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June 2013 Legislative Report - Omnibus Budget Signed Contains Several Cases of Privatization

One area in particular – that of prison food service in the Department of Corrections budget – was whipsawed through the early part of 2013.  An initial proposal to contract with the prison services company Aramark was originally turned down when the state determined that the contract would not meet the statutorily required threshold of 10% savings.  However, several Republicans in the Michigan Legislature demanded that the state reexamine the bid, and after re-crunching the numbers (referred to as “creative accounting” by several state employee groups), the Department of Corrections reversed its decision regarding entering into a three year contract with Aramark in April. MAGE objects to this decision not only because of its impact on members but also because of its impact on safety within prisons and the Michigan economy. MAGE is doing everything it can to reverse this decision.

The budget signed by Governor Snyder has been estimated to eliminate as many of 350 state employee jobs and projects a savings of $12 million.  Whether that savings will actually be realized is the subject of much debate.

The Department of Corrections budget also contains boilerplate language requiring the Department to, by January 1, release a request for proposal seeking competitive bids for prison stores, prisoner clothing and up to 1,750 custody beds.  This language is a clear indication of the Legislature’s continued push to contract out more services, and potentially open another private prison facility.  Also, if there is any lesson to be learned from the food service privatization, it is that many members of the Legislature will not take no for an answer – even if initial reports show little or no cost savings will result.

Another area that saw a good deal of wrangling over privatization was the Department of Human Services budget.  The House-passed version of the budget sought to close two of Michigan’s three juvenile justice facilities and transfer the youth to private residential facilities or other placements.  The Senate did not agree to the closures, and the final budget keeps the three sites open, but cuts $300,000 from the Maxey Training School budget.

The Legislature also went back and forth over another requirement in the DHS budget to privatize all foster care services in Kent County as a pilot project.  The Governor had eliminated this requirement, but the House reinserted the language and required adoption by October 1, 2013.  The Senate pushed back the implementation date to October 1, 2014, and that was what was eventually signed by the Governor.

Privatization found its way into the Secretary of State budget in response to legislation passed in late 2012 that transferred the functions of the Michigan Assigned Claims facility to the privately run Michigan Automobile Insurance Placement Facility.  The budget reflected the elimination of 7 State FTEs. 

Court of Appeals Hears Arguments in State Employee Pension Contribution Lawsuit

When Governor Snyder signed Public Act 264 of 2011 into law - legislation requiring state employees to either pay 4% of their salary toward their pension or else move to a defined contribution system – it sparked a lawsuit from a number of organizations representing state employees.  The lawsuit challenged that the law was unconstitutional because it superseded the authority of the Civil Service Commission.  The Coalition of State Employee Unions won the first round at the Circuit Court, but the state appealed the decision.

On June 12, the Michigan Court of Appeals heard arguments from both sides on the issue.  The case will likely last for one or two months before the three-judge panel reaches a decision.  Regardless of the outcome, there is a potential for the case to be appealed again to the Michigan Supreme Court.  Therefore, it may be quite some time before the issue is finally resolved.

Senate Reinserts Sunset Provision in Retired Corrections Worker Bill

In 2012, the Legislature passed legislation allowing the Department of Corrections to re-hire retired personnel.  It was argued as a short-term cost savings for the department, and the law had a “sunset date” placed in it so that it would automatically expire.  This year – at the request of the Department of Corrections, Rep. Greg MacMaster (R-Kewadin) introduced House Bill 4664 that would remove the sunset.  The bill passed the House on a party-line vote. 

The Senate Appropriations Committee was not as willing to remove the sunset.  Instead, it moved it back to September 15, 2015.  Even with the amendment reinserting a sunset date, Democrats on the Appropriations Committee (joined by Senator Bruce Caswell, R-Hillsdale), voted against the bill.  The bill will likely be taken up by the full Senate next week.

Pro-Privatization Bill May See Changes

In May, Rep. MacMaster (R-Kewadin) introduced House Bill 4707, a bill that seeks to provide greater information to companies wishing to bid to privatize state services.  The bill would require the state to disclose to potential bidders the current actual costs of providing those services with state employees.  This would include all labor costs, continuing obligations (such as pensions) and associated administrative costs.  MAGE opposes this bill and urges its members to let their state representatives know of their opposition.

However, representatives from the Department of Technology, Management and Budget have responded that the legislation could corrupt the bidding process and make it less competitive.  They fear that private companies could alter their bids or restructure their services based on the information they gained that would not be reflective of the actual costs of providing the service. 

Rep. MacMaster countered that he plans to make changes to the bill that would prohibit state employee organizations from obtaining bid documents from private companies.  Rep. MacMaster expressed concern that state employees would then be able to change their proposals to ensure that private companies would not win the work.

The bill was referred to the House Oversight Committee, which has scheduled a meeting for a new version of the bill for June 17.

Todd Tennis and Ellen Hoekstra
June 17, 2013