Capitol Services January Legislative Report

Looking Ahead to the 2015-16 Session

The Michigan Legislature has been sworn in, committees have been named, and the Governor has presented his State of the State Address.  In the coming weeks, the budget process will kick off with Governor Snyder’s Budget Presentation, and the House and Senate Appropriations Subcommittees will begin their work.

At the same time, a host of new legislation (much of it recycled from bills that failed to pass last year) will be introduced and the House and Senate standing committees will begin holding hearings and moving bills to the House and Senate floors.  Over the next several weeks, MAGE members will have no shortage of legislative and budget issues to review, embrace or condemn. 


DHS Issues Layoffs to 100 Employees

In mid-January, the Department of Human Services announced its intention to lay off 100 employees by February 15.  The department stated that the layoffs would not affect case workers nor would it impact the state’s ability to carry out mandated duties stemming from a class action lawsuit.  The layoffs would include 61 assistance payments supervisors.  Also affected will be 25 managers, 10 departmental analysts and 7 secretaries.  The department announced that it will attempt to place as many displaced workers as possible in positions that are currently vacant.  However, this effort may be complicated by the pending budget shortfall and the merger of the Department of Human Services and the Department of Community Health (see related stories below).


Budget Woes Beset General Fund

The first item of business for the new Legislature will be dealing with the projected revenue shortfall in Michigan’s General Fund.  In mid-January, the Revenue Estimating Conference (made up of representatives from the House and Senate Fiscal Offices and the Department of Treasury) met to lay out projections for state revenues over the first part of 2015.  The latest forecast is bad news, as they are projecting a shortfall of between $320 and $380 million in the General Fund if no actions are taken. 

Reaction from the Snyder administration was that the deficit was caused by an unforeseen number of business taking advantage of tax credits contained within the Michigan Business Tax.  The economists who participated in the Revenue Estimating Conference contend that the overall economy is still strong in Michigan, and that the shortfall stems from an underestimation of how many businesses would apply for and qualify for the tax credits.  This view is bolstered by the fact that the School Aid Fund, which is not affected by the Michigan Business Tax, showed a slight surplus. 

State Management and Budget Director John Roberts said that the Governor plans to make up for the shortfall by making budget cuts.  Rep. Al Pscholka (R-Stevensville), the chair of the House Appropriations Committee, agreed that budget cuts were the appropriate response to the shortfall.  However, he expressed a desire to avoid cuts to education.  Senator Dave Hildenbrand (R-Lowell) also maintained that budget cuts would be necessary, but did not rule out shifting some of the surplus in the School Aid fund to balance the deficit in the General Fund.

If the Legislature plans to balance the budget solely through cuts that don’t effect education, that will signify potential dire reductions to other areas of state government.  State employees have already taken hits recently, most significantly in the Department of Human Services where 100 workers received layoff notices in mid-January.  Some of the shortfall might be made up by adjusting caseload estimates or eliminating some programs altogether.  However, it is all but certain that state employees will bear much of the cuts. 


Governor Plans to Combine DCH and DHS

Governor Snyder spelled out his policy priorities for 2015 in his State of the State Address on January 20.  One of the more noteworthy of these is his plan to combine the Department of Community Health and the Department of Human Services into one large department.  This move was telegraphed late last year when DCH Director Nick Lyon was named interim director of DHS to replace outgoing director Maura Corrigan. 

Details were few, but reactions from state legislators to the announced change were generally positive.  However, while most legislators when asked agreed that merging the departments would create efficiencies, they were not clear on how those efficiencies would be achieved.  In one case, a state lawmaker apparently was unaware of the difference between the Michigan Department of Community Health and county health departments.  This indicates that, if nothing else, state legislators will get an education this year on how various state and local agencies work together.

For employees at DHS and DCH, the merger combined with a major budget shortfall will create a very tense environment over the next year.  MAGE and other state employee unions will urge the administration to seek savings in areas like shared use of space and equipment rather than additional layoffs.


Coalition Plans to Review State Pensions

The Coalition for Secure Retirement was created five years ago and is made up of organizations and individuals representing active and retired employees in the Michigan State Employee Retirement System (MSERS) and the Michigan Public School Employees Retirement System (MPSERS).  The Coalition has worked since then to be a voice for state and public school employees to protect their pensions and other post-employment benefits.  They sponsored a study last year that compared traditional defined benefit pensions with 401(k)-style defined contribution pensions that found that DB pensions earn a much higher return than DC for its members.

This year, CSR plans on taking a close look at the outcome of the largest pension change in Michigan in the last 20 years:  switching state employees from defined benefit to defined contribution pensions in 1997.  Specifically, CSR hopes to analyze the health of the DC pensions in which state employees hired since 1997 have been enrolled.  The promise in 1997 was that DC pensions would provide just as secure a retirement benefit as the previous DB system would, and that it would also give state employees more portability and flexibility in determining their own investment strategies.  This study will try to answer whether that promise has been kept or not.

The results will be valuable regardless of the outcome.  If the study shows that most state employees in a DC plan have healthy retirement portfolios, then the results can be useful to track “best practices” so other DC members can improve their performance.  Conversely, if the study determines that DC plans are not working well for state employees, then that data can help instruct the administration and lawmakers on the pitfalls of abandoning traditional pension systems.

Written by Todd Tennis,
of Capitol Services