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To: AFT
Michigan Ad Board
From: Ellen Hoekstra and Stephanie Johnson Wuttke
Re: Update on Pension and Higher Ed Issues
Date: January 28, 2007
Budget Update
Revenues and the budget were the legislature’s major issue last year and are likely to remain in the forefront this year as well Michigan finished its 2006-7 fiscal year with a general fund balance of $259.1 million and $60.7 million in the school aid fund (for a total of $353.1 million), state budget officials expect that the state should be able to get through the 2007-8 fiscal year without major budget changes. The surplus was attributed to revenues coming in higher than anticipated, and lower DHS and DCH caseloads—and, in the case of school aid, fewer pupils. The House Fiscal Agency, as of January 20, was projecting after adjustments, an ending balance of $214.9 million in the general fund and $60.7 million in the school aid fund.
Business groups are already decrying the fact that there was a 2006-7 surplus at all and claiming that the new Michigan Business Tax will more than replace the revenue that the SBT would have raised. They are continuing to lobby for numerous specific changes in the MBT and elsewhere that benefit their members but reduce revenues. One specific issue to keep an eye on is what happens with Cobo Hall, with supporters of some expansion proposals asking for Cobo to be a “tax free zone.” We would point out that if Detroit’s convention center is allowed to be a tax free zone, other convention facilities around the state will ask for similar treatment, and probably get it, resulting in a loss of revenue around the state.
Year End and Year Beginning
With the dread sales tax on services repealed and replaced, the legislature left Lansing in late December for what little was left of 2007, having adjourned sine die, the ceremonial end to the legislative year. They are constitutionally required to return on January 9, 2008, but business did not begin in earnest until the week of January 21. The Governor plans to give her annual State of the State address on January 29, which will largely set the tone of budget and policy discussions for next year. It will be broadcast at 7:00 p.m. on all public broadcasting stations. The Governor’s new budget will be presented on
February 7 at a meeting of the joint appropriations committees at the State Capitol.
School Employee Pension Issues
· MPSERS health care changes:
The MPSERS Board approved a number of health care changes before the end of 2007. Although a number of the changes that were approved were consistent with those proposed by AFT-Michigan, two of the most important changes we recommended were not made, despite efforts by John Olekszyk to amend the proposals. The two provisions that we wanted changed were: including hospitalization in the co-insurance and moving fairly immediately from a co-insurance of $500 for a single member and $750 for a family to $500 to each member and his or her dependent. We were successful in adding requirements to inform members of drug interchanges in advance, assuring members that persons involved in monitoring members’ medication usage are health professionals recognized under the Public Health Code, and reminding members of their rights to appeal.
· Prefunding/lottery
The new House Committee on Retiree Health Care Reforms has shown a great deal of interest in the concept of returning to prefunding school retiree health care. We do not think, however, that the concept of using Lottery proceeds to do so has very much traction.
· Restoring MPSERS obligations
Representative Alma Wheeler Smith (D-Ypsilanti) is spearheading an effort to restore the majority of MPSERS obligations to the State of Michigan, rather than forcing local districts and community colleges to assume these costs. This would be very helpful in reducing the pressure from the educational management sector to lessen retiree benefits. She has set up a work group meeting on this issue for early February.
· Divestment bills
A large package of bills that speak to divestiture of public pension funds from five different countries has passed the Senate. The principal bill is SB 846, Senator Cameron Brown, (R-Fawn River Township), which along with companion legislation, together make up the “Divestment from Terror Act.” These bills are tie-barred to two bills that have passed the House (HB 4854 and 4903) and deal only with divestiture from Sudan and Iran. It is entirely possible that once the House-passed bills pass the Senate, the House will attempt to remove any linkage among these bills and send their bills to the Governor. Divestiture from Sudan and Iran is far less costly to pension funds than divestiture from these additional countries would be, largely because there are pre-existing networks that can identify companies involved in them for the Sudan and Iran.
· Senate Hearings
The Senate Appropriations Retirement Subcommittee is beginning hearings this week on all the state-operated pension systems. They are beginning with the SERS (State Employees Retirement System). We will be monitoring these hearings closely.
Higher Education Issues
· FACE legislation available in draft form
Representative Alma Wheeler Smith (D-Ypsilanti) has agreed to sponsor the FACE legislation for AFT Michigan. At her request, two bill drafts have been prepared by the Legislative Service Bureau for our review and comment.
· Joint subcommittee hearings on data
The House and Senate Appropriations Subcommittees on Community Colleges and Higher Education are having joint hearings on data collection. The goal of Rep. Pam Byrnes (D-Chelsea), who is leading this effort, is to update the data showing student success. For example, current data does not reflect students who complete two years at a community college and then go to a university and complete a degree. These students are not shown as having successfully completed their work at a community college nor as having graduated from the four year institution. Furthermore, students who take more than 50% of the “normal” time to graduate are not reflected in the data. Thus, many students who may be employed full time and attend a community college or university are not “counted” as having graduated. At the most recent hearing, legislators heard presentations from fiscal analysts on data currently available and from the Executive Director of CEPI. These data sources and the CEPI are hyperlinked below for your reading enjoyment.
· Higher Ed Endowments in the Spotlight
At the federal level, some legislators are taking issue with higher ed institutions, including community colleges, experiencing double digit increases in their endowments while raising tuition. Under discussion have been the ideas of imposing spending requirements (e.g., increasing financial aid) or taxing endowments for schools that raise tuition over a certain amount. The University of Michigan’s $7.1 billion endowment, the eights largest in the nation, increased by 25% in 2006-7. We will be watching for similar activity at the state level. (Lansing State Journal article ,the chart is attached.)