes that would be available to health care providers anywhere in the United States. The registry will be on a website that will be developed and maintained by the Gift of Life Foundation with oversight from the Department of Community Health.
- Ingham Circuit Judge Joyce Draganchuk recently heard oral argument on the constitutionality of requiring state employees to contribute 4 percent of their pay to remain in the state’s pension system. The Coalition of State Employee Unions had challenged the change, arguing that like an earlier 3 percent contribution for retirement health care, the 4 percent contribution violated the constitutional authority of the Civil Service Commission to set state employee wages and benefits. But state attorneys said the new law, which applies only to those wanting to remain in the defined benefit system, differs from the prior law struck down by the courts because it is not mandatory.
- A recent Michigan Auditor General report found that financial controls over Michigan’s 401(k) program need substantial improvements to prevent misstating values in the fund. The lack of controls caused the fund to understate the value of its mutual fund investments in the 2010-11 fiscal year by $184.5 million and to overstate the value of common trust funds by the same $184.5 million. The audit said these mistakes and others were brought to the attention of the fund, and substantial corrections were made. The 401(k) plan for the state was established in the mid-1980s. However, beginning in 1997 all newly hired state workers had to participate in the plan instead of being part of the state’s pension system.
- A bill to give public safety officers a more generous exemption from the pension tax than other retirees has now passed the Senate and House with no hearings. In the Senate this $23 million item was called a technical fix to the pension. In the intervening months, no House hearings were held but a H-7 version of the bill passed the House. Because the House passed a different version, SB 409 has been returned to the Senate for concurrence. Michigan SERA registered its opposition to the lack of any hearings with the Speaker of the House to no avail, but the bill was improved in the House-passed version. The bill changes the pension tax exemptions for those born after 1945 and who were government employees not covered by Social Security.
- In Detroit-Windsor bridge news, the Governor vetoed boilerplate language in an appropriation act that would bar him from using a state agency for an inter-local agreement with Canada to build the bridge, saying it violated the separation of powers doctrine. Because his own party’s legislators have opposed the new bridge, Canada is fronting the $550 million cost, which it will recover by claiming the state’s share of bridge tolls. The $950 million required to erect the bridge will be put up by private investors, who will also be repaid with toll revenue. A bi-national authority will manage the project. Construction of the bridge may help to leverage $2 billion in federal transportation funds to fix Michigan roads and bridges. Michigan’s business leaders want a new crossing to increase trade and provide opportunities to create economic development around the logistics industry. Automakers want a second span that will reduce backups and cut shipping time between their plants in the United States and Canada. The project is expected to create 10,000 jobs, more than enough to fully employ all of the jobless construction workers in Michigan and Ontario. The Michigan Campaign Finance Network reports that the owner of the Ambassador Bridge has spent $3 million dollars this year and $6 million last year on ads opposed to a new bridge. Ambassador Bridge owners say they have nearly enough signatures to put a constitutional amendment on the ballot that would ban any new international bridge that did not have voter approval.
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 michigansera@comcast.net 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 michigansera@comcast.net.
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