Legislative Report

March 2010

These continue to be very interesting times in Michigan state government. All of the conditions exist for a perfect storm: A term-limited governor whose popularity has fallen in recent years gives her last State-of-the-State (SOS) address without mentioning the $1.6 million dollar deficit anticipated in 2011. Her SOS address is followed by her proposed 2011 budget a few days later. It will be considered by a Republican controlled senate led by a term-limited senator who is running for Attorney General and is committed to achieving a 2011 budget through cuts and no tax increases. In the House, the Democratic leader is running for governor and believes tax increases should be implemented as a last resort while many members of his caucus believe differently. This becomes a setting for the two chambers to come up with appropriation bills for fiscal year 2011 by a self imposed deadline of July 1. Failure to do so will reduce the time that legislative leadership will have to campaign for the respective positions they seek, not to mention other legislators campaigning for reelection.

It is within that framework that outside organizations are lobbying for major overhaul of the state government financial structure which by all estimates is extremely inadequate and unsustainable for the future. The well-respected and non-partisan Citizens Research Council has issued a report entitled “The FY 2011 Budget: Déjà vu All Over Again.” The report reviews the Governor’s 2011 budget recommendations and points out the imbalance between funding needs and revenues. In recent weeks, a group of respected economists decried the inadequate financial structure of Michigan government. The issue is a political hot potato that politicians are afraid to touch. One of the most popular solutions put forth by individuals and organizations knowledgeable about state government is a graduated income tax. This coupled with modernizing the sales tax would provide considerable additional revenue. In fact, a group known as Better Michigan Future is considering mounting a petition drive to get a graduated income tax on the ballot if the legislature does not take steps to get it on the ballot.

Governor Granholm’s 2011 budget recommendations include a reduction of the sales tax to 5.5% and extending the sales tax to most services. She would dedicate the increased revenue to the School Aid Fund. Her recommendation calls for a $556 million General Fund cut. It also restores the Michigan Promise Scholarship program, but as a tax credit for individuals who remain in Michigan and work here for at least a year. Additional savings would be realized by her plan to reduce the number of state employees through early retirements and changes in health c are coverage for newly hired employees. Senate Majority Leader Bishop characterizes her recommendations as problematic because it increases taxes. House Speaker Dillon is also reluctant to support tax increases.

So given the status of state government finances, why would anyone want to be governor? It appears that a number of Democrats have considered running for governor, and decided to forego the opportunity. So far, the following Democrats have come close to running but eventually declined: John Freeman, John Cherry, Denise Ilitch, and Bob Bowman. The only two announced Democratic candidates, to date, are Lansing Mayor Virg Bernero and Representative Alma Wheeler Smith of South Lyon. It appears that another candidate will soon announce. Former Genesee County Treasurer Dan Kildee is expected to become a candidate on the Democratic ticket. The Republican candidates are Attorney General Mike Cox, Oakland County Sheriff Mike Bouchard, Congressman Peter Hoekstra, Senator Tom George, and Ann Arbor businessman Rick “The Nerd” Snyder. Former State Senator and U.S. Congressman Joe Schwarz is considering running as an Independent. However, he must collect 30,000 valid petition signatures in order to run as an Independent.

Former Governors John Engler and James Blanchard appeared together recently at a fundraiser for the Michigan Political Leadership Program. Both men agreed that the state’s inability to resolve some of its problems was the result of term limits. The lack of camaraderie among legislators from different parties, loss of institutional knowledge and a leadership vacuum all result from term-limits and prevent resolution of major issues. Additionally, legislators are concerned about what their next political move will be and fearful of alienating their constituents through their legislative actions. Incidentally, both Mr. Blanchard and Mr. Engler oppose having a constitutional convention which will be a question on the November ballot. The reason for their opposition is the cost, the potential quality of convention members, and the fact that the Michigan Constitution is not that old and outdated to the point of having to be completely redone.

Despite the preoccupation by most politicians with budgets and elections, some non-budgetary business was acted upon during the month of February. The following bills may be of interest to retirees/seniors:

Pooling of public health care costs — HB 5345 is the so called Dillon pooling bill which would mandate the pooling of all public employer health care programs in Michigan in a program operated by the state. This bill remains in Committee which held one meeting in February. The meeting consisted of hearing reports by the various work group leaders who are members of the Health Care Reforms Committee. The news that came out of the hearing was that prescription drugs would be a “carve out” from HB 5345, meaning that there would be a separate prescription drug pool which would have opt in provisions for local units of government. Also, the 13 member governing board for the health care pool would be increased to 29 members in order to allow greater representation from retiree and union groups. Committee Chairperson, Pam Byrnes, announced that the Committee would expand its scope to include hearings on Senate Republicans’ proposal for all pubic employees to pay 20% of their health care premium and the Governor’s proposal to encourage early retirement of some 7000 state employees and change the health care structure for new hires after April 1, 2010. We will continue to monitor this Committee’s activities.

Expansion of investment options under the Public Employee Retirement Act — HB 5323 is intended to allow a greater degree of flexibility for managers of investment portfolios and allow funds to rebalance their investments to match what is happening in the market. Essentially, it increases the caps on certain types of investments. A Fiscal Agency analysis of the bill sites an example, which I believe explains the intent of the bill: “If domestic stocks suddenly fall, the fund’s investments in foreign securities may just as suddenly represent a larger share of the funds total investments, even though no new investments in those foreign stock has been made. Increasing the cap will therefore accommodate market fluctuations and not force investment fiduciaries to sell off securities when prices are down.” Additionally, the bill would allow interest earnings from investments to be used for training and education of plan trustees, a practice that is already in existence in some cases. The bill would specifically authorize it. The bill would require the disclosure of fees and commissions for a number of services by investment service providers to be disclosed upfront and on an annual basis. Finally, the bill would allow the pooling of smaller funds in a venture like those involved in real estate investments. Both the Treasury Department and the Municipal Employee’s Retirement System support the bill. The bill has passed the House and gone to the Senate Committee on Appropriations.

Home energy improvements financed through property assessments — HB 5640 would create the Property Assessed Clean Energy Act. Local units of government would be allowed to make home loans to private property owners for energy efficient improvements or the installation of renewable energy systems. The property owner (or purchaser under a land contract) would be required to borrow all costs involved with the project from the local unit of government. The loan for the energy improvements would be repaid through assessments on the property based on a contract between the local unit of government and the property owner. The repayment would be made in installments at the same time and in the same manner as other property taxes are collected. Local units of government could obtain the funds to make the loans by issuing and selling bonds authorized under the Revised Municipal Finance Act. The bill has been reported from the Committee on Great Lakes and the Environment and is on the House floor for consideration.

Permanent absentee voter list — HB 5456 would require each city and each township clerk to maintain a permanent absent voter list of electors who request that their names be kept on the list, and send the voters on that list an application for an absent voter ballot for each election. The bill has passed the House and gone to the Senate Committee on Campaign and Election Oversight.


Term limit proposal: Democratic Representative Richard LaBlanc has announced that he will propose a constitutional amendment to end term limits subject the following conditions: Legislators would forego their health care coverage, the legislature would be part-time, and the legislative pay would be reduced to $35,000 annually. His term-limit proposal would work as follows: 1) Meet 31 days for each of two months  the second of January and May; 2) Governor permitted to call for special sessions of no more than five days; 3) The legislative leadership could call for a special session of no more than 5 days to reconsider bills vetoed by the governor; 4) Committee hearing could be held while the legislature is not in session. Each legislator would be limited to 4 committee assignments; 5) The $35,000 salary would begin in 2013 and be indexed to the Consumer Price Index. The State Officers Compensation Commission would no longer set the salary of legislators; 6) The current $12,000 expense account would be reduced to $6,000; 7) Limit non-budget bill requests to two per month per legislator; 8) Eliminate all health care benefits for those serving and newly elected; 9) Prohibit 401k contributions by the state; 10) Complete budgets by June 1. When introduced, the measure will require a two-thirds majority vote of both houses of the legislature in order to get on the ballot as a constitutional amendment.

Pew Center Report on Pensions and other retirement benefits: The Pew Center on the States published a study entitled “Trillion Dollar Gap: Underfunded State Retirement Systems and the Road to Reform.” The state of Michigan’s “promise” or obligation for pensions is $70.4 billion with all but $11.5 billion funded, based on 2007-8 data. Fluctuations in the market account for unfunded liabilities to a large degree. These figures include all retirement systems. Non-pension benefits carry a “promise” or obligation of $40.7 billion with $39.9 billion of that amount unfunded. Unfunded liabilities in this category are attributable the escalating costs of health care and funding being on a pay as you go basis. There are many states which are worst than Michigan in terms of funding levels.

Civil Service rejects pay increase for non-union employees: The Civil Services Commission rejected the recommendation of the Coordinated Compensation Panel and denied the proposed 3% pay increase for non-represented (non-union) employees scheduled to begin October 1. The Compensation Panel’s recommendation was consistent with the increase negotiated by unionized employees. The 3% increase for department directors and other non-classified employees has also been cancelled. There is a move afoot in the legislature to overturn the negotiated 3% pay increase for union employees. In order to prevent the increase from taking place, there would have to be a two-thirds majority vote in both the house and senate.

Executive Directive to make state’s health care program available to local government employees: Governor Granholm has issued Executive Directive 2010–1 directing the of Civil Service Commission and the Department of Management and Budget to take the necessary steps needed to make the state’s health care program available to employees of local units of government. This involves reviewing law and procedures which may impede inclusion of local government employees from participating in the state’s health care program provided they pay the costs of such participation. The idea behind the Directive is that the state health care plans may be less expensive than those of local governments. It would be optional for local employees to participate. The general framework for doing this has been in place for some time.

Office of Financial and Insurance Regulation to review insurance forms: The Director of the Office of Financial and Insurance Regulation (OFIR) has announced that life and health insurance contracts and other forms must first be reviewed by OFIR before they can be used for business transactions with customers. The order rescinds a 1997 order which allowed insurance companies to use forms without review. The purpose of the review is to assure that contractual clauses, for example, are written in such a manner to be fair to the customer and prevent surprises from occurring later. Auto and home owners’ insurance forms have had to be filed since May, 2009.

People in the News

Kevin Scott, Director of the Department of Civil Rights, recently died of cancer at the age of 47. Mr. Scott, an attorney, served as a member of the Commission from 2004 until his appointment as Director in February, 2009.

Andy Coulouris, a Democratic state representative from Saginaw, announced that he will resign his 95th District seat on April 30 to accept a position in Washington, D. C. as Public Affairs Manager for Dow Corning. It is unusual for a legislator to leave in mid term. He had one term remaining for which he could have run.

Vern Ehlers, a Republican U.S. Congressman from Grand Rapids, has announced that he is retiring from Congress at the end of his current term. Ehlers won the congressional seat in a 1993 special election.

Clifford Taylor, former Chief Justice of the Michigan Supreme Court, joined the law firm of Miller Canfield as an of counsel attorney. Since being defeated for reelection to the Supreme Court, he has been Justice in Residence and a visiting law professor at Ave Maria College of Law in Naples, Florida, which positions he will retain.

Craig DeRoche, a former Republican speaker of the House from Novi, was arrested on suspicion of drunk driving. He had a blood alcohol level of .249, three times the legal limit, when he was found walking around Saline, Michigan.

Editor’s note: Alvin Whitfield is former President of the Lansing SERA Chapter and former Chairperson of the Michigan SERA Council and current Legislative Representative for both the Council and the Lansing Chapter. He may be contacted at 1241 Runaway Bay Drive, C-3, Lansing, Michigan 48917; phone 517/703-9666; e-mail: alwhit@worldnet.att.net.

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