Lansing finally pulled it together to reach a difficult and painful deal to increase
taxes, enact some logical reforms and begin to address the structural deficit that has been haunting Michigan for the last five years or so. How do we rate the outcome? That depends on what criteria you use. Or as they often say in Lansing, “Where you stand depends on where you sit.”
First, here are the highlights of what happened:
SB 418/PA 106 of 2007 – Generally known as the “claims data” legislation. This bill requires that:
- A public employer or pooled plan procuring coverage or benefits from one or more carriers shall solicit four or more bids when establishing a medical benefit plan, including at least one bid from a voluntary employees’ beneficiary association (VEBA). Schools must solicit four or more bids every three years when renewing or continuing a medical benefit plan.
- A public employer that has 100 or more employees in a medical benefit plan shall be provided with claims utilization and cost information as provided by the new law. Also, a public employer who is in an arrangement with one or more other public employers and together have 100 or more employees in a medical benefit plan or have signed a letter of intent to enter together 100 or more public employees into a medical benefit plan shall be provided with medical claims data.
- The law also outlines rules and procedures for the operation of health care pools.
- It is likely that there will be challenges and issues surrounding this legislation that will slow its implementation. We’ll need careful legal review of the law, and a set of regulations from state regulators before we really understand what all this means.
Senate Bills 546 and 547/PA 110 and 111 of 2007 — Changes to the Michigan Public Schools Employee Retirement System.
The most important aspects of the new law:
- The changes apply to new employees who first become a member of the system after June 30, 2008.
- New employees will be under a “graded premium” system for earning credit toward retiree insurance benefits. After 10 years they will be entitled to 30% of the premium being paid, with an additional 4% paid for each additional year up to 25 years when they are eligible for 90% payment of the premium; the maximum that will be paid. The Member Investment Program (MIP) will be increased by two percentage points, effectively taking it from about 4% to about 6% of compensation for new hires.
- New hires who retire with less than 25 years in the system will not have any benefits paid until they turn age 60 at which time they will receive their earned pro-rated payment under the formula described above.
SB 549/PA 101 of 2007 – Requires that no later than July 1, 2008, an ISD establish a common calendar with its constituent districts that identifies winter holiday and spring breaks for at least the five upcoming school years. Additionally districts are encouraged to identify common dates for professional development days. If there is a collective bargaining agreement in effect on July 1, 2008 for any of the constituent districts that is not in compliance with the common calendar by the ISD, the local contract controls with the common calendar going into effect with subsequent agreements.
HB 5194/PA 94 of 2007 - The state income tax rate will rise from 3.9% to 4.35% as of October 1, 2007. It will be reduced beginning October 1, 2011, being reduced by 0.1 each year until the rate is 3.95% in 2015. (Note: withholding for the higher rate starts immediately…see the MSBO Web site for a link to the Department of Treasury’s new tax tables.)
HB 5198/ PA 93 of 2007 – A “use” tax at 6% will be expanded to cover a long list of new services from astrology and phrenology, to consulting and wedding planning beginning December 1, 2007
A full listing of services that will be covered is contained in the legislation. (Just put the bill numbers in the appropriate box and select, “Public Act,” from the list of choices you find on that page.)
Problems/Issues with the Deal:
- They did not raise sufficient revenues to cover lost revenues. Whether this is a problem or not depends on your perspective! The bottom line is that Lansing will need to make some additional cuts – around $400 million - to balance the budget and some of those cuts are likely to come from education.
- The rollback on the income tax. If our goal was to gain long-term stable revenues, then the rollback starting in 2011 raises a major red flag. This rollback is automatic, there are no, “triggers” or other conditions established in law.
- There are already efforts to repeal some aspects of the new sales tax. Business interests are particularly upset with the 6% use tax on consulting services.
- There are ambiguities and administrative rules yet to be established, particularly in PA 106 (claims data and bidding) that may take years to settle out.
- The biggest problem with the final deal is it fails to address the long-term funding needs of K-12 or the state. It doesn’t provide for stable and reasonable revenue growth, nor does it address issues of equity and/or infrastructure funding. Those will be left to future legislatures; the current legislature may be hesitant to address these controversial issues given the political pain they’ve just experienced.
Pluses/Positives with the Deal:
- It’s done. While it’s a product of compromise, the Legislature raised significant new revenues, less than the Governor wanted but more than many legislators seemed willing to support initially.
- PA 106 is an advancement and may positively shake up health care in schools – reducing costs and increasing options. The bidding requirement combined with the requirement for claims data will change the marketplace – but schools still have to negotiate carrier and benefits with their unions. A balance of interests was maintained. Schools should consult with legal counsel prior to making requests for data or bidding insurance.
- School management got most of what it had been seeking in changes to MPSERS over the last decade. Increasing the MIP for new employees, graded premiums, eligibility only for benefits at age 60 for those with less than 25 years, and closing some excessive loopholes in the law have been long sought reform goals that will enhance the long term viability of MPSERS.
There is an old saying that politics is the art of the possible. That probably describes what happened overall. No one got all they wanted; everyone had to give in on something they didn’t want. Many people are unhappy with the final deal. As a labor negotiator I often heard that you knew you had a good deal when both labor and management were unhappy. We have something of that case here.
The most unfortunate thing is that this really isn’t over yet. There are still cuts to be made and we are operating based on estimates of how much the new taxes will raise. But as we’ve found out in the past, estimates are just that. If Michigan’s economy continues to decline, the revenues may come in at lower levels than anticipated and we’ll face the same problems in the future that we have in the past.
But in the end, I have to say that it came out better than I expected. It wasn’t pretty, it wasn’t a process that made us proud, and it took longer than it should have. But Lansing did their job reasonably well in the end. I wish it was a more comprehensive and long-term fix but that was not in the cards.
It appears that some groups may be attempting recalls of legislators who voted for tax increases or the reforms. I hope that the school community rallies behind any Republican and Democrat who did the tough things and made the tough votes. Given the dire situation we are in, attempting to recall legislators for voting for reasonable reforms or to increase taxes smacks of a type of political bullying that shouldn’t be tolerated.
The final obvious reality of all this is that we in the school community will have to continue fighting for resources.
We didn’t get a long-term fix that will provide stable revenues and reasonable increases for this vital function of educating students. We’ll still have to trim budgets and find ways to better manage our resources. We’ll still have to fight the good fight for what we believe in. Being involved with the politics of Lansing will continue to be an important part of what we must do.