Most of the budget bills have passed the legislature and have been signed by the Governor, including the Corrections budget. This year’s budget bill contains a section of boilerplate, Sec. 607, which states:

Thus, the language suggests that the Department of Corrections submit a study to the legislature by next March concerning whether or not Parole and Probation Agent Supervisors are too busy to take on parole or probation caseloads themselves. However, the study merely specifies that the Department look into this as a possibility, and does not suggest any other parameters such as how large of a caseload a Supervisor should be responsible for in addition to his or her current duties.

This has been viewed as being in conflict with existing collective bargaining agreements. In addition, it is believed that supervisors have already been assigned duties above and beyond what their normal duties may be. Those two factors should most likely be a part of any study.

One of the most ambitious ballot proposals in recent history is making major waves. Called the "Reform Michigan Government Now!" campaign, proponents have submitted over 400,000 signatures to the Secretary of State in an effort to get the issue on the November ballot. This massive proposal makes almost three dozen changes to Michigan’s Constitution; however, it leaves Civil Service workers and other State workers unharmed (and in fact brings Executive Branch retirement more in-line with the system designed for State workers).

The portions of the proposal getting the most attention are the areas which reduce the size and salary of the Michigan Legislative, Judicial and Executive branches. If passed, the proposal would cut the Michigan House from 110 to 82 members; the Michigan Senate from 38 to 28 members; the Michigan Supreme Court from 7 to 5 members; and the Michigan Court of Appeals from 28 to 20 members. It would also significantly reduce the pay scales of all state elected officials.

Other reforms include:

Allows "no-reason" absentee voting

Prohibits illegal aliens from registering to vote

Requires a paper trail for Michigan voting systems

Bans state and local election officials overseeing an election from giving support to candidates in that election

Prohibits mid-decade redistricting (can only be done once every ten years)

Forbids legislators from lobbying for two years after leaving office

Requires legislators, judges, executive elected officials and department heads to disclose outside earned income

Mandates that legislative committees give notice of all items that will be voted on

Ensures that elected official pension and health care benefits will not exceed those of retired civil service employees

Caps the number of state executive departments at 18 and the number of boards and commissions at 200

Adds ten Circuit Court seats to deal with caseload adjustments from reduction in higher courts

Understandably, reactions to the proposal from current legislators and judges are mostly voiced in opposition. Even those not losing their seats over the change face pay cuts ranging from 15% to 25%. More interesting is the opposition from the business community which has attacked the proposal as an effort to allow Governor Granholm to pack the courts with more "liberal judges."

Although the reform effort is large, it would be the first serious reduction in government that doesn’t instead simply cut more State workers. However, the Michigan Court of Appeals (who stands to lose some judges), ruled on August 20 that the reforms in the proposal are too sweeping to warrant a ballot initiative and instead should be undertaken in a Constitutional Convention, which Michigan has not done since the Mid-1960s. Proponents of the initiative plan to appeal to the State Supreme Court, but the chances that the Supreme Court will overturn the Appellate Court’s decision are slim. This means that this initiative, despite having gathered the appropriate amount of signatures, may not appear on the ballot in November.

The Primary elections are over, paving the way for some hotly-contested races in November. The only big surprise was incumbent Democratic Representative Ted Hammon’s (D – Burton) loss to challenger Jim Slezak.

In terms of the General Election, some of the most competitive races will include:

District 1: Republican Mary Lang, a CPA, will face Tim Bledsoe, a Wayne State University professor. Bledsoe ran against outgoing Rep. Ed Gaffney and lost by a mere 6%.

District 19: Republican John Walsh, VP of Schoolcraft College, is challenging Democrat Steve King, a Livonia school board member. The seat is being vacated by Rep. John Pastor, and the Democrats are looking to steal this seat from Republican hands.

District 20: Two years ago, Rep. Marc Corriveau (D – Northville) won this seat against all odds and with no support from the Democratic Party, which had written the seat off. The Republicans want the seat back and are running former State Rep Jerry Vorva against Corriveau in one of the most anticipated races of November.

District 21: Son of term-limited Republican State Rep. Phil LaJoy, Todd LaJoy, will face Diane Slavens in November in a seat the Democrats wish to take from Republican hands, as it is seen as a marginal Republican seat.

District 23: Democrat Deb Kennedy, a local school board member, narrowly beat Gibraltar Mayor Jim Beaubien in the Democratic Primary. She will face Republican attorney Neil DeBlois in the seat being vacated by Rep. Kathleen Law (D – Gibraltar).

District 24: Son of term-limited Republican Rep. Jack Brandenburg (R – Harrison Twp.), Bryan Brandenburg, is being challenged by Democratic Macomb County Commissioner Sarah Roberts. The Republicans feel the seat is safe, but the Democrats, with help from billionaire John Stryker, feel they can win the seat, given that Sarah’s voter outreach won the day for her in a very crowded Democratic primary.

District 25: Rep. Steve Bieda (D – Warren) is vacating his seat, and Democratic candidate John Switalski, nephew of Senator Mickey Switalski, faces former Warren police officer Michael Wiecek in November. The Republicans are watching this seat, which is considered only marginally Democratic.

District 37: In what is considered to be one of the most hotly-contested races, Republican Paul Welday, a political consultant, will do battle with former Democratic Farmington Hills Mayor Vicki Barnett. The seat is currently held by Aldo Vagnozzi (D – Farmington Hills), who took the seat from Republican hands six years ago in what is considered a relatively safe Republican seat.

District 39: State Rep. Dave Law (R – Commerce Twp.) vacated this seat one term early to run for Oakland County Prosecutor (he won his Primary on Tuesday). Last term, he won an extremely narrow victory, less than 100 votes, against Democratic challenger Lisa Brown. Lisa Brown is back again after winning her primary to face former school board member and Senate caucus staffer Amy Peterman in November. The Democrats feel as if they can take the seat, which republicans have held by very slim majorities in the past.

District 51: Rep. Dave Robertson (R – Grand Blanc) is term-limited, and Democrat Michael Thorp, a journalist, will face Republican Paul Scott, a local attorney. The Democrats tried unsuccessfully to unseat Robertson last term and will try again now that the seat is vacated.

District 56: Freshman Rep. Kate Ebli (D – Monroe) will face Republican JeanMarie Dahm in November. Ebli narrowly won the seat from former Republican hands, who of course would like the seat back. Her race was one of the most contested last term and will be again.

District 62: Rep. Mike Nofs (R – Battle Creek) is term-limited, and his open seat is being fought over by Democratic Calhoun County Commissioner Kate Segal and Republican Nofs staffer Greg Moore. The Democrats will pay special attention to this seat to put it back into their hands, and will certainly make issue over the fact that while Moore provides a local address, he may not actually live there.

District 65: Rep. Mike Simpson (D – Liberty Twp.) took this seat from former Republican Rep. Leslie Mortimer. He will face Blackman Twp. Supervisor Ray Snell in a seat the Republicans will try very hard to win back.

District 91: Rep. Mary Valentine (D – Muskegon) took the seat from Republican Rep. Dave Farhat. Holly Hughes, a Republican National Committeewoman, will mount a very well-funded campaign in this Republican-leaning district.

District 106: Term-limited Rep. Matt Gillard (D – Alpena) leaves his seat up to Republican Presque Isle Twp. Supervisor Peter Pettalia and Democratic former State Rep. Andy Neumann. Neumann formerly represented the area but left one term early to try for the Senate seat now occupied by Senator Tony Stamas (R – Midland), but has worked in Lansing for the past 6 years. This will be an issue as the campaign moves forward.

These races will determine the disposition of the House of Representatives starting in January 2009. Conventional wisdom currently around the Capitol is that though a few seats may change back and forth, the House Democrats will maintain their 58 – 52 majority. Of course, as November nears and Presidential candidates step-up their efforts, there could be many surprises.

As discussed in earlier editions of IMAGE, the "divestiture package" has moved through the legislature and was recently signed by the Governor. This package of bills is aimed at preventing the state from investing any money in companies that do business with countries that sponsor terrorism. The main bill in the package, SB 846 (Sen. Cameron Brown, R-Sturgis) was assigned the Public Act number 234. The other bills in the package include PA 232-239 and PA 256. This package was a bipartisan, bicameral package.

The bills which specifically relate to public pension funds were SB 846 (now PA 234) and HB’s 4854 (Rep. Alma Wheeler Smith, D -Ypsilanti, bill now PA 233) and 4903 (Rep. Marty Knollenberg, R-Troy, now PA 232). Public Act 234 creates a "Divestment from Terror Act" with respect to various state operated or state-linked funds requiring them to create a list of companies that do business with a "state sponsor of terror" and, within 9 months either sell, redeem, divest or withdraw 50% of its assets. Within 15 months, 100% of it is assets shall be removed. Fiduciaries will not be permitted to acquire securities of companies that have active business operations on its list, except for indirect holdings in actively managed investment funds.

Further, under this act, The Department of Treasury is required to post information regarding investments on its website. Treasury is also required to post progress in preventing new investments and replacing current investments in the companies in question. The two House bills amend the Public Employee Retirement System Investment Act (PA 314) to add divestment requirements specific to the Sudan and Iran commensurate with the requirements under PA 234. These new laws affect the School Employees Retirement Plan, Tier 1 of the State Employees and State Police plans, and the Legislative Retirement Plan.

This package of bills is effective August 4, 2008.

April 2008 -Legislative Update by Ellen Hoekstra and Noah Smith

Senate Moves Quickly on Budgets

The budget process is moving along at a rapid pace this year. This is a marked change from 2007 when the Legislature delayed until the end of October before finally passing the current year budget. As the Legislature prepares for a two-week spring recess at the end of March, there is pressure on Appropriations Committee chairs in both chambers to finish work on the first half of the budget process. Another positive change from the 2007 budget cycle is having at least some revenue to provide moderate increases, thanks to the revenue enhancements passed last year.

At this point, all Senate-originated budgets have been reported from their respective subcommittees to the full Senate Appropriations Committee. These budgets are Community Colleges, Community Health, Corrections, Education, Environmental Quality, Higher Education, Natural Resources, and School Aid. The full Senate Appropriations Committee has scheduled meetings to take up and report out all of these bills this week.

The House subcommittees have completed their work on the budgets for the Departments of Agriculture, and Labor and Economic Growth. The remainder of the budget bills, which include General Government, History, Arts and Libraries, Human Services, Judiciary, Michigan Strategic Fund, Military and Veterans Affairs, State Police, and Transportation are expected to be completed in their respective subcommittees by the end of March. The full House Appropriations Committee has scheduled meetings in anticipation of receiving and acting upon these bills.

The Corrections budget will remain the most contentious again. For the first time since 1995, this budget is smaller than the previous year. It is, however, only $5.7 million less than the current-year budget. Some suggestions for reducing the Corrections budget are centered on longer-term savings from the creation of mental health courts and the Michigan Prison Reentry Initiative. However, there are still discussions around the closure of the Scott correctional facility and staff reductions at the "central office" that MAGE lobbyists are monitoring as they move through the Senate and to the House.

HB 5545—Progress in Negotiations

There has been some progress in negotiations on HB 5545 (Rep. Mark Meadows, D-East Lansing), thanks to constant communications from MAGE, the Michigan State AFL-CIO, and other state employee unions. On perhaps the most controversial issue in the bill, namely, which entity determines retiree health benefit changes, Representative Meadows has agreed not to remove the Civil Service Commission from the process. Instead, the bill will simply add the State Employee Retirement Board to the current two entities that now make these decisions, the Civil Service Commission and the Department of Management and Budget. Thus, for any changes to occur, all three would have to agree. This arrangement effectively retains the de facto role of collective bargaining by state employee unions.

Representative Meadows has also agreed to expand the SERS Board to make it more consistent with the make-up of the school employees’ retirement board, in terms of the representation of "non-employer" members. He has proposed adding two employee members; currently the Board has two retiree members and two employee members. It is our understanding that this change would be in separate legislation. However, none of the retiree health care reform "package" is set to move on the House floor until all the bills are out of committee, thus there is time for MAGE to continue to weigh-in on the issue.

One issue on which there was no change in HB 5545 was the issue of moving the administration of state retiree health benefits to the Office of Retirement Services from Civil Service. Rep. Meadows remains convinced that having a larger pool in ORS will be an asset in bidding for services.

115 Trusts—Potential for Pre-Funding?

Due in part to new General Accounting Standards Board (GASB) rule changes, the House created a new committee called "Retiree Health Care Reforms." These rule changes require all governmental retiree health plans to report their unfunded accrued liability and to do so in a way that is extremely conservative. For example, the assumptions include assuming that Medicare will be around for only one more year, despite this not actually being the case. These rules will then inflate the size of the liabilities, causing this debt to appear substantially larger than it would be under more typical actuarial assumptions. According to rating agencies, if governments do not take steps towards reducing these large liabilities, it could negatively affect their ability to bond. This could increase costs at every level of government in Michigan.

The House Retiree Health Care Reforms Committee is trying to set up a framework that would enable prefunding to begin. 115 Trusts are set up under the Internal Revenue Code to protect funds that have been set aside for funding of future retirees’ health care. Only governmental units may set them up. The committee is reviewing a draft of legislation to fund five trusts: SERS, MPSERS, JRS, SPRS, and LRS. Two major issues are whether in addition to setting up prefunding accounts, the legislation will also set up medical reimbursement accounts, and whether there are any mechanisms to begin actually putting funding in. MAGE will be actively involved in discussion on these.

Senate Subcommittee Holding Hearings

The Senate Appropriations Retirement Committee has begun holding hearings to gain background on all the various public retirement systems. This subcommittee has not met for many years. At this point, the subcommittee is at about the point the House Retiree Health Care Reforms Committee was last fall. Recently higher education groups testified in front of the subcommittee. MAGE lobbyists will be watching this committee closely, as there is always the potential for legislation to come from the discussion.

Recall Update

Although recall campaigns are technically still active against several Michigan House members, the word from the field is that the efforts in most areas have all but ceased. Successful legal challenges have temporarily stymied progress against Representatives Donigan (D-Royal Oak) and Simpson (D-Jackson County). Elsewhere, pro-recall supporters have had difficulty finding enough volunteers to gather the necessary signatures.

It appears that Macomb County Commissioner Leon Drolet, the major organizer of the recall attempts, is focusing efforts against House Speaker Andy Dillon (D-Redford). There have been rumors of signature collectors being paid up to $6 per signature in that district. In addition, recall tactics against Speaker Dillon have included door-to-door and mailing efforts, something that has not been seen elsewhere in the state.

Even if enough signatures are collected to place a recall on the ballot, it is no guarantee that the recall will succeed. However, with voter approval of the State Legislature at rock bottom, recall opponents are hoping that it never gets that far. However, with House elections coming this November, one wonders why a recall committee would potentially require a second series of elections in certain districts, which cost significant amounts of money, when their justification is based on a tax vote and the fact that the government already spends too much money.

2008 - A New Year - Legislative Report by Capitol Services

The legislature returned to business on January 9, 2008, as is constitutionally required. The Senate actually began business the week of January 14 and the House on the week of the 21^st. As last year, the legislative session will begin centered on the budget. The Governor will discuss it, along with her new spending and policy priorities, during her State of the State Address slated for January 29.

There is apparently a $350 million surplus in the state coffers right now, as the state closed the books on FY 06 - 07. Already, there has been talk of how to spend that money on programs and services cut from the budgets this year, as well as criticism that the Governor may have known about this surplus at the time the tax increase votes were being cast. However, the Department of Treasury is reporting a $200 million shortfall by the end of the budget year in October. Thus, the current wisdom is to use the money to plug the hole rather than spend it or return it as a tax cut as done in previous years.

According to the Senate Fiscal Agency, some of the surplus came from fiscal restraint exercised by state government departments, all of which spent less money than they'd been given for the fiscal year that ended Sept. 30. That saved $136 million, according to a report released by the Department of Management and Budget. Higher-than-expected revenue from the state income tax and the now-repealed Single Business Tax accounted for the other roughly $200 million.

However, the Senate Fiscal Agency is also projecting a $300 million shortfall for the 08 – 09 fiscal year, as welfare caseloads increase and spending outpaces lower-than-projected revenues.

Of note, 43 of Michigan’s 110 Representatives are facing term limits, and one additional seat will be vacated as Representative David Law (R – Commerce Twp.) leaves to run for Oakland County Prosecutor. The Presidential election and the overwhelming success of one of the parties at the "top" of the ballot will certainly have an overall effect on the rest of the ballot, especially on emotionally-charged ballot initiatives, discussed below.

Part Time Legislature, Universal Health Care and Tax Referendum Petitions Approved

The Board of State Canvassers (BSC) unanimously approved ballot question petitions that would allow organizers pushing constitutional measures for a part-time legislature, universal health care and a statewide vote on tax issues to go forward.

The tax repeal would require there to be an election if the Legislature creates a new tax, reduces a tax deduction or tax credit, or increases an existing tax. Elections would be held in February. If voters rejected the tax, it would be repealed at the end of the fiscal year. The limit on taxation could exacerbate the state’s budget problems, with the potential for negative impact on state employees and services for citizens.

The health care proposal would create a system based loosely on the Massachusetts health care system passed by Governor Mitt Romney. It would essentially add that health care is a "right" in Michigan’s constitution, leaving the details on how to provide some sort of universal health care, and how to pay for it, to the legislature.

The part-time legislature initiative would limit legislator salaries, eliminate health benefits, pensions, retirement benefits and session would run from March to July 1. Special sessions would be limited to 20 days per year.

The organizers will need to collect at least 380,000 valid signatures to place the measures on the ballot.

Senate Moves Divestiture Legislation

On Thursday, January 17, the Senate passed a series of 11 bills aimed at preventing the state from investing any money in companies that do business with countries that sponsor terrorism. This includes a number of public entities in Michigan, including the state operated retirement programs. This "list" of such countries is defined by the U.S. State Department and include Iran, Sudan, Syria, North Korea and Cuba.

Any investment found with such companies would have to be divested within 15 months. The Department of Treasury would be required to collect and publish information about such investments. Additionally, a provision was added to exempt public fiduciaries from any other legal requirements that would conflict with the requirement to divest such funds. Local pension plans are excluded.

SB 846 – 856 each passed the Senate unanimously and were sent to the House Government Operations Committee chaired by Rep. Lisa Wojno (D – Warren). As reported in the August 2007 IMAGE, two bills were sent to the Senate from the House, but were not considered as part of the divestiture package: HB 4854 (Rep. Alma Smith, D – Ypsilanti ), which passed the House by a 103-to-2 margin, and HB 4903 (Marty Knollenberg, R – Troy), which passed 104 – 2. These bills are tie-barred to the Senate package and are currently in the Senate Appropriations Committee.

HB 4854 would require a state retirement system to sell, redeem, divest, or withdraw all publicly traded securities of a company actively involved with the Sudan. 50 percent of its assets under management are to be divested within nine months and 100 percent of its assets under management are to be divested within 15 months.

HB 4903 prohibits a public retirement system from making new investments or failing to divest funds with companies located with or having interest in a "state sponsor of terrorism." These "state sponsors of terrorism" are defined to include Iran, North Korea, Sudan and Syria, though the final House-passed version of the bill limited it to Iran.. It includes a 5-year ramp up for divestiture of those funds.

Maxey Training Facility Downsizing

Legislation may soon be introduced regarding early retirement for any employee affected by the recent downsizing of the Maxey Training facility due to last year’s budget crisis. Senator Martha Scott (D – Highland Park) is working on a draft piece of legislation that may allow employees affected by the downsizing to be considered "covered employees" like corrections officers. Senator Scott is also considering allowing employees who are laid-off to retire early without the usual penalty.

The Granholm Administration has made statements that there will not be any layoffs and not be any money lost otherwise due to any employees because Maxey has been downsized. All employees, thus, are to be placed somewhere. It will still be important, however, for MAGE to provide input and support on Senator Scott’s proposal when it is finally available. MAGE will receive an advance copy of the draft bill and will be instrumental in the discussions regarding how to protect its members.

Out of State Company Awarded Bid

Recently, an Ohio-based company was awarded a bid to destroy sensitive documents over a Michigan-based company which actually bid lower. Representative Rick Jones (R – Oneida Twp.) introduced an amendment to a bill up for a vote on Wednesday, January 16, which would require the state to choose Michigan-based businesses if their bids and equal to or lower than of-of-state companies. The amendment was added to HB 4560 (Rep. Ted Hammon, D – Burton), which allows small Michigan-based businesses to participate in the state’s bulk purchasing program for nonprofit entities.

Though the Ohio company was actually awarded the contract because of how it proposed to dispose of the waste versus the Michigan-based company, the amendment – and the bill – won strong bipartisan support. The amended HB 4560 was sent to the Senate 76 – 30. The Michigan Department of Management and Budget expressed support for the amended version of the bill, saying that it is consistent with the Governor’s Buy Michigan First initiative. According to the DMB, more than 92% of contracts are awarded to Michigan firms.

Revenues and the budget remain a major issue before the legislature, even as departmental directors are working on their budget proposals for the 2008-2009 budget year to be presented by the Governor in February of 2008. On November 28, the legislature went into an evening session, attempting to eliminate the expanded sales tax on business so unpopular with the business community that is scheduled to take effect at midnight December 1, 2007.

The House version of HB 5408 included a surcharge of 32.9% in the first year, with a cap of $2 million on the total amount of tax. The Senate passed the bill with several changes: a surcharge below 14 percent, a cap of $7.5 million, and a January 1, 2011 sunset on the tax, with a longer term reduction in business taxes. Estimates were that the Senate version would have reduced state revenues by $40 million, causing the measure to draw opposition from human service groups. The version that finally passed included a 22.9% surcharge, a 2017 sunset, a $7.5 million cap, and a tax amnesty provision for any business who, because of the confusion and delay in passing the newest "fix," was liable for collecting the extended sales tax on services for the one day it existed.

The Governor indicated throughout discussions on the issue of the service tax that she would not sign a bill that fell short of the tax revenue it was supposed to raise. Ultimately, the service tax repeal and replacement legislation met the Governor’s criteria.

Fiscal analysts are again projecting a deficit some time by May of 2008 some half a billion dollars, but business organizations predict the Michigan Business Tax and surcharge will raise more than anticipated.

With that, the legislature has left Lansing for the rest of the year, having adjourned sine die, or, without a day, which is a ceremonial end to the legislative year. They are constitutionally required to return on January 9, 2008, but business will 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 at least the budget discussions for next year. 2008 also brings a House election where more than 40 State Representatives are facing term limits, the contentious Michigan Presidential Primary and an as-of-yet uncertain budget.

The State Civil Service Commission passed rule 6-16 by a vote of 3 - 1, which would allow state employees to opt to donate to political action committees directly from their paychecks (payroll deduction). This would level the playing field and allow state employees to take advantage of payroll deduction like other pubic employees (school and county employees) and private sector employees.

This rule change was opposed by the Michigan Chamber of Commerce and has been challenged by the Attorney General’s office as unconstitutional. The State Civil Service Commission argued that it is indeed granted constitutional authority to create programs like this. It is almost certain that this rule change will be challenged in the courts by the Attorney General’s office and thus will not take effect immediately.

State Representative Fred Miller (D – Mount Clemens) has introduced HB 4628 which amends the campaign finance act. HB 4628 includes several changes to the act, and included in those changes is a provision to allow public sector payroll deduction so long as the unions reimburse the state for costs associated with administering the program. The bill has passed the House and is in the Senate Committee on Campaign and Election Oversight, chaired by Senator Michelle McManus (R – Lake Leelanau).

On December 13, the House Retiree Health Care Reforms Committee reported out two bills that seek to transfer the administration and authorization of state employee and judges retiree health benefits from Civil Service to the Office of Retirement Services. House Bills 5545 and 5546, sponsored by Representative Mark Meadows (D-East Lansing) and Brian Calley (R-Portland), would place the responsibility for selecting, authorizing and administering group retiree health insurance plans for state employee and judicial retirees into the Office of Retirement Services. ORS already performs this function for the Michigan Public School Employees Retirement System (MPSERS).

MAGE indicated its opposition to the bills, citing concerns as to how the change would affect retiree health benefits. Currently, health benefits for state employee retirees are tied closely to those received by active employees that are collectively bargained. Other groups opposing the bills included the Michigan AFL-CIO, the United Auto Workers, the Service Employees International Union, the Retirement Coordinating Council and AFSCME Council 25.

Representative Meadows, who chairs the committee, promised to work with concerned organizations to address these concerns before the bills pass the House. The bills were reported from the committee unanimously, and will await further action on the House floor.

In a long overdue case of "what’s good for the goose…" the Legislature voted in December to implement a graded scale premium for legislative retiree health benefits. The new system will affect those who were first elected as a State Representative, State Senator, Governor or Lt. Governor after January 1, 2008. Such individuals would receive 30% of their retiree health care insurance premiums after 10 years of service, and 3% per each additional year of service.

The two-bill package – Senate Bills 868 and 869 – was enrolled by the Legislature and is awaiting the Governor’s signature.

The question of how to deal with the unfunded accrued liability in public employee retiree health benefits has received a great deal of attention in the legislature over the past two years. Last year, the Governor vetoed legislation seeking to allow local units of government to issue bonds to pay these costs. Representative Jim Marleau (R-Lake Orion) is spearheading another attempt this year.

House Bill 4451 would allow qualified counties, cities, villages and townships to cover the unfunded accrued liability of their retiree health care costs with municipal bonds. This method of paying for health care costs became even more important due to new governmental accounting standards that require governments to account annually for their retiree health care liabilities.

Although the bill is aimed at local governments, the state employee and school employee retirement systems may also be examining this mechanism to deal with their own unfunded accrued liability issues. HB 4451 was reported from the House Retiree Health Care Reform Committee and is awaiting action on the House floor.

State Representative Fred Miller (D – Mount Clemens) has introduced HB 4443, which prohibits any entity receiving state funds from spending those funds on anything but their intended purpose, including activities that discourage unionization.

The bill has had two hearings in the House Labor Committee, chaired by Rep. Miller. Work is expected to continue when the legislature reconvenes in January.

October  - November 2007 Legislative Report – by Capitol Services

State Shutdown Reversed; Controversial Budget Solution Enacted

The much-feared state shutdown lasted all of four hours as the legislature worked nearly 40 hours from Saturday afternoon until about 4:00 in the morning Monday, October 1. First and foremost, the legislature passed continuation budget bills which allow 30 more days to negotiate on the FY 08 budget. Most of the FY 08 budget bills are in their respective conference committees and were simply awaiting the final figures for what this fiscal year's revenues will look like. With the passage of all of the pieces of the deal on October 1, they can now set their targets. Action is anticipated to begin the week of October 8.

The legislature voted 57 to 52 to increase the income tax from 3.9% to 4.35%. The increase will raise about $765 million. It will begin to roll back in 2011 and be back to its pre-passage level of $3.9% by 2015. The vote was not strictly along party lines, as a tax increase vote is politically risky for both parties. In the end, a few members of the Democratic majority in the House of Representatives voted no on the increase, and worked with the Republican minority to garner three of their votes for the bill to pass.

More controversial than the income tax increase was the extension of the 6% sales tax to other goods and services not currently taxed. As it was understood that this was going to be part of the state’s overall budget solution, business groups lobbied en masse to prevent the measure or to at least write their industry out of the legislation. The State Chamber of Commerce, the Small Business Association of Michigan and the National Federation of Independent Businesses have all vowed to work to repeal the sales tax extension, whether by legislative effort or ballot initiative. Again, this was a close vote. More controversial was the final vote for immediate effect, which allows a law to become effective the moment it is signed. It was important for this legislation to have immediate effect so the state could begin collecting the revenue right away. The Senate held its vote open for nearly two hours as Republican and Democrats haggled over which politically "vulnerable" members of their respective caucuses would cast the deciding votes. Finally, at around 4:00 in the morning on October 1, the final vote was cast and the shutdown was averted.

The 6% sales tax bill will raise about $411 million for the general fund and $200 million for the school aid fund. The new services that will be taxed include, among a long list of services: Carpet and upholstery cleaning; Janitorial; Landscaping (but not lawn mowing); Packaging and labeling; Personal care (but not hair care); Skiing (but not golf); Transit and ground passenger transport; Travel and reservations; Astrology, fortune-telling, numerology, palm reading, psychic and phrenology; Baby shoe bronzing; Balloon-o-grams and singing telegrams; Coin operated blood pressure machines, personal machines, rental locker, and photographic machines; Pay telephones; Personal fitness trainers; Shoe Shiners.

The bulk of the money raised by the tax, about $188 million, is anticipated to come in through applying the sales tax to consulting services, including management consulting and public relations services. Lobbying services, however, are still not taxed.

Finally, the Senate and House agreed to cut about $400 million from some state services, though details must still be worked out. This is more than the House wanted but about half of what the Senate wanted. Most departments are being told they will have to cut their budgets by 2.5%. The Department of Human Services will see a cut of about $80 million, the Department of Corrections $55.6 million and the Department of Community Health $52.5 million.

Returning to Work After Retirement

The Governor has signed HB 4800 (Rep. Lorence Wenke, R-Kalamazoo) into law as PA 95 of 2007. Under this legislation, state retirees who return to work for the State of Michigan in either a direct or indirect fashion would have their pensions suspended during their period of re-employment. While this provision will not affect retirees currently re-employed by the state, it will certainly limit the number of retirees in the future who wish to do so. Ironically, this provision was referred to as the "double dipping" bill, as though the state employees returning to work were receiving two pensions rather than just compensation for their additional work. MAGE worked hard to defeat this legislation, but it had the weight of "Government Reform" behind it.

Politically, in order for some of the tax increases listed above to have a chance of moving, some legislators demanded that "government be reformed" as a measure of saving as much money as possible before increasing taxes to cover revenue shortfalls. HB 4800 was seen as one of many "reform" bills.

Department of Corrections Mental Health Contracts

Another bill seen as "responsible government reform" is HB 622 (Senator Roger Kahn, R – Saginaw Twp.), now PA 112 of 2007 and effective October 1, 2007. This bill allows the Department of Corrections to contract with other third-party providers to operate the corrections mental health system. Previous to this, the MDOC could only contract with the Department of Community Health. MDOC may continue to do so, or if a less expensive third-party option is available, the MDOC may now pursue it.

This is another foot in the door for further privatization of government services at the expense of public employees. Though this legislation primarily affects UAW employees, the mutual goal of organized labor among state workers is to prevent further attempts at privatization. SB 622 requires a study to determine whether or not moving to a third-party vendor will be more cost-effective. We are hopeful that the required study will show that the current system of using state employees is more cost efficient and effective than using private vendors. MAGE worked with other state employee unions to defeat this bill. However, like HB 4800 (above), this bill had the weight of "government reform" behind it and the collective efforts of state employee unions were unable to remove this bill from the table, given that a revenue solution was tie-barred to the bill; if this bill didn’t pass, none of the revenue bills would have taken effect.

Other Legislation of Interest:

HB 4854 (Rep. Alma Smith, D – Ypsilanti); require a state retirement system to sell, redeem, divest, or withdraw all publicly traded securities of a company actively involved with the Sudan. 50 percent of its assets under management are to be divested within nine months and 100 percent of its assets under management are to be divested within 15 months. This bill passed the House and is in the Senate Appropriations Committee.

HB 4903 (Rep. Marty Knollenberg, R – Troy); prohibits a public retirement system from making new investments or failing to divest funds with companies located with or having interest in a "state sponsor of terrorism." These "state sponsors of terrorism" are defined to include Iran, North Korea, Sudan and Syria. It includes a 5-year ramp up for divestiture of those funds. This bill passed the House and is in the Senate Appropriations Committee.

With the passage of HB 4493, the negative supplemental appropriations bill, the FY 07 budget has finally been put to rest. This leaves the 2007 – 2008 budget still unresolved, as further action on the bills that comprise the FY 08 budget was held-up in their respective committees until a final resolution to the FY 2006 – 2007 shortfall was made.

Schools were spared from program cuts in the FY 06 – 07 budget. Due to cuts and reforms in other areas of the state’s budget, schools did not suffer from any cuts for the remainder of the fiscal year.

Much of the solution to the current-year crisis came from $500 million in securitized tobacco settlement revenues. Additionally, HB 4851 allows the Higher Education Loan Authority to transfer $80-90 million to the Merit Award Trust Fund. As counties and substance abuse coordinating agencies are painfully aware, $36 million in PA 2 funding, which pays for county services and substance abuse treatment services, also was part of the solution. Critics of these measures have pointed out that some of these short-term fixes may actually worsen the state’s financial profile and thus will not help the state’s position with the financial markets.

Many observers have remarked that the deal to resolve the current year budget crisis does little more than push it off into the future. Although not contained in the legislation passed so far, the understanding in Lansing is that the funds lost by universities and local governments this year will be made up in next year’s budget. Additionally, the significant use of tobacco settlement funds to plug current year holes means less revenue in the future. Thus, it could be truthfully said that the current-year budget was saved through a series of reforms without raising taxes, but much has been pushed into next year.

Rep. Mark Meadows (D – East Lansing), Chair of the Committee on Retiree Health Care Reforms, recently invited investment firm UBS to speak to the committee about, among other things, Michigan’s $23 million dollars in unfunded liabilities.

Overall, the presentation focused on the credit implications, the funding implications, and options for benefit systems.  They also spoke of the fact that some systems are trimming or capping benefits.  Financing options include:

Continuing "pay as you go" with long term credit and funding implications.

Non-qualified trusts or reserve funds

Trusts

When asked about Michigan’s very sensitive bond rating, the speakers emphasized that any responses should be handled very deliberatively and mentioned that rating agencies will view the fact that MI has set up a committee to review the issues very favorably. There was substantive discussion of using bonding to help finance the unfunded accrued liability.

This was simply one of many hearings as this committee tackles the subject of paying for retiree benefits given the new GASB reporting requirements. The next hearing is scheduled for Thursday, August 23, where the Municipal Employees’ Retirement System of Michigan will present.

Rep. Alma Smith (D – Ypsilanti) has introduced HB 4854, which has passed the House by a 103-to-2 margin. It currently is before the Senate Appropriations committee for consideration. HB 4854 would require a state retirement system to sell, redeem, divest, or withdraw all publicly traded securities of a company actively involved with the Sudan.

Also under consideration is HB 4903 (Marty Knollenberg, R – Troy), which passed the House 104-to-2 and is also before the Senate Appropriations Committee. Like HB 4854, the bill prohibits a public retirement system from making new investments or failing to divest funds with companies located with or having interest in a "state sponsor of terrorism." These "state sponsors of terrorism" were originally defined to include Iran, North Korea, Sudan and Syria; however, among the changes to the bill before it passed the House was an amendment that narrowed it to apply only to Iran. Both HB 4854 and 4903 were substantially amended as a consequence of input from the Department of Treasury and from retirement organizations, including the Retirement Coordinating Council.

For a different perspective on divestiture legislation, a recent article appeared in a recent Governing magazine, entitled "Pension Divestment Politics," in which the author calls this type of legislation a "slippery slope." He cites diminished returns on investment as the primary concern. The author offers advice on how to move on socially-responsible investment legislation, including: requiring the legislature to pay pension funds back for their costs of selling-off securities; a sunset to repeal the law so no more money is lost once countries improve; and allowing pension plans to divest.

Recently, the Lansing State Journal published an online database of state employees’ salaries, as well as legislative and judicial staff. Immediately, state employees objected and criticized the Lansing State Journal for publishing such sensitive data.

The Journal was specifically criticized for endangering many workers in sensitive areas like corrections, friend of the court and foster care since names and locations were given.

So controversial was this move that it was highlighted in the nationally-distributed Governing magazine. The magazine acknowledged that a discussion of public salaries is a legitimate topic, but that the inclusion of names and the exclusion of comparative data (such as comparable positions in other states or the private sector) made the Journal’s move seem more sensational and much less newsworthy.

As of publication of this report, there is no indication of how many people cancelled their subscriptions to the Lansing State Journal.

May/June 2007 LEGISLATIVE UPDATE – By Capitol Services, Inc.

SB 436 was passed last week and included in it a set of cuts that will "rescue" the State from having to incur cuts to schools and hopefully from having to hold state workers to 20 days off without pay.

Clearly we are not out of the woods yet. State Senator Mike Bishop continues to demand more concessions from state employees. Bishop is now focused on the 4% raises we have already negotiated, in addition to other cuts and concessions. Losing the 4% raise would save only $100 million for the 2008 fiscal year. The deficit remains at nearly $2 billion. The legislature may rescind approval of pay raises with two-thirds majority votes in both the House and the Senate. The constitution requires that the vote take place before April, so although we may prevail in preserving our already negotiated raises, this does not bode well for upcoming negotiations.

Part of the deals that are "rescuing" state government and staving-off the need to raise taxes are passage of some of the retirement bills that were outlined at the MAGE conference a few weeks ago. HB 4512, which is the modification of the actuarial liability contribution for state employees, has been signed by the Governor and is now PA 16’07. HB 4530, which is the modification of the actuarial liability contribution for public school employees, has also been signed into law and is PA 15’07. HB 4766, which revises employer contributions to public employee retirement, is up for final passage in the Senate. These bills were introduced by Representative Lee Gonzales (D-Flint).

Before any votes will be taken on revenue enhancements (increasing taxes), there were may demands made to "reform government" first. The bills outlined above, as well as many of the cuts in SB 436, constitute such reform.

The Senate Appropriations Committee reported SB 232 to the senate floor on June 6. This bill would privatize all juvenile justice placements except high security and all foster care placements, except placements with relatives. We vociferously oppose this bill which would put children at risk by doubling Department of Human Services Foster Care caseloads.

Also, the House has passed HB 4800 (Rep. Lorence Wenke, D-Kalamazoo) regarding post-retirement employment for state employees. As passed by the House, the bill would state that any retired state employees hired back by the state after the effective date of the new law would have their pensions suspended during their period of re-employment.

HB 4329, a nursing rotation bill, which would assure adequate staffing in hospitals and relieve the currently unacceptable mandatory overtime problems is expected to come up for a hearing before the House Labor Committee in the near future. MAGE is currently urging legislators to redefine "hospitals" to include state hospitals.

April 30, 2007  LEGISLATIVE UPDATE  

By: Ellen Hoekstra and Todd Tennis, Capitol Services, Inc.

Not much has changed in the last month regarding the state’s fiscal crisis, except for the fact that Michigan lawmakers have less and less time to find a solution. The House and Senate have adopted the Governor’s Executive Order cuts, which address approximately $400 of the estimated $900 shortfall in the current year budget (a shortfall that may be growing larger as revenues continue to decline). The Senate has also passed Senate Bills 220 and 221, negative supplemental budget bills which make nearly $200 million in additional cuts in state spending and $300 million in school aid spending. The House has released portions if its budget plans which call for raising revenues by instituting a tax on utilities, and cutting spending by requiring state and school employees to pay for a portion of their retirement health care benefits (see below for more on this topic).

Late last week, DMB Director Bob Emerson announced that if the legislature cannot adopt a proposal addressing the state’s current fiscal crisis, then school officials will be issued a pro-ration letter on May 1, reducing payments to districts by between $90 and $125 per pupil.

At this point, the Governor, the Senate and the House all seem to be operating out of three separate playbooks. Pressure is steadily mounting to solve the current fiscal crisis and prepare next year’s budget. The mood under the dome is less than cheerful as it becomes more and more clear that no one is going to pull a rabbit out of their hat, and that there will be no simple solution to this crisis.

When the House Democrats unveiled portions of their budget plan, much of the attention was focused on the proposal for a 6% tax on utilities, or the idea to provide students with iPods. The most unsavory item in the plan for state and school employees, however, is the proposal to have them pay 2% of their salary in order to keep their retiree health care benefits. In essence, state and public school workers would have the option of paying 2% of their salary, or foregoing their health care benefits when they retire. This move would save the state an estimated $250 million.

This proposal is being floated as a way of justifying a potential tax increase, with the logic that if the state is going to raise taxes, it should also make cuts that affect state and school employees. State employee unions have consistently argued that state workers have already made their share of sacrifices to help the state out of one crisis after another. Public school employees as well have had to give up raises and other benefit increases during the sustained fiscal crisis the state has faced over the past several years.

With the chaotic nature of this year’s budget discussions, it is hard to tell whether this 2% idea has "legs." However, it is something that state and school employees should take very seriously. Whether or not this becomes part of the final budget solution, it is clear that retiree health benefits are under scrutiny in Lansing.

We recently met with House Speaker Andy Dillon and his staff to discuss our concerns about these measures and talk about other ways state and school employees have already contributed to savings. The Speaker made it clear that he was open to alternatives that would send the same signal.

One of the few things that the Governor, Senate and House agree on is to obtain savings by reducing state payments into the pension systems. They are doing this by altering the earnings assumptions upon which the annual contribution rates are calculated from a "five year smoothing" to a "one time" (sometimes called "mark to market") as well as making interest only payments for one year. This is actually a fairly painless way to address approximately $230 million of the General Fund budget shortfall, and $280 million of the shortfall in the School Aid Fund. It should not have any impact on state and public school workers or retirees in the defined benefit system because it does not alter the state’s obligation to pay those pensions. Because the change is still based on actuarially sound assumptions, the risk in the future is minimal.

House Bills 4512 and 4530, sponsored by Representative Lee Gonzales (D-Flint), allow for a one-time interest only payment to be made into the State Employees Retirement System and the Michigan Public School Employees Retirement System, respectively. HB 4530 also makes the change in the actuarial assumptions for MPSERS. Both of these bills were reported out of the House Appropriations Committee and are awaiting action on the House floor. It is expected that these bills will be part of the final budget agreement.

Two pension issues. Two hearings. Two cancellations. Public pensions are certainly weighing heavy on the minds of House leaders. Discussions of two separate ways to reduce pension costs were recently scheduled to occur in two House committees.

The first discussion centered on individuals who have more than one public pension. Some House members are apparently aimed at combating a public perception that some persons are taking advantage of public pension systems. The House New Economy and Quality of Life Committee planned on having a discussion of the issue on April 11. However, the committee hearing was cancelled for an unspecified reason.

The second issue deals with Legislative pension benefits. HB 4580, sponsored by Representative Robert Dean (D-Grand Rapids), would eliminate lifetime health care benefits for state legislators elected after January 1, 2007. This is another case of combating a public perception, this time the perception that legislators receive too generous of a compensation package. This bill too was scheduled for a hearing on April 10, but the hearing was also cancelled.

Both of these issues stem from a concern that public pensions are too generous. They were brought up as part of the House budget plan as a way to provide cover for potential tax increases. There is a definite sentiment among many legislators that in order to ask the public to pay higher taxes, they must also address the public’s perception of public pensions, including their own. Although these bills were not taken up as originally scheduled, it is another indication that retirement costs are an issue in the current budget battle.

New Early Retirement Bill Introduced

House Bill 4571, sponsored by Representative Rick Jones (R-Grand Ledge), is the latest early retirement bill to be floated for state employees. However, this bill is very different from previous versions. Instead of offering a one-time early retirement opportunity, it would permanently remove the minimum retirement age and replace it with an 80-and-out system. This means that, regardless of age, a state employee in the defined benefit plan with a combined age and years of service of 80 or more would be eligible for retirement.

In addition, the bill would permanently improve the retirement multiplier from 1.5 to 1.75, significantly increasing the value of the pension benefit. This change would alter the actuarial assumptions and likely require the state to increase its payments into the retirement fund.

The permanent change in retirement criteria addresses one of the major complaints from state employee unions about other early retirement bills: that it creates havoc among state departments as thousands of workers all retire at once. However, increasing the multiplier, while a positive and well-intentioned change, may well make the bill veto-bait. This is because the Governor is unlikely to support any bills that cost the state a significant amount of money, as this one would.

In any event, this bill represents a significant improvement over previous "early retirement" legislation. The bill has been referred to the House Committee on Government Operations.

RCC President Paul Aviews and lobbyist Ellen Hoekstra recently testified before the House Senior Health, Security, and Retirement Committee. This committee is chaired by Rep. Robert Jones (D-Kalamazoo), who invited RCC’s representatives to provide background to the committee on retirement matters of importance to state and school retirees. In addition to providing background on the organization and its goals, we seized upon the opportunity to educate the committee on the needs of older retirees and the extent to which school and state employees and retirees have already participated in "cost sharing." Three of the committee members, including its chairman, are freshmen members. The other presentation provided at this hearing came from the Michigan Association of Public Employees’ Retirement System (MAPERS), which focused on PA 314, the act that governs the investment of public pension funds.

RCC’s remarks at the hearing and a subsequent interview with MIRS led to some coverage in this legislative newsletter, popular with state policymakers. The article presented an opportunity to discuss in more detail the proposed legislation regarding paying "interest only" on the unfunded accrued liability and the one-time "mark to market" change in how interest on the funds are valued. It was also an opportunity to provide some negative feedback regarding the concept of using loans from the SERS and MPSERS pension funds as a way for the state to get out of its current financial problems.

The Michigan Public School Employee Retirement System Board will soon have a new member. RCC Board member John Olekszyk, who has represented AFT-Michigan, was recently appointed by the Governor to fill the vacancy for "retired teacher" on the MPSERS Board. John, who previously was the president of the Roseville Federation of Teachers and currently chairs the AFT-Michigan Retirees’ Committee, will bring a wealth of knowledge of public school retirement issues to the board.

HB 4502 (Wojno) – Ensures that one of the investments available to state employee defined contribution members is a Roth 401(k) account.

HB 4593 (Melton) – Extends the ability for public school retirees to continue to work in emergency situations from six years to ten years. This bill is scheduled for a hearing before the House Education Committee tomorrow morning, and we will welcome your feedback.

Budget Stalemate April 2007 Legislative Report by Capitol Services

Consuming most of the legislators’ time currently is, unsurprisingly, the budget – the current-year budget as well as the FY 07–08 budget. The Senate has rejected the Governor’s recent Executive Order budget reductions, discussed in last month’s IMAGE, because they were based on passage of her proposed revenue increases, which they also rejected. The House failed to give the Executive Order cuts the two thirds majority they need (on a vote straight down party lines) for Immediate Effect, meaning the cuts wouldn’t take hold until next March, 2008, thus forcing a reconsideration vote in the House that ultimately resulted in a "fast gavel" immediate effect vote.

The Governor has proposed her Michigan Business Tax (MBT) to replace the nearly $2 billion that will be lost at the end of this year from the elimination of the Single Business Tax. The MBT replaces most of the lost revenue, but still represents a $480 million tax cut for many Michigan businesses. However, businesses would also pay the sales tax on services that she has proposed as well. The Senate Republicans have countered with Senate Bills 94 – 96, which constitute the Business and Economic Stimulus Tax (BEST). The package claims to replace $1.5 billion of the $1.8 billion raised by the original SBT. Given the amount of disagreement, a solution to the long- and short-term budget crises seems quite distant.

The Governor’s plan to fix the structural deficit for the current budget, apart from her proposed MBT, includes:

2% tax on some services ($1.5 billion)

Estate Tax reform ($119 million)

Elimination of tax "loopholes" ($84 million)

Increase the state’s share of liquor profit ($29 million)

Increase the cigarette tax by 5 cents ($21 million)

Increase tax on other tobacco products ($36 million)

The Governor has held a series of town hall meetings to discuss her budget and tax proposals and is seeking support for increased revenue to avoid budget cuts to areas such as education and health. However, groups opposed to the "2% solution" have mounted an intense grassroots campaign, hosting town-hall meetings of their own across the state. The net result is a sentiment among media outlets that the 2% solution is dead on arrival.

The legislative leadership, Senator Mike Bishop (R – Rochester) and Speaker Andy Dillon (D – Redford), has also convened a workgroup to discuss budget cuts for the current fiscal year budget. They were charged with issuing a report by March 16 but have not. The Senate Majority Leader, in a surprise move last Thursday, moved to discharge the Governor’s business and sales tax on service plans from committee. This means that the Senate will vote on the Governor’s proposal without committee deliberation. It is an obvious effort to demonstrate that the Governor’s proposals do not have enough votes for passage. Lansing media outlets also reported that Senator Bishop recently chose not to attend an exclusive meeting with Governor Granholm to come to some resolution about fixing the budget.

On Thursday, March 22, the two appropriations committees will be presented with the Governor’s next executive order cuts for the 2006-07 (current year) budget. She has met with legislative leaders to work on reaching an agreement on the budget. In the background, we are hearing a lot of discussion of an income tax increase—possibly temporary, pending a choice of ballot options for voters.

Needless to say, the outcome of legislators’ decisions for this year and next is also vitally important to avoiding pro-rations of school aid (which is facing a deficit of over $300 million in the current fiscal year due to decreased revenue) and negative impact on state services and thus on employees. MAGE members should urge their legislators to support the revenue enhancements needed to avoid budget cuts.

Senate Moves to Privatize Foster Care

The Senate Appropriations Subcommittee on Human Services, chaired by Bill Hardiman (R – Kentwood), has modified the Department of Human Services budget to privatize the entire foster care system. While there is not much more detail available, we do know that this includes the placement system.

The Senate wishes to create a clearer division between DHS and private foster care agencies, which have historically been at odds. The DHS would still be left to oversee the entire foster care system as well as manage contracts. It would also retain placement services for relatives. The private companies, then, would assume traditional foster care direct services, which amounts to about 60% of the foster care caseload. This move will lay-off approximately 500 DHS employees and save approximately $23 million; relatively small savings for such a drastic shift in responsibilities and cut in jobs.

Capitol Services will continue to monitor this move, especially for the effect on managers’ and supervisors’ roles.

Legislation of Interest

HB 4443 (Fred Miller, D – Mount Clemens). The bill would prevent any company or organization that engages in activities that interfere with or discourage unionization from receiving public dollars from the state. It would also require a quarterly report to the Department of Labor and Economic Growth from any person or entity receiving state funds under grants, contracts or other payments. The quarterly report would have to detail any expenditures which the person or entity had made to discourage or interfere with unionization by the person’s employees, and show by the report that no state funds were used to discourage such unionization. The bill is based on California legislation, which was recently challenged in California courts as it violates free speech. The Federal Court in California upheld the bill, but it is currently under appeal. HB 4443 is in the Commerce Committee.

HB 4454 (Jack Hoogendyk, R – Portage). The bill creates a right to work state. HB 4454 has been referred to the House Labor Committee, chaired by Rep. Fred Miller (D – Mount Clemens).

SB 184 (Ron Jelinek, R – Three Oaks). This legislation, now PA 02’07, eliminates a quarterly report from each Department to the legislature that compares allotments to actual expenditures. The reports are replaced by a single report summarizing which departments were spending at a rate above the level assumed in its appropriations bill. This is in response to the Departments of State Police, Corrections and Human Services over-spending their budgets from the 05 – 06 fiscal year.

HB 4341 (Lisa Wojno, D – Warren). This legislation prohibits mandatory overtime for nurses. This is a reintroduction of the same bill from Rep. Wojno introduced last session. It is in the House Labor Committee. MAGE supports HB 4341.

HB 4339 and 4340 (Lisa Wojno, D – Warren). These two bills, also reintroductions of her legislation from last session, require hospitals to create an acuity system and annual staffing plan for nurses, including minimum nurse-to-patient ratios graduated by type of hospital unit. The bills are in the House Labor Committee. MAGE supports these bills.

Other News

Phil Stoddard, the Director of the Office of Retirement Services testified on March 15 before the House Senior Health, Security and Retirement Committee regarding the state employee retirement system. In response to a question raised by a legislator, Mr. Stoddard reported that since the inception of the defined contribution plan in Michigan, there have been years where the costs to the state where the costs to the state were actually higher than if the state had kept a defined benefit plan for the affected employees.

State of the State Address and Executive Budget Presentation 

March 2007 Legislative Report by Capitol Services

On Tuesday, February 6, Governor Granholm delivered her fifth State of the State Address. The theme was Investing in Michigan’s People. In it, the Governor outlined her economic diversification plan and her ideas for "investments," many of which include investing in education programs and alternative energy.

The Address itself served as an outline for the Thursday, February 8 budget presentation. State Budget Director Bob Emerson unveiled the Executive Budget Recommendations, along with the Governor’s new proposals for cost savings and revenue enhancements. Primarily, the Governor is faced with a $234 million budget hole for the current fiscal year which, when combined with other spending pressures, adds up to more than $600 million. Then, without replacing the Single Business Tax, the State is faced with a $2.1 billion funding gap. The central part of her plan to fix the current fiscal year deficit, however, is immediate passage of a 2% tax on services, excluding education and health care services.

Then, along with some spending reductions, the Governor is proposing a complete tax restructuring proposal to essentially retool Michigan’s tax structure to move away from taxing automotive and manufacturing products and towards a structure that follows new and emerging economic sectors. Part of the new structure is the Michigan Business Tax (MBT), which is set to be the SBT replacement. The MBT is not revenue-neutral; in fact, it is still a $480 million tax cut. It also eliminates the tax on health care, payroll and benefits for businesses.

The plan the Governor outlined above came on the heels of the report submitted by the Emergency Financial Advisory Panel’s recommendations to alleviate the state’s fiscal crisis. Former Governors James Blanchard and Bill Milliken co-chaired the panel. In addition to former Governors Blanchard and Milliken, the advisory panel also includes: Dr. John Porter (former state superintendent for public instruction); Paul Hillegonds (former Republican co-speaker of the House); Dan DeGrow (former state Senate Majority leader); Sr. Monica Kostielney (president and CEO of the Michigan Catholic Conference); Dr. Lou Anna K. Simon (president of Michigan State University); Frank Kelley (former Michigan Attorney General); S. Martin Taylor (University of Michigan regent); John "Joe" Schwarz, M.D. (former U.S. Congressman); Don Gilmer (former state budget director); and Doug Roberts (former state treasurer). The panel recommendations, simply put, were to cut spending and increase revenue with a different tax structure.

As stated above, the 2% Sales Tax on services is the centerpiece of Granholm’s recovery plan, but sin taxes are a part as well. Tobacco users will be subject to another five-cent per pack increase on cigarettes, as well as corresponding bumps in tobacco taxes for non-cigarette products. The budget plan also will rely on a bump in the state liquor mark-up, moving from a 65% mark-up in the retail price to a 75% mark-up. Certain individuals in the state will once again be subject to an Estate Tax on inheritances worth over $2 million. The Governor’s plan also includes a break on new car purchases by only charging sales tax on the difference between the new car value and the value of any trade-in.

The last and potentially largest portion of the new revenue stream is a tax on business to replace the Single Business Tax which will phase out of existence on December 31, 2007. Senate Republicans are rallying around a business tax plan that would replace $1.5 billion of the $1.9 billion hole created by the expiration of the SBT. Governor Granholm so far continues to insist that the entire $1.9 billion be replaced by new taxes, and her business tax proposal combined with the 2% tax on services will do that and more. Granholm’s plan still includes a $550 million tax cut for business in Michigan; the revenue is replaced by the other taxes outlined above. Tax and budget items will likely be the most hotly debated issues of 2007.

Some in the Legislature are arguing that Michigan can still cut its way out of this crisis. The Senate Fiscal Agency prepared a report outlining the types of cuts necessary to balance the budget with no new revenues. Of concern for MAGE members is the memo’s call for the layoff of at least 5,000 state workers and immediate closure of nine prisons. This is in addition to massive cuts for education and revenue sharing payments that would devastate local communities. These types of cuts are not being proposed by the Governor, and are again in response to the question of what services would have to be cut to make possible efforts to not increase taxes, but could very well be on the table if the tax plans go down. Details of the 2008 Executive Budget can be found at www.michigan.gov/budget.

On the same day as the Executive Budget Presentation, Governor Granholm issued Executive Order 2007 – 1, outlining current fiscal year cuts that need to be made in order to help balance the state budget despite the $500 million shortfall.

Item #21 of the 14-page Executive Order is entitled "Retirement Rate Reduction – Defined Benefits" and includes a total of nearly $79 million in reductions.

What this means is that the various Departments are going to change the current formula used to calculate the earnings on the pension funds. Rather than using an average of gains and losses over a five-year period, as the current formula would do, they will shift to defining the rate according to September 2006 earnings.

What matters most is that this means there is no change in pension benefits for either current or future state retirees.

Right away in January, the state is facing a budget deficit of at least $300 million due to lower-than-projected revenues. This will mean that the Governor may have to start the year with a negative supplemental budget bill, which is used to reduce the current-year state budget.

In addition to those structural budget woes, the Michigan Departments of Human Services (DHS), Corrections (DOC) and State Police (MSP) have apparently overspent their FY 05-06 budgets. Those budgets, which were closed in September, go through a book-closing period to assure all accounts are balanced. DOC, DHS and MSP were called before the House Appropriations committee because they had apparently violated a state statute that requires state departments to report to the legislature if they will overspend their budgets. The departments countered that they were working on covering the budget shortfalls and assessing the actual size of the shortfalls before they reported to the legislature. Though the amount overspent is only around $10 - $12 million, it still exacerbates the existing budget projections.

As was anticipated, the legislature did not take action on replacing the Single Business Tax (SBT). The current SBT lapses in October, 2007, and if the issue is left unresolved, the state budget will be short $500 million right away in 2007, with a $1.9 billion short overall in the 07-08 budget year.

The Governor unveiled her proposal, called the Michigan Business Tax, shortly after Thanksgiving. Details are available at http://www.michigan.gov/som/0,1607,7-192-29943-157111--,00.html. This proposal will lower business taxes but broaden the base, and is expected to be a "revenue-neutral," or, 100% replacement of the SBT, which is the Governor's goal. Her proposal would also reduce the tax burden for approximately three-forths of Michigan businesses.

The various Chambers of Commerce, including the Michigan Chamber, have also advanced proposals. None of the proposals are revenue-neutral. The Michigan Chamber's proposal does not replace all of the money. The end result of the negotiation process, which will begin in January, will most likely be some combination of the two, less replacement than the Governor's proposal but more than the Michigan Chamber's.

As reported last month, the Office of Retirement Services (ORS) has proposed a number of changes to the rules affecting application for state retirement benefits, including disability benefits. According to the ORS, the rules are intended to more clearly define the current processes used for adjudicating retirement applications. They hope to add a level of detail to SERS procedures that would make them similar to the rules covering the Michigan Public School Employees Retirement System (MPSERS) system.

The public comment period on these rule changes has passed. As required by law, a public hearing was held, but there was no opposition. Next, these rules will be transmitted to the State Office on Administrative Hearings and Rules (SOAHR) for approval and then to a period of legislative oversight through the Joint Committee on Administrative Rules (JCAR).

Charging that the proposed Capital Outlay bill would make budget matters worse, Governor Granholm is expected to veto the measure. SB 1081 (Mike Prusi, D – Ishpeming) totals $203 million but includes over $500 million in additional projects slated for the future, of which the state pays the majority.

Granholm was also critical that the budget did not include any funding to cover the three Departments that overspent their budgets (see article above), and that the legislature was quick to act on this series of projects but not on her SBT replacement proposal, which lawmakers have delayed acting on until next year.

Her threat to veto the bill is not necessarily welcome among Democrats, many of whom have some of the proposed projects in their districts. But the Governor is remaining firm in her decision, based on upcoming budget shortfalls and lack of action on SBT replacement.

At nearly 2:00 in the morning on Friday, December 15, 2006, the 93^rd Legislature adjourned for what may be the last time for many of the legislators. This session will officially end on Friday, December 29, 2006 when the legislature adjourns sine die, or, "without a day."

30 Representatives bid farewell to the Chamber over the last few weeks, as 23 are term-limited and other either lost their seats in the upset victories in the November elections or are moving to the Senate before their House term completely expired. Additionally, six of Michigan’s 38 Senators said their final goodbyes.

An official starting date for the 94^th Legislature has not yet been set, though some expect it may be as late as the week of January 22^nd, 2007.

Early in the morning on Friday, December 15, the Legislature’s acted on legislation which would allow certain municipalities to write municipal bonds for the purpose of paying for unfunded accrued liabilities for retiree health care. House Bill 6694 (Dave Hildenbrand, R-Lowell) will allow qualified counties, cities, villages and townships to cover the unfunded accrued liability of their retiree health care costs with municipal bonds. This method of paying for health care costs became even more important due to new governmental accounting standards which require governments to annually account for their retiree health care liabilities.

The new accounting standards would suddenly place huge amounts of liabilities on the balance sheet of governments which fund retiree health care on a "pay as you go" basis. Allowing governments to bond for these costs would prevent them suddenly going from the black to extreme red on their books. There is the additional benefit that, assuming the funds from the bonds are invested in a way that earns a rate of return higher than their cost of issuance, local governments could actually end up paying less in health care costs than they would otherwise. This legislation may create a precedent to deal with the unfunded accrued liability for state retirees’ health care.

Governor Granholm is likely to sign the legislation.

Michigan Department of Management and Budget (DMB) Director Mary Lannoye is set to become Governor Granholm's Chief of Staff, replacing current Chief, John Burchett effective January 1, 2007. Granholm is expected to use Lannoye’s experience as Budget Director to aid in budget planning and tax restructuring, tasks that will be of high priority for the administration. No replacement for DMB Director has been named.

Term-limited State Representatives Rich Brown (D – Bessemer) and Alexander Lipsey (D – Kalamazoo) will also find new employment after January 1, 2007. Rep. Brown will become Clerk of the House, replacing current Clerk Gary Randall. Clerks are appointed by the Speaker. Rep. Lipsey will become General Counsel for the Democratic Majority in the House.

There will be some big changes in House Central Staff as the Democrats take majority. While Speaker-Elect Andy Dillon (D – Redford) may keep office budgets between Democrats and Republicans equal, the shift in funds available from Republicans to Democrats for central staff will result in many layoffs among current Majority staff.

November/December 2006 Legislative Update By Capitol Services, Inc.

Elections

Governor Jennifer Granholm and Lt. Governor John Cherry solidly won their race over their Republican challengers Dick DeVos and Ruth Johnson by 14%, approximately 56% to 42%. House Democrats greatly benefited from the wave that began at the national level by picking up six new seats, enough to have a 58-52 seat majority. Representatives Leslie Mortimer (R-Horton), Rick Baxter (R-Hanover) and David Farhat (R-Fruitport) all lost their bid for re-election. Though Democrats targeted five seats in the Senate, the only seat the Republicans lost was Sen. Laura Toy (R-Livonia), who was defeated by current state Representative Glen Anderson (D-Westland) for the 6^th Senate District. The Republican majority in the Senate is now 21-17.

Republicans and Democrats in both chambers have selected their leadership for the 2007-2008 legislative session.

Majority Leader:                        Mike Bishop

Majority Floor Leader:                Alan Cropsey

President Pro Tempore:              Randy Richardville

Assistant Majority Leader:          Michelle McManus

Majority Caucus Chair:                Nancy Cassis

Minority Leader:                         Mark Schauer

Minority Floor Leader:                 Buzz Thomas

Minority Caucus Chair:                Gilda Jacobs

Speaker:                                    Andy Dillon

Majority Floor Leader:                Steve Tobocman

Speaker Pro Tempore:                Michael Sak

Minority Leader:                         Craig DeRoche

Minority Floor Leader:                 Chris Ward

Assistant Minority Leader:           Kevin Elsenheimer

Minority Caucus Chair:                John Proos

The amendment addresses nine funds or accounts that currently exist in the Natural Resources Act. These funds are now granted constitutional protection from diversion for purposes other than those intended, such as using the funds to plug gaps in other unrelated parts of the state budget.

The Michigan Constitution now bans public institutions from using affirmative action programs that give preferential treatment to groups or individuals based on their race, gender, color, ethnicity or national origin for employment, education or contracting purposes. Public institutions affected by the proposal include state government, local governments, public colleges and universities, community colleges and school districts.

Michigan is now the 3^rd state to ban some affirmative action programs, behind California and Washington. Private entities are not prohibited from using affirmative action programs under this constitutional amendment.

Analysis on the proposal from a long-time East Lansing political consultant had suggested that once voters who were not paying attention to the ballot proposals went into the voting booth and read the language for the first time, they would most likely support it.

Proposal 2 led 56 – 42 among whites and 55 – 44 among men. Interestingly, those with no high school diploma and those with some college, a degree or a post-graduate degree voted against Proposal 2, while high school grads or students with technical training voted for it. Republicans and Democrats were almost exactly opposite with each other, with 76% of Republicans voting for it and 75 % of Democrats voting against it.

The question on this initiative was whether or not to approve PA 160 of 2004, which reclassified the Mourning Dove as a game bird to allow the doves to be hunted. Previously, they were classified as a song bird, which are off-limits for hunters. Since the question was rejected, Mourning Doves will be reclassified as song birds and off-limits to hunters.

The Michigan Constitution now protects the standards that a Government must achieve in order to transfer, or, transfer private property via Eminent Domain. These standards were recently established in a Michigan court case, County of Wayne v. Hathcock. Those standards include that the property must remain under public oversight and that the property is selected due to other circumstances than the sole benefit of the entity wishing to seize it.

The amendment also requires governments to provide compensation equal to 125 percent of a residential property’s fair market value. Also, it shifts the burden of proof that the transfer of the property in question is for a public use from the owner (objecting to the transfer) to the government (proposing the transfer).

This initiative would have guaranteed a base-level of funding every year for Michigan’s K-16 education system, spanning from Elementary and High Schools to Community Colleges and Michigan’s major Universities. The proposal would have increased annual per pupil spending by the rate of inflation, narrow the gap between highest- and lowest-spending districts, required GF/GP dollars to fund any shortfalls from this new funding level, based funding on a 3-year student average, set required spending for various programs such as special education and schools with declining enrollment, and reduce and cap the retirement fund contributions paid by K-16 schools.

Proposal 5’s supporters believe that the last few weeks’ worth of negative ads against Proposal 5, which linked its passage to massive budget constraints and stated that none of the funds were tied to an increase in student or teacher performance, were largely responsible for its defeat.

Proposal 5 failed among women and men, with 52% and 57% voting against it, respectively. African Americans were the only ethnic group tracked that voted for the proposal. Proposal 5 failed along all education lines, from no diploma all the way through post-graduate training. The only groups that favored the proposal were Democrats (52%) and Union households (51%).

Back in September, the legislature acted to affirm the initiative, which effectively cut the Single Business Tax starting in October of 2007. Efforts to find a replacement for the tax fell flat before the legislature went into recess in October for the elections.

House and Senate leadership have promised that they will meet to determine what will replace the lost income. Action appears unlikely during the upcoming "lame duck" session, as the legislature will only meet for the last week of November and the first few weeks of December.

On Monday, November 13, a large Tax Reform Town Hall meeting was held at Michigan State University, and included presenters from various business groups, think-tanks and economists. Several ideas for a replacement tax were discussed, though none of the ideas fully replace all of the revenue ($500 million starting in FY 07 – 08). All of the proposals discussed were similar in that they include a few more major tax cuts for business coupled with a smaller tax with a much broader base.

The State will still face a deficit for the FY 07-08 budget negotiations that will begin in January or February, as tax collections in the last quarter have been slow and