MAY Legislative Update by Capitol Services

Budget Process Advances; Major Holes Remain

On paper, the state’s budget process has made a lot of progress, but some significant gaps in revenue resulting from disagreements over Medicaid expansion, assistance with utility shut offs for indigent citizens, and increased funding for roads have yet to be resolved.  The House has passed its budget bills, rolled up into two omnibus bills, one for all levels of education, and the second for other state budgets. The Senate has passed all of its budget bills, except for the Department of Community Health budget, as a result of lack of consensus on whether Michigan will take advantage of the opportunity under the Affordable Care Act to expand Medicaid eligibility to a larger number of low income Michiganians.  This decision affects budgets beyond DCH.  For example, DOC Director Daniel Heyns has indicated that Medicaid expansion could save that department $24 million, due to the number of geriatric inmates.

At this point in time, the Revenue Estimating Conference has been scheduled for May 15.  Once there is consensus between the two chambers and the executive on how much revenue is anticipated, serious and final action on the state’s budget will begin.  It is still likely that most—if not all—of the state’s budgets will be settled by early June.

DOC Food Services Switch Controversial

Unfortunately, legislative pressure appears to have been the motivating factor behind DOC’s decision to do a 180 degree turn and hire a private vendor to handle food service for prisoners.  Originally, DOC and DTMB had initially indicated that using private vendors did not make sufficient savings to justify making the switch, particularly when legacy costs—including the Unfunded Accrued Liability for pension and post retirement health benefits—were considered.  Legislators blasted DOC’s original decision to keep food services “in house”, pointing out that they were based on the cost of feeding every inmate three times a day when some inmates skip breakfast or other meals. The chairs of the House and Senate Appropriations Subcommittees on Corrections—Senator John Proos (R-St. Joseph) and Rep. Greg MacMaster (R-Kewadin) have applauded the DOC reversal as a benefit to taxpayers.

The vendor who will be handling food service, Aramark, presented a bid of $49.7 million, compared to the cost of the state continuing to provide the service of $65.7 million. It should be noted that the Aramark bid does not include the $7.8 million that the state still pays in legacy costs. First year “savings” to the state would amount to $12 million--$16 million reduced by one-time payouts to employees who have lost their jobs and cash out sick leave and vacation time and collect unemployment. 

The Aramark contract also requires the approval of the State Administrative Board and the Civil Service Commission. 

On other DOC privatization issues, the department has decided not to increase its outsourcing of mental health and health services, after a further review of those bids.  Bidding remains open on a contract for a private vendor to operate a state facility or re-open the Baldwin facility for use by state prisoners. Additionally, in the Senate version of the DOC budget, the department needs to seek information regarding contracting with a private prison vendor to house inmates whose sentences are two years or less.

MAGE has been continuing to let legislators know of the safety risks of privatization within corrections.


CSC Upholds Veterans Home Care Contract

The Civil Service Commission (CSC) rejected an appeal which would have returned a contract, for the J2S Group Healthforce to provide healthcare at the Grand Rapids Veteran’s Home, back to Employment Relations Board for oral argument. The vote was split 2-2, with those denying the appeal stating that the contract met the savings goal of 5 percent by achieving a 40 percent savings.  Opponents of the outsourcing argued that J2S provided substandard care, but the ruling stated that this was outside the CSC jurisdiction.

Those voting in favor of the appeal said that chapter 7 of the commission should be revised to, “require any contracts that will result in the layoff of state classified employees will be held to a higher standard and scrutiny.” J2S denied supplying substandard care, citing their policy of suspending without pay any individual who was accused of wrongdoing. However, multiple workers at the veteran’s home, current and former, as well as patients commented on their problems with the care at the facility.

A state audit report issued subsequently cited the Veterans’ Home for serious material conditions, including psychiatric care and tracking of medications, during the period of October 1, 2009 through September 30, 2012.


Budget Plans Would Cut 600 – 1,800 State Positions

Current budget plans being considered would cut substantial full-time equivalent (FTE) state government positions. Governor Snyder’s plan would cut 633 FTE positions, the Senate plan would jump to 901.3 FTE positions, and the House plan would slash 1,872 FTE positions. The bulk of what separates the House number from the others if the cut of 1,051 FTE positions from the Department of Human Services (DHS), which is much higher than the Senate number of 269.3 FTE. Gideon D’Assandro, spokesman for Appropriations Chairman Joe Haveman (R-Holland), said that the large reduction was due to a large reduction in caseload for the department. Beyond DHS, the House plan would cut 557 FTE positions from the Department of Licensing and Regulatory Affairs (LARA) and 198.7 FTE decrease for the Department of Corrections (DOC). The House also trimmed out positions that have gone unfilled, and rejected some of the increases the governor recommended.

Senate plans would cut LARA by 442.8 FTE positions, which matched the governor’s proposal, and give DOC a 198.7 FTE decrease. Comparisons were drawn to the Grand Rapids Home for Veterans, where—as mentioned in the previous article-- many have stated that a move to the private sector to reduce costs also reduced jobs and quality of care.

MAGE members are urged to stay in touch with their legislators to keep them informed on the services provided for the public that they and other state employees provide.  It only makes sense—a reduction in the workforce results in less service to our state’s citizens.


Auditor General Review of State of Michigan 457 Plan

The State of Michigan 457 Plan is a deferred compensation plan sponsored by the State of Michigan for employees of the State of Michigan. It was established in 1974 by the Civil Service Commission, and it allows voluntary contribution of a portion of employees’ compensation up to the established Internal Revenue Code limits. Recently, the Office of the Auditor General preformed a financial audit on the plan for the past two years.

The report states that the auditors did not identify any deficiencies in internal control over financial reporting that they considered to be material weaknesses, but they did identify a significant deficiency. The Office of Retirement Services and Financial Services, within the Department of Technology, Management, and Budget (DTMB), did not adhere to established deadlines to ensure that they recorded the State of Michigan 457 Plan's financial activity and prepared drafts of the Plan's financial statements and notes in a timely manner. While the office did not identify any instances of noncompliance or other matters applicable to the financial statements that are required to be reported under Government Auditing Standards, they did note an instance of other noncompliance. DTMB has made a preliminary response that indicates they will comply with the Auditor General’s recommendation on that matter.


MSERS Fund Increased in 2012

The Michigan State Employees Retirement System (MSERS) reported an increase of $841.5 million, or 9.6 percent, from 2011 to 2012 according to the Auditor General. This places MSERS assets at $9.6 billion, a year after the system reported a $265.2 million loss. Membership contributions increased by 13.5 percent to $7.2 million this year following a new law requiring members to contribute four percent of their paychecks to the system after the April 2012 implementation date. Employer contributions increased by 31.5 percent to $256.1 million, which is up compared to only $87 million the preceding year. Investment income produced $1.34 million according to the report from the Auditor General. The total contributions came to $1.2 billion, and $1.7 billion was taken out for pension and health care pay outs.


By Capitol Services, Inc.
May 8, 2013