March/April 2009 LEGISLATIVE UPDATE by Capitol Services

The House Fiscal Agency, in a report released on Wednesday, March 25, estimates that the incoming American Recovery and Reinvestment Act (ARRA), also known as the "stimulus package," will total about $7 billion.  The Fiscal Agency also notes that the ARRA will free-up approximately $2.4 billion in state GF/GP funds. 

However, the House Fiscal Agency Director, Mitch Bean, predicts at least one more year of fiscal woes.  Though the Governor’s Executive Budget Recommendation makes-up for the projected $1.4 billion shortfall, current year-to-date revenues have dropped by more than $200 million.  Further, Mr. Bean predicted a "substantial reduction" in the May Revenue Estimating Conference for both the current fiscal year and FY 2009-10 and that Medicaid and DHS caseload increases will widen the hole by another $270 million. 

Thus, most, if not all, of the expected $2.4 billion in state savings and revenues tied to the ARRA will have to go towards balancing the state budget.  Mr. Bean also predicts that if the legislature does not act to increase revenues or act on tax cuts, the 2010-11 budget will face yet another $2 billion shortfall, and there will not be the same level of stimulus funds available to cover it. 

The ARRA itself is coming to Michigan in stages.  The Senate and House have both acted on the Transportation and Medicaid portions of the ARRA, since those funds apply to the current budget year.  However, most other funds coming into the state will apply to the FY 2009-10 budget, and will continue to come in through the 2011-12 budget cycle (though less than the first-year allocation).

Both the House and the Senate are moving forward with their budget recommendations for 2009-10. At this point, the House has moved all its budget bills out of subcommittees into the House Appropriations Committee and is expected to take them up in full committee in the first week of April. The Senate is one step further, having reported out its half of the bills out of both subcommittees and its full appropriations committee, with its next step being action on the Senate floor.

For MAGE members, one of the biggest concerns is the Department of Corrections legislation, HB 4437, which was reported out of the House Appropriations Committee DOC Subcommittee the last full week of March. The bill is based on several assumptions: A reduction of 3,886 beds at undisclosed locations, with the assumption of additional closure; the remaining savings from the closure of Scott Correctional Facility; the remaining Deerfield closure savings; and remaining Camp Branch closure savings. The Bill also restores the restricted funding and most of the 90 FTEs that were eliminated under the enacted FY 2008-09 budget bill in anticipation of bidding out the prison store operations and centralized warehouse functions regarding prison food services, the House added Sec. 919, boilerplate language to specify conditions for expenditures of funds on food service contract, including the completion of privatization project plan and cost-benefit analysis, identification of at least five percent savings from existing costs, and explanation of impact on use of local and Michigan vendors, growers, and processors.

MAGE members are urged to contact their state legislators with their concerns about the impact of the major downsizing proposed by this legislation.

MAGE is very pleased that HB 4248 has passed the House, and thanks Rep. Alma Wheeler Smith, D-Ypsilanti for sponsoring the bill. This bill would permit the Department of Corrections to hire retired nurses on a part-time, per diem basis if they are providing healthcare services to inmates. This legislation would actually provide some savings to the Department while allowing the Department to fill vacant positions that otherwise must be filled in with overtime hours to provide its mandated level of care to prisoners. MAGE supports this legislation, which can ease the burden on current full-time members. Pay to the returning retirees is on a per diem basis, but they can continue to receive their pensions and other retiree benefits.

The bill has been sent to the Senate Judiciary Committee, chaired by Senator Kuipers (R-Holland). Other committee members are Senators Alan Cropsey (R-DeWitt), Bruce Patterson (R-Canton), Alan Sanborn (R- Richmond), Tony Stamas (R-Midland) Hansen Clarke (D-Detroit), Ray Basham (D-Taylor) and Gretchen Whitmer (D-East Lansing). Members are encouraged to contact their state senator to let them know of their support for the bill, particularly if the senator is on the Judiciary Committee.

 HB 4282, State Contract Debarment

In 1999, a company working on a state contract lost a worker on-site.  The resulting investigation found this company had more than 30 MIOSHA violations, and was ultimately found criminally negligent in the worker’s death.  In response, Governor Granholm issued her first Executive Order, 2003-01, debarring that company from being able to compete for state contracts.  However, the company sued and the courts found that since her Executive Order violated due process, they overturned it.  This meant that if the company again tried to contract with the state and was ultimately the low-bidder, the state would have to do business with them.  

HB 4282, sponsored by Representative Fred Miller (D-Mt. Clements) codifies that Executive Order and provides a three-year look-back.  The bill states that construction companies which "willfully and persistently violate" various state statutes may be debarred.  These statutes include MIOSHA, NREPA, prevailing wage, consumer protection, and wage and benefits statutes.  The legislation also permits debarment if the vendor fails to substantially perform a state contractor subcontract according to its terms, conditions and specifications during the specified time limits, violates department bid solicitation procedures or violates the terms of a solicitation after bid submission, or failure to respond to requests for information regarding vendor performance or complaints regarding performance.

Though only testimony was taken during a March 25 committee hearing, the bill is expected to move through the House of Representatives in the next few weeks.  MAGE supports the bill.

 HB 4285 and SB 255; School Retirement "Stimulus" Bills Declared Dead

Though the colloquial name for SB 255 an HB 4285 is "Retirement Stimulus," the legislation has nothing to do with the ARRA, or, the stimulus money from the federal government.  Instead, it is meant to "stimulate" retirement for school personnel and the proposal is now officially "dead". 

The bills each would have given public school employees who currently qualified for retirement an enhanced multiplier if they retire by June of 2010.  Different from an early-out bill, the legislation simply provides a bonus for any employee who chose to retire by the cutoff date. 

The goal of the legislation was to urge senior school personnel to retire and make-way for the hiring of newer personnel who come with a much lower price tag.  The result would ostensibly be savings for schools.  However, while some school districts may save money initially in salaries and benefits, the Office of Retirement Services and both the House and Senate Fiscal Agencies said that the bills would increase for both pension plans and for retiree health benefits, which would have had a substantial negative financial impact on school districts over the next five years. 

Given the vehement opposition to the legislation, the Michigan Education Association, which was largely behind the legislation, issued a press statement thanking supporters but saying that they will examine other avenues to save money.

Legislation regarding the funding of public retirement system health care benefits--that underwent substantial discussion and revision last session—has now passed the House and been referred to the Senate Appropriations Committee. We expect the Subcommittee on Retirement, chaired by Senator Mark Jansen (R-Gaines Twp.) to address the legislation first before it goes to the full Senate Appropriations Committee.

The bill creates the Public Employee Retirement Health Care Funding Act to set up and create five different irrevocable trusts under Section 115 of the Internal Revenue Code. One of the trusts is for the State Employees Retirement System. Each trust must be managed separately with services provided by the Departments of Management and Budget, Treasury and the Attorney General to provide services as needed by trustees. The governing board of each retirement system is the trust grantor, and the members of each retirement board act as trustees.

While the bill does not change retiree health benefits, it creates the legal framework for an irrevocable trust for the deposit of funds for retiree health care benefits. All funds deposited must be invested in accordance with PA 314 of 1965. In essence, the legislation sets the groundwork for prefunding retiree health benefits so that, like your pension fund, prefunded dollars can grow through investment, as opposed to the current "pay as you go" system. Also, the wording of the house passed bill provides that members and past members have contractual rights to a health care benefit provided in statute at the time of their separation from employment -one step towards overturning the Supreme Court ruling that retiree health care benefits are not protected by the state constitution. MAGE strongly supported this addition to the legislation to protect retirees’ health care benefits.

Along with HB 4073, a series of other bills passed the House that would place all of the state run retiree group health care plans and the legislative retirement system under the Office of Retirement Services, which currently administers the MPSERS system, the largest of the state operated systems. The bill making this change for the state system was strongly opposed by state retirees, but the legislation was approved by the House nonetheless. Other systems affected by this change include the legislative, state police, and judges’ systems. These bills are also now in the Senate’s hands.

2009 - JANUARY - FEBRUARY Legislative Update by Capitol Services, Inc.

December 2008 Legislative Report

Executive Order Budget Cuts

With a crumbling auto industry, an auto industry bridge loan package possibly stalling in Washington D.C. and the recognition that there is a recession, it is no surprise that revenues in to the State of Michigan have dipped well-below expectations. This necessitates cuts to the current-year budget, which are thus far being handled by an Executive Order from Governor Granholm. She released her Executive Order on Wednesday, December 10.

The cuts total $145.8 million. However, State Budget Director Bob Emerson warned that there will be deeper cuts after January 2009. He stated that the cuts in the Order presented Wednesday were the "easy" cuts that could be covered by fee revenue and federal matches, and that it was important to make a "down payment" on cuts that will have to be made next year. Emerson felt that the legislature could quickly agree to some immediate cuts this year and await the debates on deeper cuts for 2009.

The fiscal outlook for Michigan into 2009 and 2010 is just as bleak. Revenues will be $240 million lower than current projections. Without assistance to the auto industry, the job losses in Michigan make any further prediction impossible.

The most controversial cut of the current Executive Order is the closure of the Deerfield prison in Ionia County and Camp Branch, a prison camp in Branch County. However, the Michigan Department of Corrections (MDOC) shows that the inmate population is at least 7,000 prisoners lower than last January, 2008 predictions. Thus, they felt it was advantageous to close a prison, since the need for capacity is greatly reduced. The move predictably drew fire from Senator Alan Cropsey (R – DeWitt), who represents Ionia county as part of his district. However, the MDOC claims that there will be no loss in jobs, as corrections officers will be transferred to other prisons or will be reduced through attrition.

The other major hit to staffing-levels comes in the Department of Human Services. The cuts called for the closure of the Adrian Training School. Like in Corrections, the plan is to reassign existing staff to other facilities. MAGE is very concerned about the impact of this change on staff and on services to the public and has been actively advocating on members’ behalf.

Action was taken on the cuts immediately. Legislators now will prepare themselves for much deeper cuts after the New Year. Unless there is significant aid from Washington in the form of bridge loans for the auto industry and stimulus packages for ailing states, Michigan will be facing "the tough cuts" in early 2009. The last day of session for 2008 is anticipated to be Thursday, December 18. Any bill snot passed by the end of session will "die" and need to be reintroduced next session, beginning in Mid-January, 2009.

Targeted Early Retirement Legislation for Maxey Employees Passes House

Due to the reduction in workforce at Maxey Boys Training School, Representative Shanelle Jackson (D-Detroit) sponsored legislation allowing a 70 and out retirement option for displaced Juvenile Justice employees within the Department of Human Services. House Bill 5944 would also increase the multiplier from 1.5 to 1.75 for these workers. This legislation passed the House on June 27 with a 100 "yes" to 7 "no" votes and since then has remained dormant in the Senate Appropriations Committee.

Representative Paul Opsommer (R-DeWitt) introduced a similar bill, which also passed the House in September, 2008. HB 5966 would place juvenile justice workers into the same category as corrections officers and others who work with prisoners. "Covered employees" are eligible for a supplemental pension at age 51 with 25 years in a covered position or at age 56 with 10 years in a covered position. In both cases, the last three years of employment must be in a covered position. Additionally, covered employees receive a supplemental pension.

In efforts to save money due to the impending budget cuts, there may yet be movement on one or both of these bills in the last days of session for 2008. As it passed the House, the bill would also include the laid-off Adrian correctional facility employees. MAGE’s lobbyists and staff are actively working with the administration and the legislature for movement on these bills.

Other Legislation of Interest

HB 6579 (Rep. Kevin Elsenheimer, R – Bellaire): the bill allows for the continuation of pension and benefits for re-employment of a retired State employee if that employee is hired back into an emergency position or a part-time position. This bill addresses a problem that MAGE recognized, in that if certain jobs should be overseen by otherwise retired state employees, the State would have to discontinue retirement benefits. This would sometimes keep the most experienced and capable people from being hired again by the State. The bill was introduced and referred to the House Government Operations committee. It may be introduced again next session.

HB 6713 (Rep. Robert Jones, D – Kalamazoo): this legislation makes a one-time adjustment to the retirement allowance for people who retired before October 1, 1990. HB 6713 creates a graduated scale for the allowance increase starting at 4% for effective dates between October 1, 1989 and September 30, 1990, all the way to 30% for people whose effective date of retirement was before October 1, 1977. The bill was referred to the House Senior Health, Security and Retirement committee. MAGE is very supportive of the legislation and will be urging the House of representatives to reintroduce and hear the bill next session, beginning in January, 2009.

October 2008 Legislative Report

Although many members of the Michigan House are fully engaged in campaigning, the Legislature has continued to work on a few key issues as the election nears. For one thing, they finally finished work on the one remaining budget, the state transportation budget. Additionally, legislative packages dealing with energy policy and Blue Cross regulations took center stage as the weather cools and the trees start to change colors.

Pension Funds Investments Update

Many employees and retirees have watched the plunging stock market with dismay, particularly if their retirement money is in a 401k rather than in a defined benefit plan. For those MAGE members who are in the defined benefit pension plan under the State Employees Retirement System (SERS), the State Treasurer has offered an update on how their funds are doing.

The State Treasurer is the sole fiduciary for the State of Michigan Retirement Systems (SMRS), of which SERS is the second largest pension plan. The State Treasurer, Robert J. Kleine, is responsible for investing funds in four pension plans as well as 410 other State funds. As of the close of business on September 19, the SMRS held $55.5 billion in well-diversified portfolios that included significant assets outside the equity markets, such as bonds and real estate. SMRS is the 15^th largest public pension fund in the United States and the 39^th largest in the world, making SMRS an extremely desirable investor.

About half of SMRS investments are in the stock market. The downturn in the financial sector, which makes up about 15% of the S&P 500, caused the S&P 500 to decline 19.1% between January 1 and September 19 of this year. Thus, the retirement funds’ asset value declined by around 9.5% between these two dates. When the market rebounds, the SMRS will experience a corresponding increase in value.

Over the past 50 years, there have been eleven significant declines in the S & P 500, with an average loss of 23 %. After the end of the decline, the stock market rose an average 35% over the subsequent 12 months.

Newspaper coverage of the impact of the market plunge on state pension funds has sometimes neglected to factor in the pension benefit payouts to retirees and beneficiaries. The SMRS pays out about $200 million per month more than it takes in from contributions with the funds. Investment returns, actuarially anticipated to be 8% per year, make up the difference.

The SMRS has performed well compared to other public pension funds around the country. At the end of the last quarter, the funds’ one-year rate of return was a negative 4%, slightly better than other public plans. The SMRS three and five year rates of return are 8.8% and 10.2% respectively, placing our state pension funds investment earnings in the top quarter of public pension plans in the U.S.

However—and probably most important—pension benefits for those employees and retirees in the defined benefit plan are constitutionally guaranteed. Under Article 9, Section 24 of the State of Michigan Constitution, the "accrued financial benefits of each pension plan and retirement system of the state…shall be a contractual obligation thereof which shall not be diminished or impaired thereby." Thus, although the employer contribution may need to rise following a market drop, the pension benefits promised by state law must be delivered.

Targeted Early Retirement Legislation for Maxey Employees Passes House

Over the past decade, the state has steadily reduced beds at the Maxey Boys Training School. The resulting reduction in workforce has prompted Representative Shanelle Jackson (D-Detroit) to sponsor legislation allowing a 70 and out retirement option for displaced Juvenile Justice employees within the Department of Human Services. House Bill 5944 would also increase the multiplier from 1.5 to 1.75 for these workers. This legislation passed the House on June 27 with a 100 "yes" to 7 "no" votes and is now in the Senate Appropriations Committee.

Recognizing the changing nature of juvenile justice work, Representative Paul Opsommer (R-DeWitt) has sponsored legislation to define juvenile justice workers as "covered positions." HB 5966 would place such workers into the same category as corrections officers and others who work with prisoners. "Covered employees" are eligible for a supplemental pension at age 51 with 25 years in a covered position or at age 56 with 10 years in a covered position. In both cases, the last three years of employment must be in a covered position. Additionally, covered employees receive a supplemental pension. Representative Opsommer cites the fact that juvenile justice employees are dealing with individuals convicted of increasingly serious crimes as the reason for the switch. This legislation passed the House on September 9, with 66 "yes" votes and 39 "no" votes and is in the Senate Appropriations Committee.

Although rumors continue to circulate regarding a "permanent 80 and out" plan, state policymakers continue to be more supportive of proposals that are far more targeted to alleviate problems with staff reductions.

Health Care Prefunding Legislation

HB 5913, legislation introduced by Rep. Mark Meadows (D-East Lansing), would set up the structure for prefunding retiree health care for all of the state operated pension retirement systems and the legislative retirement system. The bill was reported from the House Retiree Health Care Committee in June and amended to delete a section that would have allowed a mechanism to create Individual Health Retirement Accounts – a provision that concerned MAGE and other state employee organizations, due to the fact that such accounts could someday be used as an excuse to discontinue current retiree health care benefits. The bill was also amended to include a provision that makes retiree health care benefits a contractual agreement, which would safeguard against retiree health care benefits being reduced or eliminated in the future. The bill is awaiting action on the House floor.

Wall Street Woes Yield Budget Uncertainty for Michigan

On one hand, the state is looking at a carry-forward (unexpended funds based on higher-than-projected revenues, thus different from a surplus) of nearly $140 Million. Additionally, 2008 revenues are higher than expected. Since the new fiscal year began on October 1, this may mean that in the short-term, there will not have to be any budget cuts, though sources say that state departments are being told to have some cuts prepared at any rate.

On the other hand, with the collapse of Wall Street and international stock markets, it appears that the long recession is not quite over. Though Michigan’s "economic stimulus" package that was passed last year appears to be having a positive impact on the state’s economy, a continued recession could hurt any progress the economy has made. For example, Michigan’s unemployment rate is 8.7%, which is still 2.6% higher than the national average. There are 7,000 fewer manufacturing jobs than this time last year and seasonally-adjusted employment (seasonal jobs as well as existing jobs) fell by 28,000. Less taxpayers means less revenue.

Couple the stagnant-to-troubled economy with increasing political pressure in Lansing to pass tax cuts, including a cut of the recently-passed business surcharge, and there could well have to be cuts made in the current 2008-09 fiscal year as well as reductions made to the 2009-10 budget legislation to be introduced in February of next year.

However, no firm commitments to carry-forwards or cuts will be made by the Governor until the January revenue estimating conference. Given Michigan’s economic "good-news-bad-news" uncertainty, the Governor has mentioned that she may ask for an earlier revenue estimating conference; many Departments are already in the process of putting together their budget figures for the 2009-10 recommendations and need direction.

Key House Race Breakdown

House District 20 (Northville) – Democratic Representative Marc Corriveau was the underdog two years ago when he won this Republican-leaning seat, and even as an incumbent he will need to run a strong campaign to defeat Republican candidate and former Representative Jerry Vorva.

House District 21 (Belleville, Canton) – Representative Phil LaJoy is term-limited, but the Republicans are hoping that his son Todd LaJoy can keep the seat. Democrats have pinned their hopes on Dian Slavens, a respiratory therapist from Canton.

House District 24 (St. Clair Shores) – In a similar case to the 21^st district, Republican Bryan Brandenburg is vying to succeed his term-limited father Representative Jack Brandenburg in this toss-up seat. Macomb County Commissioner Sarah Roberts is the Democratic standard-bearer.

House District 37 (Farmington, Farmington Hills) – Popular Democratic incumbent Representative Aldo Vagnozzi is term-limited, and the Democrats have nominated Farmington Hills mayor Vicki Barnett to follow him. Paul Welday won a hard-fought primary race to be the Republican’s choice on the ballot.

House District 39 (W. Bloomfield Twp., Commerce Twp.) – Representative David Law chose to forego a possible third term to run for Oakland County Prosecutor, making this swing seat even more of a toss-up. Republicans nominated Walled Lake School Board President and attorney Amy Peterman. Realtor Lisa Brown, who narrowly missed defeating Representative Law two years ago, is once again the Democratic nominee.

House District 62 (Battle Creek, Marshall) – Republican Representative Mike Nofs is term-limited, opening up a race between two Calhoun County Commissioners. Commissioner Greg Moore, who used to work for Rep. Nofs, won a fiercely fought primary race to be the Republican nominee. Kate Segal, the current chair of the Calhoun County Board, will try to win the seat for the Democrats.

House District 84 (Huron and Tuscola Counties) – Representative Terry Brown shocked the world in 2006 when he became the first Democrat in recent memory (or distant memory for that matter) to win this seat in Michigan’s thumb. Tuscola County Republican Chair Anna Kabot is hoping to recapture this seat for the GOP.

House District 91 (Muskegon) – Democratic Representative Mary Valentine was one of the few challengers to defeat an incumbent House member when she ousted David Farhat two years ago. The GOP has nominated Republicans National Committee member Holly Hughes in what promises to be an all out slugfest for this seat.

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 are not expected to improve. Though the size of the deficit is not yet pinned-down, the revenue estimating conference in January will most likely provide the budget figure that the legislature will use to begin the negotiation process.

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 ORS states that one of the main purposes of the rules change is to provide a greater level of transparency in the retirement application process. The current rules are very broad and do not specify procedures based on past precedent and practice. One of the stated aims is to make it simpler for non-attorneys to understand and follow the process.

As far as we can see, the only significant change that would impact current practices deals with the statute of limitations for collection of overpayments. Currently, SERS will attempt to collect any overpayments in full regardless of how many years back they go. The proposed rules would limit the look-back period for overpayments to six years.

By the time this newsletter is published, the public comment period on these rule changes will have passed. However, there are still a few steps left in the rule-making process that include legislative oversight from the Joint Committee on Administrative Rules (JCAR). MAGE will continue to monitor the rules and will inform the membership of the final outcome.

September - October 2006 Legislative Update  by Ellen Hoekstra and Noah Smith of Capitol Services, Inc.

The Primary Elections were held on Tuesday, August 8. Though many of the predictions made by the Lansing punditry came true, there were a few surprises, including Congressman Joe Schwarz’s loss to challenger Tim Walberg. By and large, incumbents were retained and endorsements were only influential when they were tied to campaign resources.

In many cases, the November elections were actually determined on August 8, given that so many seats are considered "safe" due to redistricting and term limits. There are several key races, however, in which each party will attempt to gain seats from the other during the General Election.

All of Michigan’s 110 Representatives and 38 Senators are up for reelection, as is the Governor, Attorney General and Secretary of State. On the federal level, all 15 members of Michigan’s Congressional delegation are running, as is Senator Debbie Stabenow for Senate.

Governor Granholm faces Republican Dick DeVos, heir to the Amway (now Alticor and Quixtar) fortune, who has already spent more than $21 million on his campaign (as of June 1, 2006). Granholm has spent $4.9 million by comparison. Some Democrats claim, however, that DeVos has actually spent $9.1 million as of July. Granholm retains current Lieutenant Governor John Cherry as her running mate, and DeVos has chosen Ruth Johnson. Johnson was formerly a State Representative and currently serves as Oakland County Clerk.

U.S. Senator Debbie Stabenow will face current Oakland County Sheriff Mike Bouchard for Senate. Senator Stabenow reportedly has $7 million on-hand to take on Sheriff Bouchard, and both Stabenow and Bouchard have started their television ads.

The Attorney General candidates were not chosen through the Primary Election, but instead through their respective conventions. The Democrats have chosen Amos Williams, a former Detroit Police Officer and lawyer in the Detroit area. As expected, the Republicans will retain current Attorney General Mike Cox as their choice for the November election.

23 of Michigan’s 110 Representatives and six of the 38 Senators are term-limited this election season. Term limits will oust Senate Majority Leader Ken Sikkema (R – Wyoming), Majority Floor Leader Bev Hammerstrom (R – Temperance) and Minority Leader Bob Emerson (D – Flint). The "internal" race for Senate leadership appears to be between Jason Allen (R – Traverse City) and Mike Bishop (R – Rochester), assuming the Republicans maintain majority in the Senate.

Speaker of the House Craig DeRoche (R – Novi) is unaffected by term limits and does not face any serious competition to retain his post. However, both Minority Leader Dianne Byrum (D – Onondaga) and Minority Floor Leader Mary Waters (D – Detroit) are term-limited. Several Democratic candidates have expressed interest in filling those two positions, assuming they win their own reelection campaigns.

The deadline for voter registration for the November 7 election is Tuesday, October 10, 2006. Polls open at 8:00 a.m. on November 7 and close at 8:00 p.m.. Don’t forget to exercise your right to vote!

There are five ballot initiatives for consideration in the upcoming November 7 election.

Department of Natural Resources (2006 – 01)

The proposed amendment addresses nine funds or accounts that currently exist in the Natural Resources Act. These funds would be 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.

As the State's budget troubles have worsened, money these funds received from the general fund has decreased considerably, forcing the revenues from user fees to play a more substantial role in funding the programs, thus prompting the move to protect the diminishing funds from being diverted.

Michigan Civil Rights Initiative(2006 – 02)

The proposed constitutional amendment would ban 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.

On its face, the proposal appears equitable. However, it would put an end to Affirmative Action programs that many people feel have led to more equal employment and educational practices. The initiative was put together by California businessman Ward Connerly, who ran similar measures in California and Washington. There are several pending lawsuits in California where other publicly-funded programs such as breast cancer programs for women have been threatened by the proposal.

Proponents of the measure claim that it will truly create an equal playing field for hiring and education in the public sector, and end what is described as an inherently racist practice.

The proposal is still being considered by the courts on the grounds that the people who gathered signatures intentionally misled voters about what the ballot initiative is truly designed to do. The court, however, did not agree to remove the initiative from the ballot at this point, but should the courts decide in favor of the plaintiffs, the initiative will be removed.

Mourning Dove Hunting (2006 – 03)

PA 160 of 2004 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. Michigan became the 41^st state to allow Mourning Dove hunting. PA 160 became extremely politically-charged, with much criticism levied at the Governor for signing the law.

The ballot initiative, if it passes, will reverse PA 160 and reclassify Mourning Doves as song birds.

Eminent Domain (2006 – 04)

In part, this proposed amendment is about ending the uses of "eminent domain" in which private property is condemned for transfer to a private entity for the purposes of economic development or the enhancement of tax revenues.

First, the amendment adopts standards regarding acceptable reasons for a property to be taken by a government entity and transferred to a private entity. These standards were referenced in a court case, Wayne County v. Hathcock.

The amendment would require governments to provide compensation at least equal to 125 percent of a residential property’s fair market value. Also, the proposed amendment would shift the "burden of proof" standard regarding taking the property in question for a public use. Currently, the burden of proof lies with the owner objecting to the taking of the property – why it should not be taken. The amendment shifts that burden to the government proposing the taking of property – why they should, against the owner’s will. Finally, Proposal 2006-04 protects against future legislative actions or judicial decisions that would reduce the rights, grants, or benefits afforded to property owners, because it places these standards in the constitution.

The proposed amendment is one of several proposals around the nation created in the wake of the U.S. Supreme Court decision in Kelo v. New London, which held that states and localities have significant discretion in determining what qualifies for eminent domain. Many groups have become concerned that property owners require greater protection.

K-16 (2006 – 05)

This initiative would guarantee a base-level of funding every year for Michigan’s K-16 education system, spanning from Elementary and High Schools to Community Colleges, Private Colleges and Michigan’s major Universities. The proposal would increase annual per pupil spending by the rate of inflation, narrow the gap between highest- and lowest-spending districts, require GF/GP dollars to fund any shortfalls from this new funding level, base 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.

There is concern that the magnitude of spending that this initiative guarantees will undermine other major state budgets, including Community Health and Corrections. Opponents of the measure also claim that it is inequitable to constitutionally guarantee funding for one program and require all other programs to fight for what’s left. Further, while funding is guaranteed, there are no improvements or performance measures built in to the language. In response to the initiative, all of the state budgets that passed this year included language that reduced each one by a certain percentage in order to build-in a reduction should this ballot initiative pass. This language was eventually removed in final budget negotiations, but it was hailed as an effective political statement by opponents of the initiative.

Equally passionate are the supporters, who argue that this proposal will make college tuition affordable, democratize the quality of education, provide a level of funding that cannot be reduced by future legislative action and make Michigan competitive with high-quality schools and graduates.

Step Overspending (S.O.S.) (formerly 2006 – 06)

This proposal is similar to the Taxpayer Bill of Rights (TABOR) proposal enacted in Colorado. The proposal limits government spending to a formula involving population and inflation. The cap this placed on spending in Colorado literally gutted the state budget, necessitating the elimination of hundreds of state programs and thousands of state workers. The effects of the proposal were such that Colorado citizens just voted to suspend the formula for five years.

The proponents of the Stop Overspending (S.O.S.) ballot proposal had turned in more than 500,000 signatures, over 150,000 more signatures that are actually needed to put a petition on the November ballot. However, so many signatures were found to be duplicates that the Board of Canvassers ruled to throw the initiative out. Proponents of the measure appealed the decision to the Circuit Court and the Supreme Court. However, both the Circuit Court and the Supreme Court found in favor of the Board of Canvassers. This will not appear on the ballot in November.

Single Business Tax

Since the effort in the legislature to eliminate the State’s Single Business Tax was twice vetoed by Governor Granholm (citing that she was unwilling to cut $1.9 billion from the state budget – and the jobs that go with that – without a replacement tax to cover the lost revenue), a ballot drive was started to put the issue before voters in November. Enough signatures were collected to put the issue on the ballot, but there was a provision added to the language that gave the legislature a chance to act on the proposal within 40 days. To nobody’s surprise, the legislature acted to affirm the initiative, which effectively cut the Single Business Tax starting in October of 2007. Since this was a citizen-led initiative, the Governor is unable to exercise her veto authority.

House and Senate leadership have promised that they will meet to determine what will replace the lost income. While there are some ideas that have been talked about, there is no formal discussion or agreement at this point, and probably will not be until after the November election.

Legislative Update for July - August  2006 by Ellen Hoekstra and Noah Smith of Capitol Services, Inc.

The state budgets have gone through the final negotiation process, with conference committees signing-off on what will be the final versions of each budget. The Legislature will meet at the end of July to cast concurrence votes on each budget, and the bills then head to the Governor for signature. The Governor can veto any single line item in each budget, and any boilerplate that deals specifically with money (some boilerplate directs spending, while other boilerplate directs department policy).

Of some note is the Department of Corrections (DOC) budget. The Department of Corrections Conference Committee agreed to leave in more than $13.8 million for pay increases, which the MDOC is contractually obligated to pay, as well as for an increase in the dry cleaning allowance. The Committee also agreed to leave in a line item that funds a provision in corrections employees’ contracts that allows union members to buy-out compensatory time. The House had originally reduced this line item to a placeholder, but the Conference Committee concurred with the Senate version.

Larger increases to both the K-12 budget (in the form of an additional $210 per pupil) and the higher education budget, granting all 15 public universities to increases between 2.6% and 6%, have required some cuts to all of the other departmental budgets in order to maintain a balanced budget. The two most contentious budgets this year were the Department of Human Services budget, which was embroiled in a battle over welfare reform, and the Higher Education budget, which is almost always controversial based on the funding formula used which favors some schools over others.

On a final budget note, the Granholm Administration does not see a state employees’ early-out provision as a solution to ongoing budget problems. In a recent memo to her cabinet members, Granholm pointed out that the last early retirement plan resulted in the loss of long-term employees and the state was forced to temporarily rehire many retired workers to help shift many of its functions to one run by fewer workers. Finally, the Governor has concerns that early-out provisions can set the stage for privatization or outsourcing.

The proponents of the Stop Overspending (S.O.S.) ballot proposal have turned in more than 500,000 signatures, over 150,000 more signatures that are actually needed to put a petition on the November ballot. The signatures were turned-in on July 10 and have yet to be completely verified, but supporters anticipate that the proposal will indeed appear on the ballot.

This proposal is similar to the Taxpayer Bill of Rights (TABOR) proposal enacted in Colorado. The proposal limits government spending to a formula involving population and inflation. The cap this placed on spending in Colorado literally gutted the state budget, necessitating the elimination of hundreds of state programs, including many programs designed for low-income and indigent populations. The effects of the proposal were such that Colorado citizens just voted to suspend the formula for five years.

Also with signatures under review by the Secretary of State is the ballot proposal to eliminate the Single Business Tax, backed by Oakland County Executive L. Brooks Patterson. Patterson’s group submitted more than 370,000 signatures, which the Secretary of State has 60 days to approve. If it passes, this ballot proposal will eliminate the Single Business Tax (SBT) by December 1, 2007. This will create a $1.9 billion hole in the budget. In response, legislators are already meeting to determine what will replace the lost income.

Both of these initiatives, as well as several others including the Michigan Civil Rights Initiative, are expected to appear on the ballot this November.

The Primary Election is slated for Tuesday, August 8, 2006. All of Michigan 110 Representatives and 38 Senators are up for reelection, as is the Governor, Attorney General and Secretary of State. On the federal level, all 15 of Michigan’s Congressional delegation are running, as is Debbie Stabenow for Senate.

Governor Granholm faces Republican Dick DeVos, heir to the Amway (now Alticor) fortune, who has already spent more than $5.4 million on his campaign (as of June 1, 2006). Granholm has spent $1.7 million by comparison. Some Democrats claim, however, that DeVos has actually spent $9.1 million as of July.

U.S. Senator Debbie Stabenow will almost certainly face current Oakland County Sheriff Mike Bouchard for Senate. Bouchard has to survive the August 8 primary, however, against a clergyman named Keith Butler, an African American from Oakland County. Senator Stabenow reportedly has $7 million on-hand to take on whoever her opponent is to be after August 8. Butler and Bouchard have already started their television commercials, while Stabenow will most likely wait until after August. Bouchard does not yet have campaign contribution figures to report.

Attorney General candidates are not chosen through the Primary Election, but instead through a convention. There are two Democrats vying for the Attorney General nod to unseat current Republican Attorney General Mike Cox: Amos Williams and Scott Bowen. Williams is a former Detroit Police Officer and is currently a lawyer in the Detroit area. Bowen is a former judge and attorney from Grand Rapids, and has support from the Governor.

23 of Michigan’s 110 Representatives and six of the 38 Senators are term-limited this season. Term limits, however, will affect the Senate Majority Leader Ken Sikkema (R – Wyoming), Majority Floor Leader Bev Hammerstrom (R – Temperance) and Minority Leader Bob Emerson (D – Flint). This makes the Senate Leadership race, especially for the Republicans, more contentious than many of the elections in November. Currently, Senators Wayne Kuipers (R – Holland) and Mike Bishop (R – Rochester) have teamed-up to run against Jason Allen (R – Traverse City) and Alan Cropsey (R – DeWitt) for the top two spots in the Senate.

Speaker of the House Craig DeRoche (R – Novi) is unaffected by term limits and does not face any serious competition to retain his post. However, both Minority Leader Dianne Byrum (D – Onondaga) and Minority Floor Leader Mary Waters (D – Detroit) are term-limited. Some seven candidates have expressed interest in filling those two positions assuming they win their own reelection campaigns.

The deadline has passed to register to vote in the August Primary for people who have not ever registered to vote or have moved. Polls open at 8:00 a.m. on August 8 and close at 8:00. Don’t forget to exercise your right to vote!

Representative Tim Moore (R – Farwell) introduced HB 6041, which requires Departments to give preference to Michigan-based goods and services when bidding for contracts or purchasing items.

Specifically, the Department of Management and Budget (DMB) would be required to undergo a competitive bid process unless an emergency (defined as an act of God, a natural disaster, or an act of terrorism or war) exists. The bill requires preference be given to Michigan-based businesses and lowers the "low bid" for Michigan-based business preference from $100,000 to $25,000.

The bill also revises how companies can submit a bid, and puts companies into three competitive classes; class 1 representing businesses that employ 50% or more of their work force in Michigan, class 2 employing 10% and class 3 representing companies that do not fit the other classes. Further, the DMB must publish on its web site a list of all goods to be purchased or services to be performed to maximize the number of competitive bids.

HB 6041 has passed the House and is in the Senate Commerce and Labor Committee.

Despite the Governor’s statement regarding "early outs," Representative Rick Jones (R-Grand Ledge) has introduced House Bill 6117, which would provide a one-time "80-and-out" early retirement option for state employees who have achieved the combined age-and-service of 80 years on or before September 1, 2007. The Governor has indicated, however, that one-time early out packages tend to cause great havoc in state agencies and can set the stage for privatization and outsourcing. HB 6117 is in the House Senior Health and Retirement Committee.

SB 953, sponsored by former-Senator Virg Bernero (now Mayor of Lansing) allows for a permanent 80-and-out provision for state employees. This provides greater flexibility for state workers who wish to retire early without the problems created by one-time early outs which affect thousands of state employees all at once. SB 953 remains before the Senate Appropriations Committee.

MAGE continues to support House Bill 4030, sponsored by Representative Aldo Vagnozzi (D-Farmington Hills). This bill would allow newly hired state workers the option to choose either the defined contribution or defined benefit retirement plan. It would also allow state employees currently in the defined contribution plan the option of switching to defined benefit. HB 4030 is in the House Government Operations Committee. Members are urged to write their State Representatives in support of HB 4030.

May/June 2006 - Legislative Update  by Ellen Hoekstra and Noah Smith of Capitol Services, Inc.

Work on the State budgets is moving according to the schedule laid out by the Senate and House Appropriations Committee Chairs. All of the Senate-originated bills have been transferred to the House. The House subcommittees are set to complete their bills by the week of May 8, when the House Appropriations Committee will again combine all of the bills into one Omnibus bill to send to the Senate.

However, there will be a slight delay in committee action as the State Revenue Estimating Conference will be held on Wednesday, May 17. The projections for State revenue from this conference are what the legislature will use as the final figures for setting each budget. From this conference, new targets for each budget are set and the bills are amended accordingly.

While the legislature is scheduled for remaining in session until June 29, there is talk of completing the budgets in mid-June to give legislators more time in the summer to prepare for the primary elections.

Of some significance is the Department of Corrections (DOC) budget. The Selepak incident has caused much of an uproar in the legislature. Of all of the fallout, most significant to MAGE are proposals from the House and Senate DOC appropriations subcommittees to require parole and probation supervisors to perform casework, on which the DOC has expressed neutrality. This is a Civil Service matter. We can expect Civil Service to respect the integrity of the unions involved. The proposals arose from some of the blame for Selepak’s release being placed parole workers and an alleged lack of understanding of DOC procedure. Parole and Probation workers contend that there are simply not enough of them to do all of the work required. Some of these workers held a demonstration in front of the Capitol on Tuesday, May 3, urging the legislature to fund new positions.

Another important, yet unresolved issue is the repeal of the Single Business Tax (SBT), which would essentially create a $1.8 billion "hole" in state revenue. The Governor vetoed the second legislative attempt at an SBT repeal, citing that she continues to be unwilling to allow for such a massive cut to state revenues without a proposal to replace those lost funds. A group has organized, called Americans for Prosperity, which will attempt to get enough signatures to put the SBT repeal issue on the ballot this November. The group, put together by Oakland County Executive L. Brooks Patterson, has until May 31 to collect over 300,000 signatures. The group claims to be 2/3 of the way there, but that they are almost out of money.

MAGE and Capitol Services have also continued to work with the Administration on issues of equity, such as the issue of uniform cleaning allowances.

One of the proposals that will potentially appear on the November ballot is called the Stop Over Spending (S.O.S.) proposal. This proposal is similar to the Taxpayer Bill of Rights (TABOR) proposal enacted in Colorado. The proposal limits government spending to a formula involving population and inflation. The cap this placed on spending in Colorado literally gutted the state budget, necessitating the elimination of thousands of state employees. The effects of the proposal were such that Colorado citizens just voted to suspend the formula for five years.

Petitions are still being circulated to get enough signatures to put the issue to the voters in November. We recommend that you do not sign these petitions.

Tuesday, May 16 is the filing deadline for candidates wishing to run for the August 8 primary election. All of Michigan 110 Representatives and 38 Senators are up for reelection, as is the Governor, Attorney General and Secretary of State. On the federal level, all 15 of Michigan’s Congressional delegation are running, as is Debbie Stabenow for Senate.

23 of Michigan’s 110 Representatives and six of the 38 Senators are term-limited this season. Term limits, however, will affect the Senate Majority Leader Ken Sikkema (R – Wyoming), Majority Floor Leader Bev Hammerstrom (R – Temperance) and Minority Leader Bob Emerson (D – Flint). This makes the Senate Leadership race, especially for the Republicans, more contentious than many of the elections in November. Currently, Senators Wayne Kuipers (R – Holland) and Mike Bishop (R – Rochester) have teamed-up to run against Jason Allen (R – Traverse City) and Alan Cropsey (R – DeWitt) for the top two spots in the Senate.

Currently, the Republican-to-Democrat ratio in the Senate is 22 to 16. In the House, with only 107 of 110 members serving (two left for a different office and one passed away), the ratio is 58 to 49, with a Republican majority. Nothing is expected to change in the Senate with regard to seats lost or gained by either party. In the House, the Democrats have hopes to gain an additional 3 to 5 seats, but the campaign season is yet to heat up.

Speaker of the House Craig DeRoche (R – Novi) is unaffected by term limits and does not face any serious competition to retain his post. However, both Minority Leader Dianne Byrum (D – Onondaga) and Minority Floor Leader Mary Waters (D – Detroit) are term-limited. Some seven candidates have expressed interest in filling those two positions assuming they win their own reelection campaigns.

MAGE President Dale Threehouse and Executive Director John DeTizio were invited to the signing of a special State of Michigan Safety and Health Policy Statement with Governor Granholm. The proclamation recognizes that the State itself is the largest employer, and that employee health and safety lead to better services. The proclamation goes on to urge the Office of the State Employer to promote inclusive opportunities for Leadership Unions to work with them to improve workplace health and safety and that all State Departments to implement a comprehensive process for workplace safety, consistent with the Office of the State Employer’s Safety and Health System.

This proclamation is especially relevant in regards to the April 10 incident at the Ojibway Correctional Facility in the Upper Peninsula in which two officers were stabbed several times and wounded severely. The press had underrepresented the incident, and both President Threehouse and Director DeTizio took a moment to explain the incident to Governor Granholm to help give her an idea of the importance and relevance of the proclamation.

On a related note, Governor Granholm also declared the week of May 1 as Public Service Recognition Week, and May 3 as State Employee Recognition Day.

HBs 4101 and 4216, sponsored by Rep. Lisa Wojno (D-Warren) are still under consideration in a subcommittee of the House Health Policy committee chaired by Representative Dick Ball (R-Laingsburg). HB 4101 would establish minimum nurse-to-patient ratios for licensed hospitals, including state mental health hospitals. HB 4216 would prohibit, subject to a professional bargaining agreement, a hospital from requiring a registered professional nurse or licensed practical nurse to work more than 40 hours in any seven-day work period or more than his or her scheduled shift in any day except in the event of an emergency. Details of these bills appear in past issues of IMAGE.

A bill similar to HB 4101 is SB 169 (Senator Bruce Patterson, R-Canton), which also requires a hospital to create a responsible staffing plan, per the details outlined above. This bill is in the Senate Health Policy Committee.

Per MAGE’s request, Representative Wojno is considering an amendment to include state-run VA hospitals in the bills. It is not clear, however, if the state is able to regulate any type of VA hospital in this fashion.

March - April 2006 Legislative Update by Ellen Hoekstra and Noah Smith of Capitol Services, Inc.

Executive Budget Recommendations: The Budget Process is Under Way

On Thursday, February 9, Governor Granholm unveiled her Executive Budget Recommendations. Total adjusted state revenues are reported to be $9.04 billion.

Costs to the state from Medicaid caseload increases, replacement of lost federal grants and matching funds, $58 million to cover increases in pension costs and cost increases for retiree health benefits along with other fiscal pressures all add up to $468 million in the need for increased funding. With a net increase to the General Fund of only $60 million, this creates a funding gap of $408 million. The Governor proposes to balance this with $127 million in spending reductions, the closure of $111 million in tax loopholes and other budget savings.

Other highlights included:

Among the other themes in the Governor’s speech is "Better Government." She included cutting red tape, keeping the books balanced and offering fast and friendly service, along with a few other esoteric topics. She lists as the indicators of success for "better government" as a positive balance in the state’s books, reduced expenditures for contractual services, reduced energy consumption in state buildings, increased number of on-line services for citizens and lower employee turnover rates.

The Executive Budget Recommendations hail the beginning of the appropriations process. Subcommittee action has completed in the Senate already, which is exactly along the schedule the Senate planned for the Bills. These appropriations bills include Community Colleges, Capital Outlay, Community Health, Corrections, Education, Environmental Quality, Higher Education, Natural Resources and School Aid.

The House-originated bills, however, are not yet finished. These include Agriculture, Labor and Economic Growth, Human Services, General Government, History, Arts and Libraries, Judiciary, State Police, Military Affairs and Transportation.

The legislature takes a recess from April 1 – 14, and action on appropriations bills begins immediately again. All state budget action is scheduled to be completed by Thursday, June 29, though experience dictates that a few of the budgets may be more drawn-out than that.

Historically, the budgets are split between the two Chambers, alternating annually. Capitol Services understands that the House of Representatives will again roll all of its budgets into an Omnibus bill as they did last year. Each subcommittee will still have oversight over its particular sections, but only one bill will actually be addressed. The Senate has maintained the historic method of total subcommittee oversight over individual appropriations bills. The process creates problems in reconciling any differences between the Senate and House approach, though neither Chamber seems willing to budge from its preference of procedure. The House remains more interested in the "Price of Government" methodology than the Senate does, which will no doubt lead to some interesting discussions.

HB 5569 – Pension Oversight Task Force

Representative Andy Dillon (D-Redford Township) has introduced HB 5569, which creates a legislative oversight task force to investigate reform issues relating to amounts of pensions. The task force would suggest to the legislature public pension law reform to prevent certain public employees from receiving excessive compensation. The bill specifies (but does not limit the parameters to) municipal and county employees. In discussions with Rep. Dillon, it is clear that his primary focus is on local pensions and not on state employees’ pensions or on school employees’ pensions. The bill was referred to the House Appropriations Committee and he has not asked for a hearing on it.

HB 5523—More Red Tape

HB 5523 (Rep Bob Gosselin, R- Troy) would require the DMB to maintain records of all state-owned or leased vehicles and put that information on the state web site. The bills were reported out of the House Government Operations committee in substitute H-2 form, and await action on the House Floor. There appears to be some will to move the bills through the House, but Senate action may be more unlikely.

The information to be reported includes date of purchase or lease, date of sale or end of lease, year, make and model, a list of authorized users, mileage of each vehicle accrued in the last fiscal year, and total mileage. Ironically these bills appear to create more of the governmental red tape that the bill sponsor frequently decries. In the instance of certain state vehicles, there are also some concerns about impact on the personal security of employees in certain more sensitive employment positions who drive the vehicles; however, the substitute clarifies that the name of an individual will not be disclosed if it threatens either that person’s safety or public safety in general.

HB 5523 is part of a package that includes HB 5521 and 5522. The other legislation requires the same data collection and public dissemination for local governments and school districts. The majority of attention seems to be on reporting at the local government level, with state owned and operated vehicles swept into the package just for good measure.

Other Legislation of Interest

HB 4030 (Rep. Aldo Vagnozzi, D-Farmington Hills)

This bill allows for new state employees to elect either to participate in Tier 1 (defined benefit) or Tier 2 (defined contribution) retirement plans. The act would also allow for there to be a point at which current employees could also elect to switch. The switch in either case is irrevocable. This bill is in the House Government Operations Committee. MAGE and the Retirement Coordinating council support this bill. Members are urged to write their state representatives in support of HB 4030.

Legislative Report for February 2006 by Ellen Hoekstra and Noah Smith of Capitol Services, Inc.

Look Ahead for 2006

In November of 2006 the Governor, Attorney General, Secretary of State, State Senate and House will all be up for re-election. The sad passing of Rep. Herb Kehrl (D-Monroe) and the election of Rep Phillips (D-Pontiac) as Pontiac’s mayor create two vacant seats in the House. Sen. Virg Bernero’s (D-Lansing) victory in the Lansing mayoral race created one vacancy in the Senate. Rep. Gretchen Whitmer (D – East Lansing) has already announced her bid for Bernero’s seat, as did, among five other candidates, the son of former Lansing Mayor Tony Benavides. Governor Granholm set the special election for this seat on March 14, 2006. The Primary election is set for February 21, 2006. No dates have been set for special elections to fill the remaining vacancies in the House. Despite being criticized by Republicans for not holding a special election to fill those seats, Governor Granholm contends that she was specifically contacted by both the city of Monroe and the city of Pontiac, saying that they could not afford to hold a special election at this time.

There will be six additional vacant seats in the Senate and 23 in the House as a result of term limits. Other elections that will be held in 2006 include those for seats on the Michigan Board of Education and three university boards as well as the United States Senate, where U.S. Senator Debbie Stabenow’s seat is one of the ones in contention. Stabenow has announced that she has raised $5.7 million already for her campaign, and has a goal of $15 million by the end of the election cycle.

Groundwork has also been laid for a number of issues to be taken up in 2006. Although no legislation was passed in these areas (or in some cases yet introduced) in 2005, a number of significant issues were subject to planning and preparation, work groups, legislative hearings and hard negotiations. Among these are no-fault auto insurance reform, high school curriculum standards, Medicaid estate recovery/preservation, sentencing and parole reforms, several important registration and licensure issues, and various technical corrections to legal practice issues.

Revenue Estimating Conference Expects Increase in State Revenues for 2006

The directors of the House and Senate Fiscal agencies, joined by the State Treasurer, met on January 12 to determine the state revenue forecast for the upcoming year. They heard testimony from a number of economists and other experts who gave presentations on the status of the U.S. and Michigan economy. Michigan continues to lag behind most of the nation in terms of economic growth. According to several panelists, this stems primarily from the difficulties being experienced in the manufacturing sector. Despite repeated attempts over the past few decades to balance Michigan’s economy, it is still heavily reliant on the success of the auto industry and other manufacturers. The well-publicized problems of GM, Ford and their suppliers are the main reason for Michigan’s failure to join the national economic recovery.

Nonetheless, the final revenue estimate reached by the conference predicts a modest increase in state revenues for the upcoming year. Their estimate expects an increase in General Fund/General Purpose dollars of 2% which amounts to approximately $170 million. These predictions take into account the business tax cut passed in December, but do not account for any of the further cuts recently proposed by House and Senate leaders.

Although on the surface the increase in revenues is heartening, it does not paint the entire picture of the Michigan budget situation. Increases in spending pressures, primarily from areas such as Medicaid, will likely swallow up the revenue increase. This means the state will still be left in a shaky position going into the FY 2006-2007 budget discussions.

State of the State Address Set for January 25^th, 2006

By the time you receive this issue of IMAGE, the Governor will have already given the State of the State address. This was an important address for the Governor, as it outlined her priorities for the year and also defined the direction and issues her campaign for reelection will cover.

It was expected that much of what the Governor would be addressing would center on policy recommendations as well as her budget priorities for the year. The state is expecting a modest surplus of $170 million (from article above), which may be completely offset by continued structural gaps in Medicaid. Governor Granholm will then unveil her budget recommendations to the legislature on Thursday, February 9. This will serve as the starting point for budget negotiations. The legislature has until September 31 to pass all of the appropriations bills, as the state fiscal year begins on October 1.

Other Legislation of Interest

HB 4030 (Rep. Aldo Vagnozzi, D-Farmington Hills)

This bill allows for new state employees to elect either to participate in Tier 1 (defined benefit) or Tier 2 (defined contribution) retirement plans. The act would also allow for there to be a point at which current employees could also elect to switch. The switch in either case is irrevocable. This bill is in the House Government Operations Committee. MAGE and the Retirement Coordinating council support this bill. Members are urged to write their state representatives in support of HB 4030.

HJR 6 (Rep. John Garfield, R – Rochester Hills)

This resolution gives preference to hiring veterans for Civil Service positions. The bill has passed the House and is in the Senate Committee on Government Operations.

HB 5388 (Rep. Andy Dillon, D – Redford)

This bill creates an intrastate prescription drug purchasing cooperative for a "Michigan Prescription Gold Benefit Plan." The benefit plans for state employees, school employees, retirees and prisoners would be a part of this collective. The savings and more competitive drug prices created by this collective will be used to create the Gold Benefit Plan to purchase prescription drugs for un- and under-insured (meaning people whose benefit plan pays 80% or less of an enrollee’s prescription costs) residents. The bill is in the House Health Policy Committee.

Legislative Update for January 2006 by Ellen Hoekstra and Noah Smith - Capitol Services, Inc.

Tax Restructuring Sent to Governor

As reported in the November IMAGE, the Governor vetoed the tax-restructuring package. The Governor’s veto blocked the bills that would have cut taxes and kept a sunset on the SBT in place. However, the "jobs creation" bills that were a part of the overall package were signed. Thus, the Governor has approved bills that would attract businesses to Michigan and encourage investment in tech and manufacturing jobs, and her veto sends a message to the Legislature that they must try again to meet the original agreement struck earlier in November. One of the important steps the Governor seeks is the repeal of the SBT sunset and a 100% personal property credit for businesses which choose to consolidate all of their operations in Michigan.

Shortly after midnight on Wednesday, December 14, 2005, the Legislature sent the second attempt at a tax-restructuring package to the Governor. The new package contains SBT credits on existing property and the 100% personal property tax credit on business that move to Michigan. The SBT sunset is still in place, but members of the Legislature said that they would focus on creating a "successor" to the SBT when they reconvene in January. The Governor has said she will sign this package.

2006 Elections

January 1, 2006 not only begins a new year but also the start of an election year. In 2006 the Governor, Attorney General, Secretary of State, State Senate and State House will all be up for re-election.

This will also be the last year for six Senators and 23 House members to serve due to term limits. There are currently two vacancies in the House and one in the Senate; Rep. Clarence Phillips (D-Pontiac) was elected as Mayor for the city of Pontiac and Sen. Virg Bernero (D-Lansing) was elected as Mayor of Lansing. And, sadly, Rep. Herb Kehrl (D-Monroe) recently passed away. There is no indication at this point that special elections will be held to fill any of the current vacancies.

Disaster Leave

Rep. Kevin Green (R – Wyoming) has introduced HB 5061, which allows state workers specifically skilled in "emergency services" to take unpaid leave of absence to provide disaster or emergency relief assistance. The state cannot penalize an employee who takes an authorized leave of absence to provide disaster or emergency relief assistance under this bill.

In addition to unpaid leave, an employee of an agency in any branch of state government

could be granted leave from work with pay for not more than ten days in any 12-month

period to participate in specialized disaster relief within or outside the state if the following circumstances are present:

The Governor or the President of the United States has declared the disaster;

The American Red Cross has requested the services of the employee;

The employee's department head has approved the leave;

If the service is rendered outside the state, the Governor must approve the leave and if the employee is in the state classified civil service, the Civil Service Commission must approve the leave.

The bill has passed the House and is in the Senate Commerce and Labor Committee.

Teacher Pensions on Hold Until January

The Michigan legislature has effectively adjourned until mid-January, without acting on the school employee retirement bills, HB 4947 (Rep. Brian Palmer, R- Romeo). This bill that would have placed all newly hired school employees into a defined contribution pension, with a graded scale premium, similar to that which was enacted for new state employees during Governor Engler’s administration; similar legislation had been enacted for school employees and then was repealed when the Governor sought actuarial assumption changes to finance the Durant court case brought by a number of school districts.

Despite a "call of the House," which is like a "lock down," for six hours, House Republican leaders were unable to get the required 55 votes for this bill due to solid opposition among Democrats along with a handful of Republicans who refused to vote for the bill despite serious pressure from their leadership. Eventually, Republican leaders stripped the defined contribution component from the bill and gained enough support from members of their own caucus to get the bill passed. However, the vote on which the bill passed was reconsidered, which negated the previous action. Thus, the bill has not passed the House and remains on the House calendar and another attempt is expected next year.

Welfare Reform

The Legislature remained in session until nearly 2 a.m. on Tuesday, finally passing the package of Welfare Reform bills that have been the subject of extensive debate. The package includes a 48 month lifetime limit for all able- bodied adults in the system as well as a three strikes sanction policy that consist of 90 day sanctions for the first two instances of non-compliance and 24 month sanction for the 3^rd instance. During any sanction period the 48-month clock continues to tick. The clock also does not stop when the recipient is working but still eligible for cash assistance.

The proposal does include more opportunity for individuals to receive an early, individualized assessment to determine skills and barriers as well as more opportunity for education and training. The plan would allow a person to participate in post secondary education for up to 24 months.

HB 5438, which creates the 48-month lifetime limit, is tie-barred to eligibility requirements for the Work First Program (SB 892). Additionally, HB 5441, which creates the "three-strike" sanctions, is tie barred to the Supplemental Security Income legislation (HB 5439). The tie-bars will come into play should the Governor veto the package.

Opponents of the legislation argue that a 48-month limit on welfare assistance is too severe to implement in a state when its economy cannot produce jobs for everyone who wants to find work. However supporters claim that an increased accountability factor will improve the effectiveness of the system.

The Governor is expected to veto the package. If so, the legislature will then have to take up a bill extending the sunset of Michigan’s current welfare system that expires on December 31, when they reconvene for the final time this year on December 29.

Other Legislation of Interest

HB 4030 (Rep. Aldo Vagnozzi, D-Farmington Hills)

This bill allows for new state employees to elect either to participate in Tier 1 (defined benefit) or Tier 2 (defined contribution) retirement plans. The act would also allow for there to be a point at which current employees could also elect to switch. The switch in either case is irrevocable. This bill is in the House Government Operations Committee. MAGE and the Retirement Coordinating council support this bill. Members are urged to write their state representatives in support of HB 4030.

HJR 6 (Rep. John Garfield, R – Rochester Hills)

This resolution gives preference to hiring veterans for Civil Service positions. The bill has passed the House and is in the Senate Committee on Government Operations.

HB 5388 (Rep. Andy Dillon, D – Redford)

This bill creates an intrastate prescription drug purchasing cooperative for a "Michigan Prescription Gold Benefit Plan." The benefit plans for state employees, school employees, retirees and prisoners would be a part of this collective. The savings and more competitive drug prices created by this collective will be used to create the Gold Benefit Plan to purchase prescription drugs for un- and under-insured (meaning people whose benefit plan pays 80% or less of an enrollee’s prescription costs) residents. The bill is in the House Health Policy Committee.

by Ellen Hoekstra and Noah Smith of Capitol Services, Inc.

One Final Resolution to the Budget Process

In Mid-October, the Office of the State Employer (OSE) negotiated an increase in the clothing allowance for the Michigan Corrections Organization (MCO) for the "rank-and-file" from $250 to $575 per year. However, the Corrections Supervisors’ clothing allowance remained at $250. MAGE had also received word that the OSE was not inclined to rectify this situation this year.

With a continued wage compression problem (there is only a $1-per-hour difference between an officer and a sergeant), continued prohibition on Captains to collect time-and-a-half for working Holidays, and use of the same uniform as the "rank-and-file," this was a huge inequity.

Good news came within the week, though, that the situation had been fixed. The clothing allowance for supervisors was increased also to $575.Through its hard work and concern about members’ well-being, MAGE was able to present its members’ case regarding these inequities effectively, with a positive final outcome.

Tax Restructuring Sent to Governor

In October, the Legislature switched its focus from the budget to the Governor’s economic stimulus plan. What seemed to be a bi-partisan agreement to use a portion of the tobacco settlement funds to pay for a job growth package has turned into a political battle over tax cuts and the long-term status of the Single Business Tax. The words exchanged during this debate will definitely be heard again during the 2006 elections.

The issue began when Governor Granholm announced a plan for the state to put out a $2 billion bond proposal. The funds raised would be used to promote economic development, improve infrastructure, and provide capital investment for companies willing to expand in Michigan. Over the summer, a bi-partisan group of State Representatives amended the proposal so that the funding would come out of the state’s tobacco settlement money rather than a bond proposal. They also lowered the total amount to $1 billion.

While separate discussions about tax restructuring and economic stimulus have also been ongoing regarding the Governor’s business tax restructuring program, in the past several weeks the two issues became merged into one, which is not surprising given rhetoric about the link between the two concepts. On November 4, the Governor and House and Senate leaders announced a deal that would reduce the economic stimulus package to $400 million, with the remainder going into various business tax cuts. This angered many in the public sector who had been supportive of the Governor’s plan as long as it was revenue neutral. Since the new agreement would create an approximately $400 million hole in the state budget over the next 5 years, it was greeted with disdain by several public sector unions, including MAGE.

Before the agreement could be pushed through the Legislature, however, it took another bizarre turn. According to the Governor, part of the agreement was to eliminate the sunset on the state Single Business Tax. This sunset would have totally repealed the tax in 2009; thus, the Governor’s plan would eliminate the sunset while also lowering the rate further. Speaker of the House Craig DeRoche (R-Novi) denied that the Single Business Tax repeal had ever been part of the agreement, and supported a version that would instead keep that sunset on the SBT in 2009 (thus eliminating it). Although the Governor promised to veto an economic stimulus package that contained the SBT sunset provision, the House and Senate passed it in that form anyway. If the Governor vetoes the legislation as expected, this issue will continue to dominate the legislative agenda and the political campaign rhetoric.

School Employee Pension Bills on Legislative Short List

Efforts are still underway to push public school employees into defined contribution pension plans with graded-scale premiums, similar to what happened to newly hired state employees during Governor Engler’s Administration. It is understood that there will be a serious effort to send legislation dealing with public school pensions to the Governor’s desk by the end of this year. Although the House and Senate bills (HB 4947 and SN 635) take slightly different approaches, each would require all newly-hired public school personnel to enter into a defined contribution pension plan and would close down the current defined benefit plan. They would also create a graded-scale premium for retiree health insurance. Given a recent Michigan Supreme Court ruling that states that retiree health care benefits do not share the constitutional protection of pension benefits, school employees are concerned that a graded scale premium for future hires may create a precedent for graded scale premiums for current employees, once they reach their retirement age.

How does this affect state employees’ pensions? If state employees ever hope to see a return to a defined benefit plan, with no graded scale premium—even as an option (see HB 4030 below), it will not help their case to have all future school employees lose their current retirement benefit status.

Welfare Reform

Three proposals for welfare reform will soon be discussed, from the Granholm administration, the Senate and the House. These bills were the result of an agreement made by all three parties during the last budget cycle not to move forward with a 48-month limit on cash assistance. Each proposal will reportedly have a focus on development of a personal development plan as a measure of making people more likely to get and stay in good careers. It has been acknowledged for some time that many people who go through the WorkFirst program soon return to public assistance within about 90 days, on average. There is an increasing understanding that it is not enough to provide a quick job with no skills, but instead to adequately train and prepare people for careers. Thus, risk assessments for mental health, substance abuse, domestic violence, child abuse and neglect and others will be an important part of preparing people to move off of public assistance if they can be, and the subsequent treatment services, will be part of this proposal. Of equal importance is an allowance in the plan for people to essentially be able to count hours spent on approved educational courses as part of the 40-hour-per-week work schedule. Also being discussed are employer incentives in the form of tax credits for employing WorkFirst recipients.

Senate Bills 892, 893 and 894, introduced by Senators Bill Hardiman (R – Kentwood), Alan Cropsey (R – DeWitt) and Irma Clark-Coleman (D – Detroit), respectively, are part of the Senate’s proposal. There is still some negotiation on what will come from a House proposal, and how each chamber will share the final package. SB 892 outlines the creation of a development plan, and creates a contract, including sanctions, for the plan. The bill also requires that each enrollee be tracked by social security number so that benefits and other information can be tracked over a recipient’s lifetime. SB 893 sets up a system of penalties for noncompliance of WorkFirst objectives, unless there is good cause to be in violation. SB 894 includes training in "life skills" including mental and physical barriers, literacy, job readiness and basic life skills, as will be further defined by the Department of Human Services.

Action is expected on this legislation during the three weeks the legislature comes back from the November break.

Other Bills of Interest

SB 662 (Senator Alan Sanborn, R – Richmond)

This bill requires competitive bidding for purchases of goods or services, unless the purchase is immediately necessary for the protection of public health or safety, for emergency repairs to items necessary for public safety, for goods or services purchased under for a declared state of emergency, or if the purchase is less than $25,000. SB 662 has been reported out of the Senate, and is in the House Government Operations Committee.

HB 4030 (Rep. Aldo Vagnozzi, D-Farmington Hills)

This bill allows for new state employees to elect to either participate in Tier 1 (defined benefit) or Tier 2 (defined contribution) retirement plans. The act would also allow for there to be a point at which current employees could also elect to switch. The switch in either case is irrevocable. This bill is in the House Government Operations Committee. MAGE and the Retirement Coordinating council support this bill. Members are urged to write their state representatives in support of HB 4030.

HB 4046 & 4047 (Rep. Lamar Lemmons, D-Detroit)

These bills increase the minimum wage $6.75 beginning July 1 of this year and to $7.75 next July, and to $4.65 for workers who receive gratuities. These bills were part of the minimum wage increase package supported heavily by the SEIU earlier this summer. The bills were allowed to be discharged from committee yet may not be heard before the House.

HB 4520 (Rep. Joel Sheltrown, D – West Branch)

This bill extends retroactive retirement pay to National Guard members who actually retired between July 1, 1968 and March 1, 1969, but did not actually receive payment immediately upon their eligibility. This is to correct a clerical error where the retirement age was lowered to 55 for National Guard members who met certain criteria but many were either erroneously denied or did not apply until the otherwise normal retirement age of 62. The bill is in the House Senior Health, Security and Retirement Committee.

HB 4705 (Rep. Jim Marleau, R – Lake Orion)

HB 4705 authorizes the Department of Civil Service to implement and administer a health care savings account plan. The bill has passed the House Insurance Committee and awaits action on the House floor.

HJR 6 (Rep. John Garfield, R – Rochester Hills)

This resolution gives preference to hiring veterans for Civil Service positions. The bill has passed the House committee and awaits action on the House floor.

October 2005 Legislative Update by Ellen Hoekstra and Noah Smith  of Capitol Services, Inc.

State Budget Agreements Have Been Reached

Compromises have been made to the FY 05 – 06 budget. The last few MAGE reports have listed the potential closure of the Newberry Prison in the Upper Peninsula and the Michigan Youth Correctional Facility in Baldwin as a major point of contention between the Governor’s budget recommendation and the versions passed from the House and Senate. The agreement between the House and Senate reached late Friday, September 9 included funding to keep both facilities open, at the expense of an additional $18 million in potential administrative cuts to the Department of Corrections budget. It costs $18 million to keep the Baldwin facility open. Essentially, the Governor is being presented (some would say ‘dared’) with an option of closing a prison in a poor county or slashing another $18 million from a budget that is already down-to-the-bone. The Governor, however, is remaining firm in her decision to close the Baldwin facility, as it is both expensive and poorly managed. The House and Senate have countered that Lake County, where the facility is located, is the poorest in Michigan, and the closure of this facility would devastate an already economically-challenged area. They also claim that in the face of budget cuts already enacted, Michigan will need the bed space. Also of note, this facility is the only privately-owned and operated prison in Michigan.

In budget bills, the Governor has the ability to make a line-item veto, which allows her to strike any particular line of spending in a budget bill.

Other highlights include increases to the Higher Education budget to keep Wayne State and Northern Michigan Universities level-funded. Each of those universities was set to take a 5% cut before this agreement was reached. The proposed reduction of $50 in cash assistance grants (FIP) is off the table, but there is still an increase in Medicaid co-pays. The plan to reduce these co-pays in turn for signing a "healthy lifestyle" agreement appears to be still part of the overall budget plan. Also, the Department of Community Health will lose $3 - $4 million on top of the $30 million already proposed, which may come from the Healthy Michigan Fund. This fund pays for many chronic disease early detection and prevention programs, including diabetes, cancer and stroke programs.

Action on this proposal is expected the week of September 12. Conference Committees are being selected. The plan is for some bills, about half, to be considered by the traditional method as individual bills before individual conference committees. The remaining bills will be rolled into one Omnibus bill, as the House originally intended, where each section of that bill that pertains to a different department’s funding will be considered as if it were an individual bill. This way, both Chamber’s appropriations method will be respected, but agreements can still be reached via the constitutionally-mandated conference committee process. The bills are expected to reach the Governor’s desk before the end of the fiscal year on September 30.

Foster Care Hearings

In late August, the State Auditor General submitted its report for the Children’s Foster Care Program in the Department of Human Services. The Auditor General found that the DHS did not comply with certain provisions of state laws, that it was not effective and efficient in monitoring the delivery of services and not effective in meeting its goals.

There were nine ‘material violations,’ which are problems with the function of the program in question, and ten ‘reportable violations,’ which are problems with management’s ability to run the program effectively. These violations range from not conducting background checks on homes where children are to be placed, not performing required caseworker visits, not complying with any federal regulations, not assuring that foster children received basic health care services and not developing an evaluation process of the services. The Department agreed with some of the report’s findings.

In response to the findings, the Senate and House DHS Appropriations Committees held hearings to discuss them with the Department. Director Udow emphasized the importance of fundamentally changing the Child Welfare System, specifically citing the Family to Family model which has been effective in Wayne County this past year and has now been implemented in 20 Michigan counties. Director Udow agreed that there is a lack of documentation for home visits completed; however, she believed more visits occurred than were noted by the auditors. Furthermore, DHS is enhancing its Social Worker Support System (SWSS) so that visits that are actually made will require documentation. It was also noted that this issue cannot be fully corrected until there is more funding available for the Child Welfare system, as caseloads are too large due to understaffing. The Director also outlined some additional reporting and accountability changes they are making to comply with state laws to the extent possible.

To view a copy of the audit, visit http://audgen.michigan.gov and click the link for recently released reports.

Other Bills of Interest

SB 662 (Senator Alan Sanborn, R – Richmond)

This bill requires competitive bidding for purchases of goods or services, unless the purchase is immediately necessary for the protection of public health or safety, for emergency repairs to items necessary for public safety, for goods or services purchased under for a declared state of emergency, or if the purchase is less than $25,000. SB 662 is in the Economic Development, Small Business and Regulatory Reform Committee.

HB 4030 (Rep. Aldo Vagnozzi, D-Farmington Hills)

This bill allows for new state employees to elect to either participate in Tier 1 (defined benefit) or Tier 2 (defined contribution) retirement plans. The act would also allow for there to be a point at which current employees could also elect to switch. The switch in either case is irrevocable. This bill is in the House Government Operations Committee. MAGE and the Retirement Coordinating council support this bill. Members are urged to write their state representatives in support of HB 4030.

HB 4046 & 4047 (Rep. Lamar Lemmons, D-Detroit)

These bills increase the minimum wage $6.75 beginning July 1 of this year and to $7.75 next July, and to $4.65 for workers who receive gratuities. These bills were part of the minimum wage increase package supported heavily by the SEIU earlier this summer. The bills were allowed to be discharged from committee yet may not be heard before the House.

HB 4520 (Rep. Joel Sheltrown, D – West Branch)

This bill extends retroactive retirement pay to National Guard members who actually retired between July 1, 1968 and March 1, 1969, but did not actually receive payment immediately upon their eligibility. This is to correct a clerical error where the retirement age was lowered to 55 for National Guard members who met certain criteria but many were either erroneously denied or did not apply until the otherwise normal retirement age of 62. The bill is in the House Senior Health, Security and Retirement Committee.

Usually, at this point in the budget process the conference committees, formed to resolve differences between each legislative chamber’s version of the budget bills, would be convening. However, at this point conference committee members have yet to be named. Thus far there are some significant differences between the House and Senate, not to mention from what was proposed in the Governor’s budget.

Capitol Services understands that the Senate will confer according to tradition, in that each separate appropriations subcommittee will appoint a member to a conference committee. Usually, this is the Appropriations Chair, the Appropriations Subcommittee Chair and the minority Vice Chair of each subcommittee. The House of Representatives as this is published has not made any announcements or public statements about the makeup of their conferees, given that the House submitted only one bill instead of the usual fourteen.

Budget highlights still being debated were discussed in the last issue. The fourth-quarter revenue-estimating conference is scheduled for August 17^th. Experts agree that there will be an increase in overall state revenues, though not as much as was reported in May during the third-quarter estimates. Still, Speaker of the House Craig DeRoche (R – Novi) is hopeful that the additional revenues will be enough to allow Newberry Prison in the Upper Peninsula to remain open. MAGE has strenuously opposed the proposed closure of Newberry Prison, including having its lobbyists testify before a Senate subcommittee in a special hearing on the closure.

Bills to help reduce rising pharmaceutical costs for employee and retiree health systems by lifting a ban on mail order prescription drugs have been signed into law by the Governor.

As reported in the June newsletter, a package of three bills allows for central processing and mail order pharmaceuticals.

HB 4405 (Rep. Gretchen Whitmer, D-East Lansing) lifts the ban on mail order prescription drugs. This is now Public Act (PA) 85 of 2005.

SB 352 (Senator Bill Hardiman, R-Grand Rapids) is the hub of the package, as it creates centralized processing systems. This allows local pharmacies to contract with much larger central processing services. This helps pharmacies remain competitive with lower prices. This is now PA 73 of 2005.

HB 4434 (Rep. Scott Hummel, R-DeWitt) allows pharmacies that shared a real-time, online database or essentially already have a written contract for centralized prescription processing services not to have to follow the normal procedure established in the Public Health Code to refill a copy of a prescription from another pharmacy. This is now PA 72 of 2005.

Details of these bills are in past issues of IMAGE. MAGE supported this legislation.

HBs 4101 and 4216, sponsored by Rep. Lisa Wojno (D-Warren) are still under consideration in a subcommittee of the House Health Policy committee chaired by Representative Dick Ball (R-Laingsburg). HB 4101 would establish minimum nurse-to-patient ratios for licensed hospitals, including state mental health hospitals. HB 4216 would prohibit, subject to a professional bargaining agreement, a hospital from requiring a registered professional nurse or licensed practical nurse to work more than 40 hours in any seven-day work period or more than his or her scheduled shift in any day except in the event of an emergency. Details of these bills appear in past issues of IMAGE.

A bill similar to HB 4101 is SB 169 (Senator Bruce Patterson, R-Canton), which also requires a hospital to create a responsible staffing plan, per the details outlined above. This bill is in the Senate Health Policy Committee.

Per MAGE’s request, Representative Wojno is considering an amendment to include state-run VA hospitals in the bills. It is not clear, however, if the state is able to regulate any type of VA hospital in this fashion.

Representative Kevin Green (R – Wyoming) introduced HB 5061, which would allow state workers specifically skilled in "emergency services" to take a leave of absence to provide disaster or emergency relief assistance.

HB 4102 (Rep. Lisa Wojno, D-Warren)

This bill requires all state departments to report annually to the legislature regarding all goods and services purchased from businesses that relocate overseas or that were manufactured outside of the United States. This targets business whose principal market is the United States, but the corporation itself is incorporated in a "tax haven" country, such as Barbados, Bermuda and Seychelles. The bill resides in the House Government Operations Committee.

HB 4103 (Rep. Lisa Wojno, D-Warren)

HB 4103 requires employees of health-related facilities to have clothing worn during invasive surgical procedures and exposed to blood or other potentially infectious material washed according to strict temperature and detergent guidelines on site. Further, these employees are not allowed to or shall ever be required to take these same exposed garments to their homes to launder them. This bill is in the House Health Policy Committee.

HB 4148 (Rep. Phil LaJoy, R-Canton)

This bill creates an Office of Human Resource Operations within the Department of Civil Service, and then consolidates all existing human resource departments from existing agencies into this single human resources office. The Director of the Civil Service Department will then hire an Executive Director, who will create and implement a business plan for consolidation no later than September 30, 2005 (should the legislation move and pass). This bill has passed the House of Representatives and is in the Senate Committee on Local, State and Urban Affairs. MAGE opposes the bill.

HB 4237 (Rep. Phil LaJoy, R-Canton)

HB 4237 requires the Department of Management and Budget to determine, through a contracted vendor, the cost of operating and maintaining the state’s central payroll system. Subsequently, provided a vendor can comply with the state’s current payroll operation standards, bids will be accepted to then privatize the state’s central payroll system. This bill, which is opposed by MAGE, has passed the House of Representatives and currently resides in the Senate Appropriations Committee.

HB 4353 (Rep. Dave Hildebrand, R-Lowell)

This bill requires the Department of Management and Budget to give preference to all goods, services and contracts to those businesses which reside in Michigan. This is not a guarantee of using Michigan-based business, but instead only requires in-state preference. This requirement is waived if the price is more than 110% of those found outside the state. HB 4353 is in the House Government Operations Committee.

HB 4030 (Rep. Aldo Vagnozzi, D-Farmington Hills)

This bill allows for new employees to elect to either participate in Tier 1 (defined benefit) or Tier 2 (defined contribution) retirement plans. The act would also allow for there to be a point at which current employees could also elect to switch. The switch in either case is irrevocable. This bill is in the House Government Operations Committee. MAGE and the Retirement Coordinating council support this bill. Members are urged to write their state representatives in support of HB 4030.

HB 4422 (Rep. Fulton Sheen, R-Plainwell)

This is a state employee early retirement bill, which would allow retirement at a combined age and length of service of at least 75 years, or if the member is 50 or older, with an additional 20 years of service. Further, the application must be filed between November 1, 2005 and December 31, 2005 for an effective retirement date of November 1, 2005 to March 31, 2006. This bill creates different requirements for legislative and judicial employees, and does not extend to Conservation Officers. The proposed legislation is in the Senior Health, Security and Retirement Committee. Due to the Administration’s opposition to reducing the number of state employees, this bill is not expected to be enacted.

HB 4705 (Rep. James Marleau, R-Lake Orion)

This legislation allows the Department of Civil Service to implement and administer a health savings account plan. Eligibility, deductibles and membership will be determined by the Department of Civil Service. This bill is in the House Insurance Committee.

SB 362 (Senator Basham, D-Taylor)

This bill deals with filing for domestic relations orders for consideration of retirement. SB 362 would extend the period for which a divorced spouse could file for a domestic relations order for 120 days after a final judgment of divorce between the participant and the alternate payee, even if the participants effective retirement date had already passed. This bill is in the Senate Appropriations Committee.

SB 381 (Senator Virg Bernero, D-Lansing)

This legislation prohibits employers from firing or failing to initially hire an employee who engages in any lawful activity off work premises and after work hours. This doesn’t apply if the activity is a conflict of interest with the organization, requires use of company property, or would impair the employee’s ability to perform their job. This bill is in the Senate Government Operations Committee.

HJR F (Rep. John Garfield, R-Rochester Hills)

This joint resolution amends the state constitution to include veteran status as a factor in hiring, promotion and payment along with fitness, efficiency and merit. Further, the resolution would require special preference for veterans being hired or appointed into classified civil service. This bill is in the House Veterans Affairs and Homeland Security.

August 2005 Lobbyist - Legislative update 

The House of Representatives completed its set of appropriations bills using the Price of Government model. The culmination of this model was the introduction of an omnibus budget bill, which is one massive bill that encompasses all departments of government spending as well as appropriations for public community colleges and universities. The Senate, however, proceeded with appropriations according to the historic method of 14 individual appropriations bills (one for each state department).

According to the legislative process, the bills have transferred chambers. In an effort to force a compromise between sets of apparently irreconcilable bills (one single bill versus 14 individual bills), each chamber eliminated all expenditures and boilerplate language in the other’s legislation. In the legislative process, when a bill moves back to its original chamber in a different form than it left and that chamber rejects those changes, the bills go to a special conference committee to iron-out the differences. In that committee, only the specific points of difference between the versions of the bill can be discussed. By completely eliminating all language from each other’s budgets and then rejecting those changes, every single part of each appropriations bill is a point of difference for discussion.

Usually, at this point in the budget process, the conference committees referred to above would be convening, but presently, conference committee members have yet to be named. Thus far there are some significant differences between the House and Senate, not to mention from what was proposed in the Governor’s budget recommendation.

The June newsletter detailed the ongoing battle over the closure of the Baldwin Youth Correctional Facility. Both the Senate and House corrections subcommittees have held extensive hearings on the issue. Both Chairs of the Corrections Appropriations subcommittees, Senator Alan Cropsey (R-DeWitt), and Representative Jack Brandenburg (R-St. Claire Shores) chose instead to close the Newberry Prison in the U.P. Senator Cropsey stated that this prison, according to a state audit, is the most expensive to maintain, and thus warranted closure.

MAGE has strenuously opposed the closure of Newberry Prison, including having its lobbyists testify before a Senate subcommittee in a special hearing on the proposed closure. Opponents of this closure cite that the audit made clear the need to close the Baldwin facility, not the Newberry facility, and that this is a political move. Newberry Prison, which was developed from a previously closed mental health hospital, is a primary site for offering the GED programs that many prisoners need for successful parole and reintegration into the community once their terms are served. Newberry Prison has more than 1,100 beds and 345 full-time jobs in Luce County, one of Michigan’s poorest counties; however, the Baldwin facility is also located in a county with very high unemployment and poverty.

It is understood by Capitol Services that some highly placed legislators are proposing a deal whereby both the Newberry and Baldwin prisons will remain open and the Department of Corrections budget will receive an across-the-board cut in order to make this work. This is apparently a deal being put together in the House of Representatives, but the Administration is standing firm in recommending the Baldwin Youth Correctional Facility be shut down.  Members are urged to contact their state legislators in opposition to the closure of Newberry Prison.

The Michigan House and Senate have significantly slowed their business for the summer. The legislature is set to convene once a week on Wednesdays for July and August. While the legislature may not conduct full business on this abbreviated schedule, side meetings are taking place in work groups on the state budget and other key issues such as taxation and economic development. Capitol Services is in contact to assure that MAGE, if necessary, is represented on any work groups over the course of the summer.

Bills to help reduce rising pharmaceutical costs for employee and retiree health systems by lifting a ban on mail order prescription drugs have been presented to the Governor for signature.

As reported in the June newsletter, a package of three bills allows for central processing and mail order pharmaceuticals.

HB 4405 (Rep. Gretchen Whitmer, D-East Lansing) lifts the ban on mail order prescription drugs.

SB 352 (Senator Bill Hardiman, R-Grand Rapids) is the hub of the package, as it creates centralized processing systems. This allows local pharmacies to contract with much larger central processing services. This helps pharmacies remain competitive with lower prices.

HB 4434 (Rep. Scott Hummel, R-DeWitt) allows pharmacies that shared a real-time, online database or essentially already have a written contract for centralized prescription processing services would not have to follow the normal procedure established in the Public Health Code to refill a copy of a prescription from another pharmacy. Without this bill, all of the allowances made by SB 352 to create standards for centralized processing services and the communication between these services would not be allowed because they would have to follow the current system of filling copies of prescriptions.

These bills will establish important changes to help reduce prescription drug costs and to keep members’ health care dollars in Michigan, aiding our state’s economy. The two House Bills have already been presented to the Governor for signature. SB 352, because it was introduced slightly later, is merely a few days behind in the constitutionally mandated process, but will reach the Governor’s desk shortly.

HBs 4101 and 4216, sponsored by Rep. Lisa Wojno (D-Warren) are still under consideration in a subcommittee of the House Health Policy committee chaired by Representative Dick Ball (R-Laingsburg).

HB 4101 would establish minimum nurse-to-patient ratios for licensed hospitals, including state mental health hospitals, which would include:

One nurse for each patient in an operating room or trauma emergency unit.

One nurse for every 2 patients in each critical care unit including, but not limited to, a labor and delivery unit or a post anesthesia unit.

HB 4216 would prohibit, subject to a professional bargaining agreement, a hospital from requiring a registered professional nurse or licensed practical nurse to work more than 40 hours in any seven-day work period or more than his or her scheduled shift in any day except in the event of an emergency. A hospital could offer overtime to a nurse or permit a nurse to work overtime if he or she chose to do so.

Rep. Ball intends to create a small working group of opponents and proponents of the package of legislation to discover whether there is any common ground to resolve stress on nurses. MAGE will continue to be involved in this process. Additionally, MAGE is working with Rep. Wojno to assure that state-run VA hospitals are also included in the bills. It was found that state-run VA hospitals are not licensed under the Public Health Code. An amendment is being drafted to include VA hospitals in this package.

A bill similar to HB 4101 is SB 169 (Senator Bruce Patterson, R-Canton), which also requires a hospital to create a responsible staffing plan, per the details outlined above. This bill resides in the Senate Health Policy Committee.

June/July 2005 Lobbyist Legislative Update

The House of Representatives introduced an Omnibus budget bill, encompassing all state budgets except for funding for school districts into one bill, on Tuesday, June 7. Further, Majority Floor Leader Chris Ward (R-Brighton) proposed a change to the rules regulating procedures for action on bill in the House Chamber. This rule change would require that any amendment to add money to a part of a budget must also have a funding reduction in the same budget. This change, however, was never taken up. The House Appropriations committee met for two days, voting the Omnibus bill out of committee on Wednesday, June 8. On Thursday evening, June 9, the House took up the Omnibus bill. A few technical amendments were taken-up, but there were no substantive changes to the bill despite two hours of debate. The bill passed, split along party lines 58 to 52.

The Senate Appropriations committee met every session day the week of June 6 to report the 14 Senate-originated appropriations bills for action on the Senate floor. It remains to be seen as to how the Chambers will reconcile one Omnibus bill with 14 individual appropriations bills.

The House and Senate have essentially rejected the Governor’s call for revenue enhancements, including the closure of some tax "loopholes," user-fee increases, and to a degree, her overall plan for restructuring the Single Business Tax-- though the latter is a larger argument that has not wholly been rejected, being less immediately related to revenue enhancements for easing the state fiscal crisis. Many of the items in the Governor’s budget recommendation were predicated on revenue realized from the above sources. While both the House and Senate have indeed held to the Governor’s recommendations on several items, each chamber has made a point of publicly rejecting either certain recommendations based on those revenue enhancements, or while keeping the recommendation itself, finding a different revenue source and publicly rejecting the recommended revenue source.

The House Republicans have publicly stated that they have a "balanced budget" of $40 billion, without increasing taxes. This has led to particularly bitter partisan battles over programs that have been sacrificed, such as Medicaid funding for people ages 18 – 25 or charging $10 copays on Medicaid services, because of the rejection of the Governor’s revenue enhancements.

The parties did agree on a few items, such as increasing aid to K-12 schools by $175 per pupil and holding harmless revenue sharing to local governments.

The Senate, again, will take-up their appropriations bills the week of June 13. Many of the individual Senate bills include the same cuts to services as the House Omnibus bill, including Medicaid copays and "personal responsibility statements" from Medicaid recipients, affirming that they do not engage in health-risk behaviors like smoking or illicit drugs. A partisan battle will assuredly ensue during Senate action, as the Senate Republicans will certainly also attempt to pass bills that reject the Governor’s plans for enhancing revenue.

The May newsletter detailed the ongoing battle over the closure of the Baldwin Youth Correctional Facility. Both the Senate and House corrections subcommittees have held extensive hearings on the issue. Both Chairs of the Corrections Appropriations subcommittees, Senator Alan Cropsey (R-DeWitt), and Representative Jack Brandenburg (R-St. Claire Shores) chose instead to close the Newberry Prison in the U.P. Senator Cropsey stated that this prison, according to a state audit, is the most expensive to maintain, and thus warranted closure. Opponents of this closure cite that the audit made clear the need to close the Baldwin facility, not the Newberry facility, and that this is a political move. Newberry prison has more than 1,100 beds and 345 full-time jobs in Luce County, one of Michigan’s poorest counties; the Baldwin facility is also located in a county with very high unemployment and poverty.

The Omnibus bill heads to the Senate next week for introduction into committee. It remains to be seen how the House and Senate will work on each other’s approach to appropriations, in terms of reconciling multiple agency bills with one Omnibus bill. The Senate, however, has criticized the House bill as burdensome and a dangerous removal of legislative oversight over state agencies. The philosophy is that the standard appropriations process, with one bill directed towards each state agency, gives the legislature a measure of oversight towards the executive branch, and that rolling all bills into one removes the duty of each appropriations subcommittee to monitor its corresponding agency.

A step to help reduce rising pharmaceutical costs for employee and retiree health systems is lifting a ban on mail order prescription drugs. HB 4405 (Rep. Gretchen Whitmer, D-East Lansing), which has passed the Senate with minor changes and is back in front of the House for concurrence, lifts this ban. This bill will be taken up for concurrence once all of the details of the next two bills in the package, listed below, have been reconciled.

SB 352 (Senator Bill Hardiman, R-Grand Rapids) is the hub of the package, as it creates centralized processing systems. This allows local pharmacies to contract with much larger central processing services. The best example of the benefit is when a patient is on a very expensive drug and develops a negative reaction to the drug. Under the old system, the drugs were thrown out or sat too long to be effective and the pharmacy stood to lose significant money. Under this new system, these could be returned to a centralized processing system where another patient could benefit from the drugs and the pharmacy does not lose any money. This helps pharmacies remain competitive with lower prices. . Like the rest of the package, this bill has passed both chambers and awaits concurrence in the Senate before moving to the Governor for signature.

One of the other bills in this package is HB 4434 (Rep. Scott Hummel, R-DeWitt), which allows pharmacies that shared a real-time, online database or essentially already ha a written contract for centralized prescription processing services would not have to follow the normal procedure established in the Public Health Code to refill a copy of a prescription from another pharmacy. Without this bill, all of the allowances made by SB 352 to create standards for centralized processing services and the communication between these services would not be allowed because they’d have to follow the old system of filling copies of prescriptions. This bill passed both chambers, but the final version was amended into its current form in the House, instead of simply being concurred. Thus, it had to go back to the Senate for approval, which it had, and is on the way back to the House for final concurrence.

These bills will establish important changes to help reduce prescription drug costs and to keep members’ health care dollars in Michigan, helping our state’s economy. It is anticipated that these bills will be concurred and sent to the Governor as early as the week of June 13.

HBs 4101 and 4216, sponsored by Rep. Lisa Wojno (D-Warren) are still under consideration in a subcommittee of the House Health Policy committee chaired by Representative Dick Ball (R-Laingsburg).

HB 4101 would establish minimum nurse-to-patient ratios for licensed hospitals, including state mental health hospitals, which would include:

One nurse for each patient in an operating room or trauma emergency unit.

One nurse for every 2 patients in each critical care unit including, but not limited to, a labor and delivery unit or a post anesthesia unit.

HB 4216 would prohibit, subject to a professional bargaining agreement, a hospital from requiring a registered professional nurse or licensed practical nurse to work more than 40 hours in any seven-day work period or more than his or her scheduled shift in any day except in the event of an emergency. A hospital could offer overtime to a nurse or permit a nurse to work overtime if he or she chose to do so.

Rep. Ball intends to create a small working group of opponents and proponents of the package of legislation to discover whether there is any common ground to resolve stress on nurses. MAGE will continue to be involved in this process. Additionally, MAGE is working with Rep. Wojno to assure that state-run VA hospitals are also included in the bills.

A bill similar to HB 4101 is SB 169 (Senator Bruce Patterson, R-Canton), which also requires a hospital to create a responsible staffing plan, per the details outlined above. This bill resides in the Senate Health Policy Committee.

May 2005 Lobbyist Legislative Report

Nurse Staffing Bills Introduced

Rep. Lisa Wojno (D-Warren) has introduced HB’s 4101 and 4216. These bills would set the patient ratio and overtime requirements for nurses. HB 4101 would establish minimum nurse-to-patient ratios for licensed hospitals that would include:

· One nurse for each patient in an operating room or trauma emergency unit.

· One nurse for every 2 patients in each critical care unit including, but not limited to, a labor and delivery unit or a post anesthesia unit.

In addition, a hospital would be required to post in a conspicuous place readily accessible to the public a notice that is developed and provided by the Department of Community Health that outlines the mandatory minimum nurse-to-patient ratios. Each hospital would also maintain a daily log that reflects the number of patients admitted, released and present in the unit, acuity level of the patients in the unit, the number of registered professional nurses and licensed practical nurses on duty in the unit and the average nurse-to-patient ratio for that day.

The Department of Community Health would also be required to develop and implement a confidential system that is available to the public for reporting a hospital’s failure to comply with its staffing plan. The department may impose an administrative fine of not more than $1,000 for each violation or for each day that a violation of the act continues.

HB 4216 would prohibit, subject to a professional bargaining agreement, a hospital from requiring a registered professional nurse or licensed practical nurse to work more than 40 hours in any seven-day work period or more than his or her scheduled shift in any day except in the event of an emergency. A hospital could offer overtime to a nurse or permit a nurse to work overtime if he or she chose to do so.

A hospital would be in violation of the bill’s prohibition if it did either of the following:

· Terminated or proposed to terminate the employment of a nurse solely because he or she chose not to work overtime.

· Took or proposed to take disciplinary or retaliatory action against a nurse solely because he or she chose not to work overtime.

In addition to other administrative sanctions allowed under the code, a hospital that violated the bill’s provisions would be subject to an administrative fine of not more than $10,000 for each violation. All fines collected under the bill would be credited to the Nurse Professional Fund established under Section 16315 of the Public Health Code. An "emergency" would be defined as an unusual or unpredictable circumstance that increased the need for patient care.

The bills have received a hearing before the House Workforce and Patient Safety Subcommittee chaired by Rep. Dick Ball (R-Laingsburg). Nurses and hospital executives clashed over mandated setting of nurse/patient ratios and barring mandatory overtime. Nurses speaking in support of the legislation stated that current staffing demands heighten the chances of making patient errors, with sometimes fatal consequences.

Hospitals and other executives said the costs to add staff would be prohibitive and that the impossibility to accurately predict staff needs at all times of the day could replicate the experience in California with hospital shutdowns and diversion of patients to other, sometimes distant, emergency rooms at peak periods.

A study by Public Policy Associations indicated that a reduction in the number of patients per nurse resulted in fewer incidents of fatalities, heart attacks, serious infections and other medical issues. The study suggested that hospitals could begin to recover the costs of additional staff by the second year.

At the end of the hearing, the bills did not receive a vote. Rep. Ball did indicate that both sides made compelling arguments and urged the parties to seek a compromise. MAGE was present in support of the legislation and urges members to contact their legislators.

Unemployment News Is Mixed for State

In February, Federal data revealed that Michigan’s jobless rate was at 7.4 percent making it one of the worse in all 50 states including Mississippi and Alaska. In March, the state’s jobless rate slightly improved to 6.9 percent, the lowest since April of 2004, but still above the national average of 5.2 percent. A monthly survey of employers showed that Michigan lost 17,000 jobs but a household survey of residents showed employment increasing by the same amount.

Further, in late February the last of the three Wall Street bond rating agencies, Standard & Poor’s (S&P), lowered Michigan’s general obligation bond ratings citing, "Continued economic weakness" as the motivating factor for the downgrade. S& P cut the rating from AA+ to AA. It also cut the rating on the state’s appropriation-based bonds from AA to AA-, however the rating agency views the state’s overall outlook as stable.

S&P said more structurally balanced budgets along with public sector incentives are credit strengths for Michigan, but "their near-term effect is expected to be limited to minimizing further declines and adding stability; their role in a substantial economic recovery (and the likelihood that the state realizes such gains) remains uncertain."

Further, Michigan’s major tax revenues for March were down by 14.2 percent compared to the year before. Fortunately, the decline is attributed to "non-economic factors" and overall, revenues are tracking close to earlier estimates so budgets are still in line.

State Dems Schedule Town Hall Meetings on Increase in Min Wage

Senate and House Democrats have introduced legislation to increase the state’s minimum wage from the current $5.15 per hour to $7.15 per hour. Under the legislation, the minimum hourly wage would increase from $5.15 to $5.90 on July 1^st, and then to $6.65 in January 2006 and $7.15 in January 2007. The legislation would also increase the hourly wage for restaurant waiters and waitresses along the same timetable, index the minimum wage to inflation after 2007, and impose penalties for those businesses failing to comply.

Michigan’s minimum wage was last increased in 1997 after the federal government increased the national minimum wage. Fourteen states and the District of Columbia have minimum wages higher than Michigan’s. State Democratic legislators will be hosting a series of town hall meetings across the state on the issue.

Notably absent from the Governor’s Executive Budget recommendation released on February 10^th was the banked leave time program for state employees. The Governor’s recommendation did contain additional human resources management savings. The Human Resources Call Center was created in the Department of Civil Service for the current fiscal year in order to streamline human resource operations throughout state government. The new technology put in place to maximize self-service opportunities for employees and managers, allowed the state to reduce staffing in agency human resource offices by 74 positions. For FY 2006, the Governor recommends the continuation of the human resources optimization initiative, which will result in a further reduction of 17 positions, for an additional savings of $1.2 million.

The Governor’s budget also recommends an additional investment of $1.5 million to implement a new internet-based purchasing system. Already, a number of restrictions on agency purchases have been put in place to contain spending. For the current fiscal year and continuing into FY 2006, the Governor is recommending additional reforms to the state’s procurement system. These include further restricting the use of sole source contracts, re-negotiating existing contracts to leverage better pricing opportunities and consolidation of purchasing functions. The internet-based purchasing system is being recommended to provide better oversight of contractual spending. It is believed that the system will benefit state staff and those seeking to do business with the state by automating work, streamlining vendor registration, reducing the costs of budding for state contracts, and speeding payment to vendors. Collectively, the Governor’s purchasing reforms are expected to yield over $30 million in contract savings in fiscal year 2006.

The Governor is also proposing a Retirement System Disaster Recovery program to ensure pension checks can be issued in a timely manner in the event of a natural disaster or a terrorist attack. The recommendation is to invest $500,000 of pension funds to ensure that the retirement call center is operational within 48 hours after a disaster and that checks will continue to be sent to recipients in a timely manner.

The House and Senate have concluded their budgeting "result teams" process and are now ready to begin subcommittee meetings on the state’s departmental budgets. The ‘results teams’ concept came out of the book The Price of Government, which legislative leadership has been modeling. The concept outlined in the book supports a zero based budgeting approach that entails setting priorities and budgeting around those priorities. The result teams were charged with developing the priority areas and determining outcome measures for accomplishing them.

The new process has set the normal budget schedule back about a month, and although there are definitely believers of the concept, it also has its share of skeptics such as Senate Appropriations Chair Shirley Johnson (R-Royal Oak) and House Appropriations Minority Vice-Chair Gretchen Whitmer (D-East Lansing). The most critical of the concerns expressed is the fact that an outside consulting firm was hired by a statewide business interest organization to facilitate and direct the result teams. Whether the new budget process will take hold or not is still up to question, only time will tell.

Rep. Phil LaJoy (R-Canton) has introduced HB 4237 that would open up the payroll system for state employees to bids from private contractors interested in running the program. On March 1, the bill was reported out of the House Government Operations Committee by a party line vote.

Supporters of the measure call the proposal a common sense approach in light of the state’s budget constraints. But Democrats, in withholding their votes, questioned whether the state payroll system was the appropriate target for savings. David Fink, Director of the Office of the State Employer, said the state’s payroll system is functioning well and moving to privatize it would waste the millions the state invested in recent years to upgrade.

Rep. LaJoy said he would be pleased if a competitive bidding process on the system showed that the state is getting a good deal on its payroll system by running it internally, but he suspected a bidding process would show otherwise. Mr. Fink stated that the current system is running well and does not need any changes. Further, contracting the system to a private provider would cost far more than the $700,000 that the state spends to issue payroll.

Democrats on the committee were successful in getting amendments to the legislation that would require a private contractor to charge no more than 95 percent of the state’s cost of providing the system. Initially, the bill had called for a 98 percent threshold, as well as requires any private vendor wanting to perform the services to be a Michigan-based business.

The bill is now before the full House awaiting final passage at which time it will be sent to the Senate.

The Michigan Auditor General released its audit report, Report number 39-240-03, that assessed the effectiveness and efficiency of the Department of Community Health’s (DCH) and Northville Psychiatric Hospital’s (NPH) oversight of selected NPH operational and closure activities. These activities are performed by the Bureau of Hospitals, Centers and Forensic Mental Health Services within DCH.

The audit showed that oversight by both DCH and NPH of selected operational activities were not effective and that oversight of selected closure proceedings was somewhat effective and efficient. The report went on to say that DCH did not ensure that NPH established effective controls over its purchasing, receiving and payment processes. By being weak in this area, NPH was unnecessarily put at greater risk for fraud and abuse, permitted unauthorized expenditures, allowed NPH to overpay some of the goods and services that it purchased and resulted in inefficient transaction and processing.

Further the report found that DCH did not ensure that NPH effectively utilized, accounted for and controlled its equipment and furnishings, nor did it ensure that NPH obtained required inspections for its high-pressure, high temperature boilers or periodically tested for reliability of its backup system for fueling these boilers. These shortcomings may have jeopardized the safety and well being of NPH and Hawthorn Center patients and staff. DCH also did not ensure that NPH had established effective controls over its medication supplies. As a result, NPH could not account for the receipt and disposition of the medications it purchased.

The audit report contained 13 findings and 23 corresponding recommendations. DCH’s preliminary response to the audit report indicated that it agreed with all of the audit’s findings and agreed wholly or in principle with all of the recommendations.

Governor Granholm has released Executive Directive 2005-3, that effective April 30, would require all purchases of non-emergency goods and services bought by the state to be done through a competitive bidding system to help the state save money.

The directive orders all state agencies to implement procedures that prohibit the use of no-bid contracts on routine purchases of equipment, materials and personal services. The directive is seen as the culmination of an effort to end no-bid single source contracts. A press release issued by the Governor stated that the state has already saved an estimated $156 million by cutting back on the controversial no-bid contracts. Those savings include $96 million on child support enforcement system maintenance and disbursement, $21 million on administration of the state’s educational achievement tests and $12 million on state computer hardware and software.

Bills of Interest

· HB 4101 sponsored by Rep. Lisa Wojno (D-Warren) would require hospitals to have a patient acuity system and an annual staffing plan that includes minimum nurse-to-patient ratios. The bill is before the House Health Policy Committee chaired by Rep. Ed Gaffney (R-Grosse Pointe Farms).

· HB 4102 sponsored by Rep. Lisa Wojno would require an annual report to the legislature of state contracts with businesses having companies that outsource or are located in "tax haven" countries. The bill is before the House Government Operations committee chaired by Rep. Leon Drolet (R-Clinton Twp.).

· HB 4216 sponsored by Rep. Lisa Wojno would prohibit mandatory overtime for nurses. The bill would not prohibit any nurse from voluntarily working more than 40 hours in a seven-day period of time. The bill is before the House Health Policy committee chaired by Rep. Ed Gaffney (R-Grosse Pointe Farms).

· SB 169 sponsored by Sen. Bruce Patterson (R-Canton) would require the development of an acuity system and staffing plan for nurses. The bill would also require that a hospital establish a staffing committee for each unit and at least half of the members of the committee must be registered nurses. The bill is before the Senate Health Policy committee chaired by Sen. Bev Hammerstrom (R-Temperance).

· HB 4422 sponsored by Rep. Fulton Sheen (R-Plainwell) would create an early retirement program for state employees. This is the same legislation introduced last year by Rep. Sheen that did not receive a committee hearing. The legislation would apply to state civil service employee, with the exception of conservation officers and "covered" employees, as well as to employees of the judicial branch. Similar provisions in the bill would affect legislative, gubernatorial and unclassified employees. To qualify for the early retirement, a members age and length of credited service must equal or be greater than 75 or a member is 50 years old or older and has at least 20 years of credited service. The bill is before the House Committee on Senior Health, Security and Retirement chaired by Rep. Barb VanderVeen (R-Allendale).

All bills mentioned in this report may be assessed at www.michiganlegislature.org.

Budget Books Officially Closed Feb 2005 Lobbyist Report

The state officially closed the books for the FY 2003-2004 budget and much to everyone’s surprise, the year ended with a general fund surplus, which allowed for an $81.3 million deposit into the budget stabilization fund, the first significant deposit since FY 1999-2000. The state also achieved a $74.1 million surplus in the School Aid Fund that was deposited into the School Aid Stabilization Fund.

On the heels of this positive news, one must remember that budget analysts have already predicted a current year budget deficit (FY 2004-2005) of $345 million for the general fund and $232.4 million for the School Aid Fund. Predictions for the FY 2005-2006 budget year are just as gloomy with predictions of a possible $500 million shortfall.

The Governor and legislative leadership are reluctant to cut K-12 education, higher education and revenue sharing further. This leaves only a few sources where cuts can be made unless revenue enhancements are agreed to, which at this time seems very unlikely. Budget cuts for the current budget year, FY 2004-2005, will need to be made early in order to avoid larger budget shortfalls later on.

Many legislators are also looking at the Medicaid program for possible cuts. This program is receiving a significant amount of blame for the budget woes because it is one of the largest programs and is growing exponentially. The Medicaid program provides health services to the elderly, disabled and poor. Some legislators argue that it seems to be growing out of control. But is it? With the number of uninsured individuals on the rise, employers dropping health benefits for employees and an aging population that is dependent on Medicaid as a funding source for long term care, many argue that it is mainly growing because the caseloads are increasing due to a lack of affordable health care options, not because it is a wasteful program that is inefficient.

A revenue forecasting conference was held on January 13^th. The revenue estimates agreed to at this conference will become the basis for the Governor’s FY 2005-2006 budget proposal that will likely be released in mid-February. The Governor’s State of the State address is scheduled for February 8^th.

The Michigan Department of Management and Budget (DMB) Office of Retirement Services was awarded the Public Pension Standards award for plan design and administration by the Public Pension Coordinating Council (PPCC), a national confederation of state retirement associations.

According to the PPCC Program Administrator Alan Winkle, "The PPCC standards are widely recognized benchmarks for public pension systems in the areas of plan design, funding, actuarial and financial audit as well as member communications. It is very significant that the Michigan Office of Retirement Services has met or exceeded these standards…"

Recent figures posted through November of 2004 show that the market value of Michigan’s four public employee pensions—Michigan Public School Employees Retirement System, Michigan State Employees Retirement System, State Police Retirement System, and the Michigan Judges Retirement System—are up over 2003 values. According to Department of Treasury figures, at the end of November 2004, the total market value of the four pension systems stood at about $48.3 billion, or $1.9 billion more than the December value of 2003. The December 2003 total marked the first year the value of the funds increased since the stock market fell starting in 2000.

The final valuations for 2004 are not yet available, but it is encouraging to see the values increasing. Michigan’s four public pension funds comprise the 13^th largest public pension fund in the United States and the 29^th largest in the world.

According to a report from the Michigan Consumer Health Care Coalition, in 35 states, including Michigan, average health insurance premium costs for workers rose at least three times faster than average earnings from 2000 to 2004. Nationally, workers’ premium costs rose, on average, by 35.9 percent, while their average earnings over the same period rose by only 12.4 percent.

What are the contributing factors causing the premium increases? One factor is the increase in costs of providing health care to the uninsured. A Families USA report found that approximately 85.2 million people were uninsured at some time during 2003-2004, an increase of 12.7 million from the 1999-2000 period. Uncompensated care is built into the cost base of hospitals, physicians, and other providers, especially those who provide significant care to the uninsured. Hospitals and physicians recover these dollars, in part, by raising fees and charges in the private sector which, in turn, increases total private insurance costs.

Rising health insurance premiums have forced employers to choose between offering health benefits to workers, requiring them to pay more for the benefits or not offer any health benefits. Employers that are requiring workers to pay a greater share of the premiums are also cutting back on wage increases. A 2003 national survey of employers found that 15 percent of employers offset their premium cost increases by giving smaller raises to their workers.

Employers are also providing leaner health insurance coverage packages by increasing the size of the deductible, adding separate deductibles for certain services such as inpatient hospital care, increasing the size of co-payments and coinsurance, and limiting the scope of covered services.