Capitol News
September 2013
Pension Tax Lawsuit Update
The class action lawsuit, Okrie v State of Michigan, et al Case No. 13-93-MK filed in the Ingham County Court of Claims challenging the pension tax will have its first hearing on Wednesday, October 9, 2013 at 2:30 p.m. in Judge Rosemarie Aquilina’s Courtroom, Third Floor Veteran’s Memorial Courthouse, 313 W. Kalamazoo Street, Lansing.
SERA members are encouraged to attend so that we fill the courtroom and show our interest in this lawsuit. Arrive by 2 p.m. so that you can go through security metal detectors at the entrance. Do not bring weapons (including pen knives) to the building. Parking is available at meters on nearby streets or at the public parking garage on the corner of Kalamazoo and Capitol Ave. See a location map at http://goo.gl/maps/rjdtr.
Attorney Gary Supanich has filed two more documents, a brief in support of the complaint, and a brief supporting the class action. See all three of his filings at www.michigan-appeal-attorney.com.
The hearing will concern the state’s motion to dismiss the lawsuit. The lawsuit claims that the state promised state and school employees a tax-free pension, a form of deferred compensation, on which employees relied before making the irrevocable decision to retire. The State breached this promise (contract) when it decided to tax pensions earned by those born after 1945. Other potential claims may also be added to the original lawsuit such as statutory age discrimination. Judge Aquilina will likely ask questions of both the Assistant Attorney General representing the State of Michigan and Mr. Supanich so it should be interesting. It is unknown how long the hearing will last. An oral decision from Judge Aquilina is not expected.
The Attorney General’s Office filed a motion to dismiss on August 9, claiming that no enforceable contract or promise existed between retirees and the state over taxation of pensions. The motion says that only the Legislature has the power to tax and that Okrie's breach of contract charge hinges on a claimed quasi-contract that allegedly was formed by non-legislative promises. The motion also cites a provision of the state constitution which expressly forbids creating a tax exemption by contract.
The class of Plaintiffs could be over 80,000 school and state retirees and the revenue generated by income tax on them may exceed $60 million in 2012 alone.
Updates on Other Lawsuits
Michigan Coalition of State Employee Unions v. Michigan (COA docket No. 314048) - A panel of the Michigan Court of Appeals held unanimously on August 14 that a statute requiring state workers to contribute 4 percent into the pension system was unconstitutional. However, the state plans to keep collecting the 4 percent contributions. It has collected over $59 million so far.
State employees hired before April 1, 1997 were given the option under a 2011 law to either pay 4 percent of their salaries to keep their current defined benefit pension or go into a defined contribution 401(k) retirement plan. Before contributions started being collected in April of 2012, employees in the defined benefit plan were not contributing to their pension benefit. After the change, 600 employees elected not to stay in the defined benefit pension plan and 17,800 employees stayed in the plan. About 32 percent of the current state work force are in the defined benefit pension plan. The state has until September 25 to appeal.
UAW v. Green (COA docket No. 314781) The very next day on August 15, a divided Court of Appeals panel held that Michigan's Legislature has the constitutional authority to apply right-to-work rules to state workers. The decision rejected the argument of the state worker unions that only the Civil Service Commission could constitutionally impose right-to-work standards on classified state workers. The dissenting opinion agreed with the unions that the law unconstitutionally infringes on the constitutional powers of the Civil Service Commission to set all conditions of employment for classified workers. Under the new law passed in lame duck session in December 2012, an employee in a unionized setting does not have to join the union, or pay a service fee to the union roughly equivalent of union dues, but can still enjoy all the protections of union membership.
The Office of the State Employer and state unions are currently bargaining their next contract that would begin in October 2014. State union contracts currently contain union security provisions that would be barred by the new right-to-work law if the Court of Appeals decision is upheld by the Michigan Supreme Court. Judge Elizabeth Gleicher sat on both panels and was the dissenter in this case.
MAGE Three Percent Lawsuit — Over two years ago, the Michigan Association of Government Employees OPEIU Local 2002 filed a lawsuit and unfair labor practice charge about the State reneging on a three percent raise agreement. MAGE prevailed in the Court of Claims and Michigan Court of Appeals. The state then appealed to the Michigan Supreme Court and again MAGE prevailed; the Supreme Court remanded the case back to the Court of Appeals for a trial on the amount of damages. Recently the state has appealed once again to the Supreme Court.
Pontiac retirees challenge pension reduction and emergency manager law — In December 2011 the Pontiac Emergency Manager cancelled disability, vision and hearing insurance, increased annual deductibles and cut pensions. A recent Sixth Circuit U.S. Court of Appeals panel held that if PA 4, the Emergency Manager Law, had not taken immediate effect, the Pontiac EM would not have possessed the power to modify the employees’ retirement plans when he did. The Republican-controlled House’s use of a voice vote and quick gavel without taking a requested formal roll call vote violated the Michigan Constitution, the panel held, and sent the matter back to the trial court for a new hearing. Most bills receive immediate effect in the Michigan House in the same manner as PA 4, perhaps calling into question many laws passed, including the income tax overhaul. The Senate has a fast and efficient way to handle requests for immediate effect, proving that it can be done if the House leadership wants to do it.
Medicaid Expansion
The Michigan House passed a Medicaid expansion bill, HB 4614, in June but the Senate failed to act before its summer recess. Meanwhile the Governor, medical organizations and associations representing the indigent and working poor urged passage while Tea Party and other small government conservatives opposed the bill. Threats of primary opponents for some Republicans who voted Yes were made. Finally in August, the Senate Government Operations Committee held hearings over several days about HB 4614 and two Medicaid reform proposals that would have decreased Medicaid benefits. All the bills were reported out of Committee.
On August 27, the Senate passed HB 4614 (S-9) with all 12 Democrats and only 8 of 24 Republicans voting Yes. Those Republicans voting yes included: Senate Majority Randy Richardville (R-Monroe) and Sens. Tom Casperson (R-Escanaba), Goeff Hansen (R-Hart), Roger Kahn (R-Saginaw), Jim Marleau (R-Lake Orion), Mike Kowall (R-White Lake), Tory Rocca (R-Sterling Heights) and Howard Walker (R-Traverse City). The Lieutenant Governor did not have to break a tie but was prepared to vote Yes if necessary.
However a vote on Immediate Effect failed in the Senate so the effective date is in early April 2014, not January 1. This will reportedly cost the state $7 million a day in potential lost Medicaid reimbursement and a fine for individuals without health insurance under Obamacare starting January 1.
The expansion will increase Medicaid coverage to those up to 133 percent of the federal poverty level, likely 470,000 residents, and reduce the state's uninsured population by 46 percent while securing federal benefits to pay for it. The Department of Community Health still needs to get federal waivers from Washington, adjust the application form for all Medicaid beneficiaries, negotiate contracts with the state's Medicaid health maintenance organizations, design the benefit plan, and do outreach to potential eligible beneficiaries to sign up.
Other legislative issues
A road funding solution looked promising earlier in August, but hard feelings from the Medicaid battle in Republican Party ranks will likely affect any willingness to put a sales tax increase on the ballot at the November 2014 general election. The personal property tax measure will be on the ballot in August 2014 making that date undesirable also. A special election in the spring would involve additional cost. Everybody agrees we need to fund infrastructure better but no one has come up with a way to pay for it that is politically acceptable.
No-fault auto insurance reform is likely to receive some attention in the coming months. HB 4612 would remove a drivers’ guarantee of unlimited lifetime medical benefits and replace it with a $1 million cap, which is still 20 times higher than the next closest state with a no-fault law. The Oakland County Board of Commissioners recently unanimously passed a resolution calling for greater transparency at the Michigan Catastrophic Claims Association (MCCA), saying the body should be subject to Open Meetings and Freedom of Information acts. The resolution also called for passage of SB 0102, sponsored by Sen. Steve Bieda (D-Warren) and SB 0103, sponsored by Sen. Glenn Anderson (D-Westland) rather than HB 4612.
More education reform is likely just ahead. Although the state is one of 44 states that has adopted the federal Common Core standards, the Michigan Legislature has denied funding for it. It is seen by some as expansion of federal government similar to Obamacare. Expansion of the Education Achievement Authority is still active and teacher evaluation continues to be of interest to many legislators.
Detroit Bankruptcy
As promised Attorney General Bill Schuette filed a brief in the Detroit federal bankruptcy case saying the city cannot propose any solution that would reduce pension benefits to current Detroit retirees because the state's Constitution prohibits reductions in government pension benefits once employees have earned them.
A recent Michigan State University (MSU) Extension study found that local governments in Michigan face about $12.7 billion in unfunded liability tied to health care, dental care and life insurance benefits for their retirees.
Recent News — If you are a SERA member, you are eligible to receive Recent News, 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 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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