Monthly Archives: May 2010

Retirement Reform Reality: Lansing Steps Up

Late last night, while most sane people slept, Lansing lawmakers took the step that really had to be taken to right the direction of the Michigan K-12 funding system.

Some have estimated this action, passed by the Democratic House and Republican Senate, could reduce costs by several hundred million dollars immediately and by as much as $3.1 billion over the next decade.  The non-partisan House and Senate Fiscal Agencies generally supported such estimates.

As I have written before, while these bills comes under the guise of a “retirement incentive” it is more aptly about retirement reform.  This was really the issue.  And that reform was not, and likely will not be, well-received by current school employees.

In short, the bill increases the retirement multiplier for those eligible to take advantage of it meaning the pension received will be greater than what would have been expected normally.  That’s the carrot.  There are some sticks – and some missing carrots.

Current employees who choose not to retire (or are not eligible) will be required to increase their personal contribution to the retirement system by 3% of their salary.  Recall that the retirement system, MPSERS, is predicated on a combination of employee and employer contributions that are a straight percentage of salary.  This year K-12 districts have been paying about 17% of employee salaries into MPSERS.  Next year it had been expected to go to 19.41%.  These are huge numbers when you recall salaries are our greatest expense.

So this bill will come at a price for employees who do not retire and this is where the spinning will begin.  The MEA has argued that the lawmakers are trying to fix the economic problems “off the backs of employees”.  This was essentially MEA President Iris Salters’ quote.  Others will argue that the incremental cost borne by teachers and other employees is for their own personal benefit given that this is their retirement fund.  Very few if any non-government employees receive a pension remotely resembling that of government employees.

The missing carrots, or what is noticeably absent from the bills, are any guarantees for public school employees regarding reirement health benefits.  This was the hangup over the late stages of this bill’s evolution.  The Michigan constitution guarantees the state employees’ pension benefits, but not their health benefits.  A recent House version of this bill took that action, which thereby increased the cost of retirement. 

As I have written before, when you break down why the MPSERS costs have increased as significantly as they have, rising retiree health care costs represent the greatest source of cost escalation.  So by taking this action, Lansing seems to be acknowledging this issue.  It is in this context that these bills are more aptly termed retirement reforms as opposed to an incentive.

And that’s the other very big news here.  The bill requires that new hires will be placed into a hybrid retirement system that is not exclusively a defined benefit plan, but more dependent on employee contributions – similar to 401k’s.

The net effect of all this on near and long-term school funding will remain to be seen.  There are lots of possibilities:

  • Our per pupil Foundation Allowance may still be reduced, but it is very unlikely that it would be anywhere near the $268 cut that has been often discussed.
  • The MPSERS rate may not got to 19.41%, but if it goes short of that I would predict a moderate Foundation Allowance cut.  Again, though, the net effect would not be NEARLY as harsh as the $268 cut AND the 19.41% MPSERS rate would have been.
  • This will undoubtedly spur many retirements not only of teachers but many other employees, including secretaries, custodians and others.  In the GPPSS this could mean that some of the people whose jobs were eliminated may be able to be hired back.

In the even bigger picture, this reform may well prove to be a catalyst for other Michigan budget reforms.  I don’t think Lansing lawmakers could even look cross-eyed at alternative revenue options without first addressing the MPSERS problem.  This was arguably the biggest puzzle piece.  One has to wonder for the House Democrats to have supported this whether there was some back room quid pro quo negotiated.  This action will go a long way toward addressing the School Aid Fund’s $400 million projected shortfall.  The state’s General Fund deficit is still $1.3 billion.  It will be interesting to see what’s next.

This action shows that Lansing lawmakers are finally getting serious about spending reform, which is welcome news for those who realize change had to come.

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Filed under Current Events, GPPS Budget Decisions, State of Michigan Finances, State of Michigan Policy

Memo to Lansing: Results Matter More than Ideology

Gov. Jennifer Granholm lamented in a quote the other day that it may be too late for state lawmakers to pass a statewide retiremement incentive for government workers including public school teachers.

“They should have gotten that retirement bill done last week,” Granholm says. “Frankly they should have gotten it done a month ago.”

Granholm’s reference to “they” speaks volumes.  Does SHE not have a role in “getting it done”? Does she think she can just unilaterally concoct a bill and expect it to sail through the legislature untouched?  If so, how naive.

The inevitable failure of this exercise to adopt a plan that might provide some relief to Michigan K-12 public schools speaks volumes about Lansing’s collective inability to get anything done.  This case is particularly disturbing.

Here you have all three players, the governor, Senate and House, all agreeing there is an opportunity here.  Yet each wants to get it done on their own terms with no compromise.  The end result?  We’ve seen it before. Nothing gets done.

How disturbing is this?  In a case where the three parties agree conceptually, they cannot deliver a solution for the benefit of the people they serve.  What about the majority of other issues upon which they cannot conceptually agree? 

Herein lies the problem of dogmatic devotion to political ideology.  When such devotion leads to the utter inability to deliver workable solutions to the people you represent, guess what?  Your political ideology has failed everyone.  Therefore as a policy maker YOU are a failure.

“Spare me the labor pains. Show me the child.”

I work in sales.  I’ve worked for some pretty tough sales managers in my day.  One particularly difficult manager had a message during sales forecast and results reviews.  He’d tell sales reps who blithered through a litany of excuses why the results were not where they should be, “Spare me the labor pains. Show me the child.” 

His message?  You are paid to deliver results.  Period.  Find a way to get it done and if you can’t, well, find a way to get it done.

Policy makers are elected to deliver results.  Results are the name of the game.  The citizens of Michigan are clamoring for results, yet we are getting none.  But political ideology?  Oh, we’ve got plenty of that!

An effective policy-maker finds a way to get things done.  If you cannot get things done but take refuge in spouting political ideology, quit pretending to be a policy-maker and go become a talking head.  Perhaps that would be more fulfilling for you.  I think both CNN and Fox are always looking for more.

For the people of the state of Michigan, the broken record routine in Lansing is undeniably unfulfilling – and frankly unacceptable.

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Filed under State of Michigan Policy