A View from the Capitol

From My Desk in Lansing

As spring moves along, we in Lansing, continue to address the difficult challenges that face Michigan taxpayers in the near and distant future.

One of the main concerns is reforming the Michigan Public School Employee Retirement System (MPSERS). I will explain later in this newsletter in greater detail but this is something that has been a nagging problem, not just recently, but for many years.

A week few weeks ago, Governor Snyder signed two of my bills into law. The first, regarding medical amnesty and the second, was the removal of the prisoner sales tax exemption. These are common-sense bills that I’m proud the governor signed into public acts.   

On the lighter side, with the help of my colleagues in the House of Representatives: My House Resolution to declare May as bike month in Michigan was approved with overwhelming support.

On a personal note, it was a pleasure to participate in the St. Clair Shores Memorial Day Parade. Ever since I was a Cub Scout at Shorewood Elementary school, our family has participated in honoring and remembering those who have sacrificed so much to protect our freedom. The St. Clair Shores Memorial Day Parade is rich in tradition and, from what I am told, the largest Memorial Day parade in the Midwest. We were lucky to have such a nice, sunny day.  


Reforming the Michigan Public School Employee Retirement System

Serving on the House of Representatives Appropriations Committee, I am getting very intimate with this issue.

As you may know, Senate Bill 1040 was introduced by Sen. Roger Kahn on March 22, 2012 in order to amend the Michigan Public School Employees’ Retirement System (MPSERS). On May 17, the Senate approved the bill by a 20-18 vote. SB 1040 is now in the House Appropriations Committee for consideration.

I share concerns about wanting the best education for our children.  Our goal must be to attract the best and the brightest to be the next generation’s teachers. However, with out-of-control unfunded liabilities, which take money out of the classroom, we find ourselves in a perilous situation. We cannot make the same mistakes as in the past, but rather create an environment of financial stability for those teachers that retire. It is also my hope that by fixing this now it will help teachers receive competitive salaries in the long run.

I am mindful to assure teachers keep what they already earned, but fight for a system that is sustainable for future retirees. That being said, we face substantial fiscal concerns that, if left unaddressed, would be detrimental for our children and grandchildren as well as future retirees.

I will continue to fight what is owed to our teachers. Our problems cannot be placed on any one group of people at the same time, and I’m sure that you will agree that we cannot ignore the issue of unfunded liabilities any longer.

A Little Bit of History on the Subject

The Michigan Public School Employees Retirement System (MPSERS) is a statewide public employee defined benefit plan. The plan is administered by the Office of Retirement Services (ORS) with the oversight of a 12-member board.

MPSERS collects and compiles employee wage, contribution, and service information from 551 K-12 districts, 70 public school academies, 7 universities, 28 community colleges, 57 intermediate school districts, and 11 libraries.  

When Proposal A took effect in 1994-1995, the entire retirement cost was shifted to districts, but it was accounted for as one of the costs rolled into their newly created foundation allowance.

The state prefunded MPSERS health care costs, but with a budget crisis in 1991, Governor Engler issued an executive order to end prefunding and move to a pay-as-you-go system for retiree health care. The following year, in order to again save state funds, they began using the pre-funding health care funds that had been intended for future use, to pay the ongoing costs of pension and health that year.

In 1998, Governor Engler and the Legislature chose to use what is called a “mark-to-market” where the actuaries recognize that MPSERS assets have growth higher than what they had originally anticipated, so they use the true market value of the assets instead of the actuarial value for one year and rebase the system. In doing this, it significantly drops the required rate that employers have to pay in. However, for a pension plan to work well you need to leave the funds in it during good times so that when market performance under-achieves compared to expectations, you don’t experience such great unfunded liabilities. So they essentially eased the burden on districts at the time, but contributed to long term liabilities for MPSERS in the future.

In 2004 and 2005, there had been savings in the MPSERS stabilization sub-account into which overfunded amounts were deposited. Due to significant market losses from the 2001 recession, rates were going to go up significantly (and because of budget shortfalls, districts had their foundation allowances reduced mid-year in both 2003 and 2004), so Governor Granholm and the Legislature used those funds to help pay the required MPSERS contributions for FY 2004 and FY 2005 and to keep the employer rates lower for those two years. Again, this was an issue of controlling current costs to employers rather than leaving those funds in the system to help long term.

Then in 2007, the Governor and the Legislature again used the “mark-to-market” to recognize funds in the system in excess of what the actuary had expected. Additionally, the State made what equates to an “interest only” payment on the MPSERS unfunded liability. That year the School Aid budget revenues were significantly short and school district funding was going to have to be reduced mid-year. In order to avoid any impact to districts, the School Aid budget was cut, but districts saw a dollar for dollar reduction in their required MPSERS contribution to offset that School Aid cut. Again, the choice was made to deal with short-term budget issues at the expense of long term MPSERS stability. This helped offset $262 million in reductions to school districts that year. The impact of that reduction in the rates immediately was felt in FY 2008.

In 2008, the Legislature made an additional change to the health insurance premium subsidies for employees beginning work after July 1, 2008 and created a graded premium system for MIP.

In 2010, Governor Granholm and the Legislature offered MPSERS employees an "early out" option to retirement by offering a slight increase in pensions. Roughly 30 percent, or 17,000 of the 56,000 eligible public school employees, took advantage of this retirement incentive. The cost to the pension system to pay for this incentive was estimated $1.35 billion. At the same time, long term reform measure were implemented: all MPSERS employees were required to pay 3% employees contribution towards their retiree health care (lawsuit filed by MEA still pending) and a hybrid pension plan was introduced. The hybrid pension plan applies to all employees hired after July 1, 2010 and is a blend of defined benefit and defined contribution components.

A person under this plan is not able to receive pension payments until age 60, and is required to work at least 10 years as a public school employee. This hybrid plan was estimated to save $1.2 million in the first year, and $129.4 million over 10 years.

Governor Snyder Signs Medical Amnesty and Prisoner Sales Tax Exemption Legislation

On May 8, Governor Snyder signed into law Public Act 125 of 2012, formerly referred to as House Bill 4393, which provides amnesty to minors who seek for themselves or others medical treatment to prevent death by alcohol poisoning.

The governor also signed into law Public Act 126 of 2012, previously known as House Bill 4658, which removes the sales tax exemption for felons in state prisons.

May is Bike Month in Michigan

On May 10, I introduced House Resolution 260 to declare May 2012 as Bike Month in the state of Michigan.

May has also been declared National Bike Month by the League of Michigan Bicyclists, Michigan Trails and Greenways Alliance, and the Michigan Mountain Biking Association to increase awareness about bicycling opportunities through organized activities such as bike-to-work days.
         
An estimated 2 million Michiganders ride bicycles, because it is a viable and environmentally sound form of transportation and recreation, an excellent form of fitness, and provides quality of life and a sense of place.

Bicyclists are recognized as legitimate roadway users with the same rights and responsibilities as automobile drivers and teaching bicyclists and motorists to share the road is important to ensure the safety and comfort of all users.

Run Like a Mother

On May 12, my staff and I participated in the 6th Annual "Run like a Mother" 5K/10K run and 5K/1 mile fun walk.    

For those of you who don't know, I have recently picked up running as another means of getting in better shape. My goal was to run the 5K in under 30 minutes and oh boy, that was not easy! After going through a training session for several weeks, there was a strong possibility that I wouldn't be able to reach my goal. However, I received some unexpected encouragement as a woman pushing a baby stroller started to close in on me during the run. My determination kicked in as I did NOT want to fall behind someone who was not only running the same race, but pushing a stroller.

The hard work put in during weeks of training paid off as I finished in 29 minutes and 40 seconds! And I was able to pull ahead of the baby stroller as I crossed the finish line!

One of my aides, Sonny Koch, had a little bit of a head start and finished in just over 20 minutes for 6th overall place.

St. Clair Shores Memorial Day Parade

On May 27, St. Clair Shores was host to one of the largest in the nation.

A record attendance believed to be around 86,000 people who showed up to watch as we celebrated the brave men and women who gave the ultimate sacrifice to protect our freedoms and liberties.  Sometimes in our busy lives it is easy to forget the sacrifice made on a daily basis by individuals who fight for us. America is what it is today because of these men and women and this past week, we honor them.

District Office Hours

Monday, June 18, 2012
8 - 9 a.m. at Big Apple Bagel in Harrison Township
6 - 7 p.m. at in St. Clair Shores