July 7, 2019
For the last 8 years, the GOP-led Michigan legislature finished the budget in mid-June, the Republican Governor signed it promptly, and everyone left for the summer. This year with a GOP-led legislature and a Democratic Governor disagreeing on budget priorities, school districts, public universities, community colleges and local governments whose fiscal years begin July 1 will just have to wait to find out what their state aid will be.
Both the House and Senate have passed their ideal budget plans and have established conference committees to work through differences. Neither chamber’s Republican leaders were agreeable to Whitmer’s budget proposal, which would infuse new infrastructure funding into the state budget with a 45-cent gas tax increase. House Democrats recently issued their own ideas on raising additional funding for roads, including a corporate income tax hike and additional taxes and tolls on heavy trucks that would produce half the $2.5 billion needed.
On June 13 the House and Senate released updated session calendars for July and August listing most days for tentative session. So far neither chamber has actually met since adjourning June 21. A budget must be adopted by midnight September 30 or we will face a state government shut-down last experienced in 2009.
PENSION BONDS FOR ROADS?
WMPF proposal — The West Michigan Policy Forum composed of business and community leaders has proposed the state sell 30-year pension obligation bonds to borrow $10 billion that would be used to pay down unfunded liabilities to its pension funds. This would free up nearly $1 billion a year in the current state budget that could be used for other purposes such as fixing the roads without raising taxes.
Borrow now, pay later — The state currently expects to pay off over $29 billion in teacher pension unfunded liabilities and $6 billion in state employee pension unfunded liabilities in 21 years. The WMPF proposal would instead require the state to repay the new bond within 30 years. Borrowing the money through bonding would cost the state interest on the bonds, though there is always the possibility that the state could invest the money and exceed the cost of borrowing it. However, the national Government Finance Officers Association in 2015 adopted an advisory warning against pension obligation bonds. Generating revenue from pension investments that tops bond interest rates is a “very speculative” goal, the association said.
Former Speaker of the House Jase Bolger, spokesperson for the WMPF, said he anticipates annual interest payments of about 4 percent on a pension obligation bond and said the stock market “over the long term” has performed much stronger than that. The state could reduce risk by investing the $10 billion over time instead of all at once to limit the impact of market corrections or recessions, he said.
Another POV — Anderson Economic Group CEO Patrick Anderson, who served as deputy budget director during the administration of Republican former Governor John Engler, said the pension bonding idea is dumb. He found in a study for the Macomb Intermediate School District that a 40-year payment schedule for the state’s unfunded liabilities in that district would cost the state an additional $30 billion and a 50-year payment schedule would cost an additional $45 billion. He said the roads being fixed may last up to 10 years, much less than the payoff of unfunded liabilities. Anderson also contends the proposal could potentially violate provisions in the state Constitution related to requiring voter approval of general obligation debt, the requirement to have a balanced budget, and requirements of having all pensions funded.
Coalition opposes — The Coalition for a Secure Retirement, composed of public employee organizations including SERA, sent a letter to Governor Gretchen Whitmer, Budget Director Chris Kolb, Office of Retirement Service Director Kerrie VandenBosch, and majority and minority leaders in the Senate and House objecting to the proposal. The letter said that such a plan would endanger future retirement benefits for employees. It explained its reasoning:
Contact your state legislators — State legislators need to hear from state employee retirees about risking our pension funds to temporarily support other state obligations such as fixing the roads. Fixing the roads requires a permanent source of revenue, not putting up state pensions as collateral for a loan. You can find the contact information for your state senator and representative at www.michiganlegislature.org.
AUTO NO-FAULT INSURANCE UPDATE
The new auto no-fault insurance law signed into law on May 30 created five coverage level options for automobile Personal Injury Protection (PIP) issued or renewed after July 1, 2020 with promised PIP premium rate reductions until July 1, 2028:
Since premium savings in the last option will be attractive to state employee retirees with Medicare, it is important to know just exactly what giving up PIP coverage would mean. State employee retirees have supplemental health insurance by BCBS or an HMO to cover some of the costs not covered by Medicare. But there are costs associated with auto crashes not covered by either Medicare or our health insurance. Here is a chart provided by the Coalition Protecting Auto No-Fault that might be helpful in deciding how much auto insurance you want to buy next year:
COMPARISON OF UNLIMITED PIP COVERAGE AND MEDICARE COVERAGE
*2018 limits according to Medicare.gov
On June 27 the U.S. Supreme Court in a 5-4 decision held that partisan gerrymandering is not unconstitutional under the U.S. Constitution and that lawsuits challenging partisan gerrymandering are a political issue best left to states to decide.
A federal district court in Detroit had earlier ruled in a lawsuit brought by the Michigan League of Women Voters that the GOP-led Michigan legislature in 2011 had adopted partisan-biased political boundaries. That case is effectively finished.
However, the voter-adopted Proposal 2 to establish an independent citizen redistricting commission in Michigan’s Constitution was not affected by the USSC decision. Secretary of State Jocelyn Benson issued a statement saying “With clarity from the courts we will move forward to implement the Independent Citizens Redistricting Commission for the 2022 elections and actively engage all of our citizens in a transparent process that leads to fair districts for all.”
Line 5 — On June 27, Michigan Attorney General Dana Nessel filed suit to shut down and permanently decommission Enbridge Line 5 in the Straits of Mackinac, explaining that Enbridge’s “continued operation of the Straits Pipelines present an extraordinary, unreasonable threat to public rights because of the very real risk of further anchor strikes, the inherent risks of pipeline operations, and the foreseeable, catastrophic effects if an oil spill occurs in the Straits.”
Pot rules — The licensed adult-use marijuana system will officially open on November 1 when the state’s Marijuana Regulatory Agency plans to start accepting applications for licenses. Emergency rules for the recreational pot market were released July 3. The first adult-use sales could possibly occur by the first quarter of 2020. More than 500 Michigan communities have opted out of allowing recreational marijuana establishments.
Snyder and Harvard — Former Governor Rick Snyder first accepted, and then declined, a senior research fellow position with the Harvard University Kennedy School’s Taubman Center for State and Local Government. After the appointment announcement, a firestorm of criticism erupted on social media about his role in the Flint water contamination crisis, prompting his decision to withdraw.
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