Legislative Report July 2023
This week the Michigan Legislature completed work on the Fiscal Year 2023-4 state budget. This process began in February when Governor Whitmer issued her budget proposal, and ended on June 28 when the House and Senate sent their final budget bills to the Governor for her approval. The Governor has two weeks to issue line-item vetoes if there is funding that she opposes. However, because this year the House and Senate are led by Governor’s political party, it is not expected that many line-item vetoes will occur – if any.
This week, the House and Senate also passed a series of bills undoing several anti-public worker bills enacted a decade ago under former Governor Snyder. Among these is House Bill 4044 which will repeal a law that greatly hampers public employee collective bargaining rights. These bills are expected to be signed by the Governor and will take effect in early 2024.
After completing the budget, the Legislature plans to recess for July and August and return to full session in September. See below for more details on the final budget and other issues impacting state workers.
FY 23-4 Budget Includes Funding Increases for Most State Departments
With a large budget surplus going into the next fiscal year, it was no surprise that the Michigan Legislature increased state funding for state and local governments in several areas. While some funds were sent to the Rainy Day Fund to prepare for possible future budget shortfalls ($100 million); and additional funds were also used to pay down pension debts in state operated retirement systems (nearly $1 billion), the bulk of the state budget surplus and remaining federal funds from the American Rescue Project Act were allocated to support state programs and local programs.
Much of the new funding comes via new one-time grants for specific projects or programs. In addition, the overall numbers are skewed due to the elimination of several one-time appropriations from the current budget year. However, most departments will see an increase in their operating budgets which is best reflected not in their overall appropriation, but rather in their increase or decrease in FTEs. Below are highlights for several departments:
Agriculture and Rural Development: Increase of 13 FTEs
Attorney General: Increase of 62 FTEs, 27 of which are in the Consumer Protection Case Support Unit
Civil Rights: Increase of 51 FTEs, 34 of which are in the Complaint, Investigation and Enforcement Unit
Corrections: Reduction of 427 FTEs stemming from the closure of the Michigan Reformatory and the south side of Gus Harrison Correctional Facility; increase of 119 FTEs across remainder of department
Department of Education: Increase of 13 FTEs
Environment, Great Lakes and Energy: Increase of 100 FTEs, 44 of which will be new permitting staff
Health and Human Services: Increase of 171 FTEs
Insurance and Financial Services: Increase of 4 FTEs
Judiciary: Increase of 61 FTEs
Labor and Economic Opportunity: Increase of 55 FTEs
Licensing and Regulatory Affairs: Increase of 14 FTEs
Military and Veterans Affairs: Reduction of 22 FTEs due to reduced staffing needs at Grand Rapids Veterans Home; Increase of 19 FTEs elsewhere in department
Natural Resources: Increase of 136 FTEs
State: Increase of 33 FTEs
State Police: Increase of 75 FTEs
Technology, Management and Budget: Increase of 53 FTEs
Transportation: Increase of 168 FTEs
Treasury: Increase of 35 FTEs
Legislature Votes to Repeal Anti-Worker Laws
In 2012, in addition to passing a law making Michigan a Right to Work state, several amendments were also passed to the Public Employee Relations Act designed at reducing wages and benefits for public employees. While state workers are governed by the Civil Service Commission and Civil Service Rules, and supervisory personnel do not have collective bargaining rights, MAGE members are nonetheless indirectly impacted by efforts to reduce collective bargaining power of public employees. On June 28, the Legislature completed work on reversing a portion of these anti-public employee laws.
Of key interest is House Bill 4044, sponsored by Representative Matt Koleszar (D-Plymouth), which repeals a law that disallows pay increases for unionized public employees during times when a contract has expired. By allowing public employers to simply wait out public sector unions by allowing contracts to expire, workers are subject to massive pressure to cave to management’s demands. Passage of HB 4044 will restore balance to public sector collective bargaining rights. We hope that gains made by unionized state workers due to this change will also be reflected in compensation for supervisory personnel.
Still to come are more efforts to undo anti-pubic worker laws passed over the past decade. These include a repeal of the so-called “80/20” law that mandates public employees must pay at least 20% of their health care costs regardless of other concessions they may have made. We expect the Legislature to take up more legislation along these lines when they return to session in September.
Discussions Underway to Address State Employee Retirement Options
In 1996, the Michigan Legislature voted to close the Michigan State Employees Retirement System for future state workers. MSERS was a Defined Benefit pension system that provided a guaranteed income to state retirees based on their years of service and final compensation. Starting in March of 1997, newly hired state workers were placed into a Defined Contribution system that provides more flexibility but does not guarantee any retirement income.
Over the last 26 years since MSERS was closed, nearly all active employees in the old system have retired. During that time, the system went from being over 100% funded in 1997 to being approximately 65% funded today. The state is not only paying a higher percentage of payroll to members of the Defined Contribution plan than they had been to MSERS members in 1996, the state also has to pay for the unfunded liabilities that have accumulated since MSERS was closed. Moreover, the retirement benefit for those in the defined contribution plan is significantly poorer on average than the benefit received under MSERS.
Due to all of these factors, various state employee unions have been exploring options to reopen MSERS to current and future state employees. Studies show that not only is MSERS a more robust retirement benefit for members, it is also less expensive to the state provided the unfunded liability is addressed. Because the state must pay for the current pension even if current employees remain in the defined contribution system, it can be argued that a better option would be to restore MSERS which is less expensive to the state and provides a more secure retirement benefit.
Some efforts to allow certain state workers access to a defined benefit plan are already being discussed in the Michigan Legislature. Bills that would allow corrections officers, conservation officers and capitol security officers to enroll in the State Police Retirement System received a hearing in the Senate Labor Committee in May. Those bills have yet to move forward, but momentum is beginning to build to allow state workers an opportunity to access a traditional pension program rather than the 401(k)-style program they have been offered since 1997.