As I write this column, the entire public education community is reading about, talking about, and asking many questions about what the new retirement reform legislation that was recently passed in Lansing is all about. Hopefully by the time our newsletter is published many of our questions will be answered. The future of many public school employees will certainly change with this new legislation (assuming it is signed by the Governor), and many are wondering what the future will hold for them.
I do know one thing that won’t change, and that is the challenges that we will continue to face as school business officials. I don’t think any of us believe that the new retirement reform legislation will solve all the school funding issues that we have been facing for the last ten years. In fact, it may even create more funding problems in the near future. The analysis I have read indicates that the bill creates both substantial costs and savings, all of which would be local and would be experienced by the employers. The increase in the retirement multiplier and the 80 and out is estimated to cost $2.2 billion at a 50% participation rate. This would be offset by an estimated $1.7 billion in savings from replacing fewer employees and the savings realized by replacing hired paid veteran employees with lower paid, less experienced employees. Therefore, the net cost of incentive is estimated to cost $500 million over ten years.
The estimated savings from the required 3% employee contribution toward retirement health care would be $300 million in year one with possible total of $3.5 billion over 10 years. However, this would create savings to districts only if the increased employee contributions are used to reduce the employer contribution rate. Otherwise, the retirement rate will remain at the 19.41% level for next year. All together, net savings have been projected to be as high as $3.15 billion over the next 10 years. So, what does this mean for each of our individual districts for the next school year and beyond?
Obviously, no one is able to answer that question. We will undoubtedly be called upon as business officials to explain and interpret the new legislation and its effects. We also need to remain diligent in our planning. I would like to reference a couple of quotes from President Harry Truman, whom I also referenced when I addressed the conference as MSBO President last year. I always get inspiration when I read quotes from great people like Harry Truman. Mr. Truman said, “you can always amend a big plan, but you can never expand a little one. I don't believe in little plans. I believe in plans big enough to meet a situation which we can't possibly foresee now.” We can’t possibly foresee what school finance and our budget will look like in the next five to ten years, but we need to plan now and be ready to amend it, not once but many times.
Mr. Truman also said, “A pessimist is one who makes difficulties of his opportunities and an optimist is one who makes opportunities of his difficulties.” Let us remember to be optimists. Yes, times will continue to be difficult, but we need to remain optimistic about the future. We need to be the positive influence and to encourage others.
A final Harry Truman quote that I think is fitting for today is as follows: “Men make history and not the other way around. In periods where there is no leadership, society stands still. Progress occurs when courageous, skillful leaders seize the opportunity to change things for the better.” I believe our legislature acted courageously by enacting legislation that has the potential to save as much as $3.15 billion over the next ten years, which translates into increased educational opportunities for Michigan’s children. We also need to seize the opportunities when we can and change things for the better.