Negative investment returns after September, 2007 have increased the challenges to proper funding of public employee retirement plans in Michigan, as well as the rest of the U.S. For a full analysis, see Michigan State and Local Government Retirement Systems, July 2009, Report 356 by the Citizens Research Council of Michigan
The report says:
“Michigan is one of nine states in which the constitution states that participants in a public retirement system have a guaranteed right to a benefit that has been promised, and that accrued financial benefits cannot be eliminated or diminished. . . .
In Michigan, state and local government pension plan benefits are protected by Article IX, Section 24 of the 1963 State Constitution, which provides that "The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby. Financial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities." Benefits that have been earned by covered employees for work performed are a contractual obligation of that unit of government. . . . Michigan public employers are required to set aside funds to pay pensions as those pensions are earned. Future pension benefits may be changed, both for new hires and for the future service of current employees, as long as benefits accrued are not impaired or diminished.”
However, an issue arises concerning the post-retirement benefits of health, dental and vision insurance.
“Health benefits are promised, but various courts have ruled that they are not obligations in the same sense as pension benefits. (That could change, though, as this spring the House of Representatives adopted legislation that would give state employees, including school employees, a contractual right to retiree health care.)
The health plan is a “pay-as-you-go” system. Instead of setting aside money in advance, it uses each year’s school contributions to pay each year’s bills. At this point, according to the MPSERS report, the state has promised the equivalent of about $25 billion in health care to current and future school retirees.” Retirement fund losses will cost schools, but how much?, April 20, 2009, from the Mackinac Center for Public Policy
The legislation mentioned is House Bill 4073, which would create a contractual right of state employees to post-retirement health benefits and which passed by the House with all Democrats voting for it against unanimous Republicans opposition on March 4, 2009 and sent to the Senate, where it has not moved due to the Republican majority in that chamber.
The Constitution rightly protects vested contractual rights in retirement plans. The bill would create additional vested rights. When state and local governments are pressed financially, this is no time to decrease the flexibility of the state to balance its budgets by guaranteeing post-retirement health benefits to state employees.
Comments?
P.S. Michigan State and Local Government Retirement Systems, July 2009, Report 356 by the Citizens Research Council of Michigan is an excellent source of information on the various state and local public employee retirement plans. It contains options for cost control, but does not make any recommendations.
Showing posts with label Michigan. Show all posts
Showing posts with label Michigan. Show all posts
Sunday, August 9, 2009
Saturday, August 8, 2009
Michigan House of Representatives Republican Caucus Plan
For a full version of the Michigan House of Representatives Republican Caucus Plan for balancing the state budget and not raising taxes, go to http://www.gophouse.com/publications/The%202009%20Republican%20Budget%20Plan.pdf.
Even if you might not agree with all of the specifics, at least here are some details for how we might avoid any tax increase.
Comments?
Even if you might not agree with all of the specifics, at least here are some details for how we might avoid any tax increase.
Comments?
Friday, August 7, 2009
The Michigan Legislature’s Balancing Act – or Not
"Job No. 1 is balancing the state budget," said Michigan Chamber of Commerce CEO Rich Studley. "Job No. 2 is balancing the state budget and Job No. 3 is balancing the state budget. We think it's important to get the right steps in the right order." http://www.thecenterformichigan.net/blog/special-report-michigans-tax-reform-playbook-2/
Studley was talking about efforts to pass the State of Michigan’s fiscal year 2010 budget starting October 1, with recent estimates putting the projected deficit as high as $2.7 billion. The longer run issue is to create a tax climate in Michigan that's fair and attractive to businesses while finally returning state government to stable financial footing – and ending the structural tax and spending problem that has bedeviled legislators for years.
House Republicans, in the minority (Democrats hold a 67-43 edge over Republicans in the 110-member House), unveiled a proposal last Wednesday to significantly cut state spending for the budget year, freeing up more federal stimulus money for road construction and job creation programs.
The proposal would freeze state hiring and employee pay, trim spending in several departments, privatize some prison services and make dozens of other changes to either cut or save nearly $1.4 billion. That would allow the state to take about $700 million from the federal Recovery Act, now expected to help fill general budget deficits, and spend it in other places. House Republican Leader Kevin Elsenheimer of Kewadin said the plan would balance Michigan's budget without tax or fee increases.
http://www.lansingstatejournal.com/article/20090723/NEWS04/907230343/1005/NEWS04/House-GOP-plan-calls-for-big-cuts--bumps-road-funds
Meanwhile, Republicans who control the state Senate have voted for spending cuts of more than $1 billion, including the elimination of the $140 million scholarship program and a $110 per student funding reduction for Michigan's K-12 schools. But many of the Democrats who run the state House don't want to cut nearly that much.
Governor Granholm Democratic governor has proposed cuts to tax revenue sharing payments that help local governments pay for police, fire departments and other services. But she won't support even deeper cuts passed by the Republican-led Senate. She also has supported scaling back some tax incentives or closing what she calls "loopholes" for "special interests" as revenue enhancers. She has not, however, released her list of just which of the estimated $36 billion “tax expenditures”, also known as “silent spending”, she would eliminate or scale back.
Also, much of the upcoming budget hole could be filled with money from the federal stimulus package. But cuts still would have to be made in the next fiscal year, so avoiding the pain this year will again involve “kicking the can down the road” another year.
http://www.lansingstatejournal.com/article/20090718/NEWS04/907180322/1005/NEWS04/Gov.-disputes--dangerous-cuts-
What is clear is that no one wants to touch tax increases or to address the long term structural budget deficit the state faces. Unless addressed this year, this will likely need to wait until 2011 with a new Governor and a new legislature, as few legislators will have the stomach for the fight in the 2010 election year. A good primer on the subject, however, can be found at SPECIAL REPORT: Michigan's tax reform playbook by The Center for Michigan, August 6, 2009.
Comments?
Studley was talking about efforts to pass the State of Michigan’s fiscal year 2010 budget starting October 1, with recent estimates putting the projected deficit as high as $2.7 billion. The longer run issue is to create a tax climate in Michigan that's fair and attractive to businesses while finally returning state government to stable financial footing – and ending the structural tax and spending problem that has bedeviled legislators for years.
House Republicans, in the minority (Democrats hold a 67-43 edge over Republicans in the 110-member House), unveiled a proposal last Wednesday to significantly cut state spending for the budget year, freeing up more federal stimulus money for road construction and job creation programs.
The proposal would freeze state hiring and employee pay, trim spending in several departments, privatize some prison services and make dozens of other changes to either cut or save nearly $1.4 billion. That would allow the state to take about $700 million from the federal Recovery Act, now expected to help fill general budget deficits, and spend it in other places. House Republican Leader Kevin Elsenheimer of Kewadin said the plan would balance Michigan's budget without tax or fee increases.
http://www.lansingstatejournal.com/article/20090723/NEWS04/907230343/1005/NEWS04/House-GOP-plan-calls-for-big-cuts--bumps-road-funds
Meanwhile, Republicans who control the state Senate have voted for spending cuts of more than $1 billion, including the elimination of the $140 million scholarship program and a $110 per student funding reduction for Michigan's K-12 schools. But many of the Democrats who run the state House don't want to cut nearly that much.
Governor Granholm Democratic governor has proposed cuts to tax revenue sharing payments that help local governments pay for police, fire departments and other services. But she won't support even deeper cuts passed by the Republican-led Senate. She also has supported scaling back some tax incentives or closing what she calls "loopholes" for "special interests" as revenue enhancers. She has not, however, released her list of just which of the estimated $36 billion “tax expenditures”, also known as “silent spending”, she would eliminate or scale back.
Also, much of the upcoming budget hole could be filled with money from the federal stimulus package. But cuts still would have to be made in the next fiscal year, so avoiding the pain this year will again involve “kicking the can down the road” another year.
http://www.lansingstatejournal.com/article/20090718/NEWS04/907180322/1005/NEWS04/Gov.-disputes--dangerous-cuts-
What is clear is that no one wants to touch tax increases or to address the long term structural budget deficit the state faces. Unless addressed this year, this will likely need to wait until 2011 with a new Governor and a new legislature, as few legislators will have the stomach for the fight in the 2010 election year. A good primer on the subject, however, can be found at SPECIAL REPORT: Michigan's tax reform playbook by The Center for Michigan, August 6, 2009.
Comments?
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