Great Lakes Wire

School employees would no longer have to pay 3 percent of their paychecks to cover their retiree health care benefits under legislation the Senate approved Thursday, as the Legislature began movement on a linchpin to the Fiscal Year (FY) 2025 budget discussion.

Originally slated to move in the House Thursday, key reform dealing with the Michigan Public School Employees’ Retirement System (MPSERS) was voted on in the Senate Thursday afternoon, after the House struggled to marshal the support needed to move it.

The change comes after Gov. Gretchen Whitmer announced earlier this year that the school retiree health care fund was more than 100 percent funded. The state no longer needed to fund it at the same level. She wanted the $670 million that would have been spent on retiree health care steered to other education priorities. Republicans wanted it shifted to the teacher pension system, which is still $29.7 billion in debt.

The House and Senate Democrats, at least, agree that teachers hired before 2012 should no longer pay 3 percent of their paychecks to the fund, a requirement the legislature put into effect more than 10 years ago to stabilize the fund.

Logistically, SB 911 needed to pass one chamber Thursday to satisfy the constitutional five-day rule that a bill must sit in a chamber five days before it can be voted on. The Legislature wants to pass next year’s state budget before going on summer recess June 27.

Figuring out where this $670 million is going is a major part of negotiations between legislative leaders and the governor’s office.

A state law passed by Gov. Rick Snyder's administration requires that Michigan spend more on MPSERS than it did the previous year until the unfunded liability is completely paid for. SB 911 would eliminate that floor provision for the retiree health care piece of MPSERS.

SB 911 passed by a party-line vote of 20-17.

“What we found over the last six months was that the OPEB option of the teacher retirement system is over-funded,” said Sen. Darrin Camilleri (D-Trenton), chair of the Senate PreK-12 Appropriations Subcommittee. “That new money is now being realized in a way that would allow us to inject it back into the classroom to directly support students. If we did nothing, we would not be able to utilize that $670 million this year.”

Both Gov. Whitmer and Senate Democrats originally proposed School Aid budgets that freed up MPSERS money for other types of education spending. Meanwhile, House Republicans' budget would decrease traditional school districts’ MPSERS obligations from 20.96 percent of their payroll expenses to 18 percent, with plans for further reductions annually until they reach zero.

Outside Capitol discussions, groups like the Michigan Education Association, Michigan Association of School Boards, and K-12 Alliance of Michigan want legislators to reduce school districts’ payroll contributions by 7.06 percent, eliminate employees' paycheck obligation and maintain current state MPSERS payment structures including OBEP provisions.

Traditional school districts – excluding charter schools – must currently deposit nearly $21 into MPSERS for every $100 spent on an employee’s payroll.

After an afternoon floor substitute, SB 911 does not alter what districts need to pay; however, Camilleri expressed hope that education groups “have faith in the ongoing budget process.”

“We’ll be in a position to deliver on a significant – and again, historic – amount of money going directly back into classrooms,” he said.

Camilleri confirmed Senate Democrats will not need immediate effect support from Republicans for unlocking funds since appropriations or policy changes cannot be implemented until 90 days after lawmakers adjourn unless immediate effect is granted by at least six Republican senators due to current Senate composition.

“The way funding works...the dollars will not get realized until after [the] budget takes effect regardless if immediate effect is granted,” Camilleri stated.

On opposing sides within Senate chambers were Senate Minority Leader Aric Nesbitt (R-Lawton) who argued against SB 911 stating fiscal irresponsibility could not be overstated while Senate Majority Leader Winnie Brinks (D-Grand Rapids) described such remarks as “political theater” asserting SB 911 actually reallocates funds beneficially within schools providing raises for teachers.

Senator Thomas Albert (R-Lowell), vocal opponent against SB 911 reiterated concerns regarding overall debt division labeling it artificial division misleading actual debt status pointing out continued long-term liabilities yet unresolved emphasizing reluctance towards altering state's own responsibilities towards MPSERS obligations.