Correction: This story has been updated to indicate that money taken from public school employees would stay in the state system for school employees retiree health care if Gov. Rick Snyder wins his appeal before the Michigan Supreme Court. Because of incorrect information provided to The Detroit News, an earlier version incorrectly stated it would be returned to the general fund.
Public school employees who did not consent to $550 million taken from their state paychecks will eventually get their money back, but not immediately, an attorney representing the state of Michigan told the Michigan Supreme Court on Wednesday.
But exactly how they’ll see the return of that money and when remain at issue.
The Michigan Supreme Court heard arguments Wednesday on whether the money taken from more than 200,000 school employees between 2010 and 2012 should be collectively returned with interest.
Gov. Rick Snyder appealed a 2016 Court of Appeals decision that ruled the money was unconstitutionally seized for retirement health care benefits school employees were not guaranteed to receive.
Attorney Gary Gordon, who represents Snyder, told the court that school employees are contributing to a program to which they alone benefit for retiree health care.
“Any money any of these people have contributed will be returned eventually with interest. So nobody is being harmed,” Gordon said.
Gordon added the employees received and will receive benefits from the contributions, such as death and disability coverage, future retiree healthcare and a viable health care system.
“The people will be made whole, maybe not tomorrow or next week. But they are going to be made whole,” Gordon told the justices.
Justice Richard H. Bernstein responded: “Is that genuine? If we decide this is a taking, isn’t the only way to make a remedy the immediate dispersal of funds? Not later, not in the future, but to give them their actual money that is taken from them? This is the question I have for you.”
Gordon said there is no immediate refund of the money as it stands now.
If the court rules that the statute used to take the money is unconstitutional then the escrowed funds will be paid back immediately, Snyder spokeswoman Anna Heaton told The Detroit News on Wednesday.
If the governor wins his appeal, the money stays in the state's system for school employees' retiree health care, Heaton said.
Attorney Robert Fetter, who represents the school employees suing the state, said Gordon does not mean employees would be paid back with cash in the short-term.
Under a section of the new law, employees who opt in to paying the money but don’t receive health benefits at retirement — whether it’s because they are not vested or they die — will get money back though an allowance to them or their survivors.
“That broad answer has a lot of tentacles to it. It’s getting paid back some time in the future. I think it’s very disingenuous. He didn’t really mean what he said,” Fetter said.
Doug Pratt, a spokesman for the Michigan Education Association, said Gordon’s assertion that employees are getting their money back is just a legal position taken by the state. MEA attorneys are representing school employees in the matter.
“Telling people they are going to get their money back 20 years later doesn’t address the fact it was illegally taken to begin with. The funds are in escrow per court order and can be returned immediately,” Pratt said.
If the court rules in the teachers unions’ favor, public school workers would receive a refund from the $550 million the state has held in escrow since starting the 3 percent reduction six years ago in an attempt to pay down a multi-billion-dollar unfunded liability.
To further explain Gordon’s comments, Heaton said: “In response to a question about whether requiring employees to pay 3 percent of their salary was a taking of private property, Gary (Gordon) said no it’s not, because the state employees will be made whole in the end — they will be justly compensated, which is what is required when the government takes private property.”
Heaton said the justices were asking Gordon about whether the system, as currently set up, constituted a taking for which there was no just compensation.
“The question wasn't about whether the state could refund the money if it decided to drop the appeal or if the court ruled against the state,” she said.
Chief Justice Stephen Markman asked Gordon what the relevance was of the state’s financial stress to taking the money from school employees.
Gordon said the Legislature could have said it wasn’t funding health care anymore for the employees.
That’s when Justice Bridget McCormack asked Gordon if the rights of school employees fluctuated based on the financial health of the state.
Gordon replied no.
Among the issues likely to be decided by the justices is whether the $550 million — taken after state lawmakers passed a 2010 law allowing the money to be taken without consent — is a part of a new law passed in 2012.
Attorneys for the American Federation of Teachers and the American Federation of State, County and Municipal Employees told the justices that the amended law passed in 2012 — Public Act 300, which allows school employees to opt-in or opt-out of the contribution -— is not retroactive.
“The issue is whether the money attached to PA 300, and it is not,” argued attorney Timothy Dlugos, who represents school employees in the case. “If something is to apply retroactively, it has to be clear, direct and unequivocal.”
In 2012, the Michigan Supreme Court upheld the 2012 replacement law.
AFT lawyer Mark Cousens said property is a fundamental right under the Constitution and the money taken belonged to school employees as their property.
“No one asked these public school employees if it was OK with them to take 3 percent. Those were always involuntary not consented to. None of the money benefits the people who paid it,” he said.
The lawsuit by school employees began in 2010 after a coalition of school employee unions sued Snyder and Attorney General Bill Schuette over the issue.
The 2016 Court of Appeals ruling represented a victory for teachers unions that had waged a five-year battle against the mandatory payroll reductions, which were imposed under former Gov. Jennifer Granholm and passed by a Democratic-controlled House and Republican-dominated Senate.
A Republican-controlled Legislature amended the law in 2012 to stave off a continued legal challenge, but the teacher unions continued to fight in the courts for a refund of money deducted from employee checks over a two-year period. The funds have been held in escrow while the legal battle played out.
Since then, $550 million has been sitting in a third-party fund collecting interest as the court battle drags on.
In a 2-1 decision in 2016, Appeals Court Judges Douglas B. Shapiro and Jane M. Beckering called the 3 percent dock a “compulsory collection,” unconstitutional and had ordered the state to return the money to employees with interest.
Appeals Court Judge Henry W. Saad dissented in part, disagreeing that the mandatory contributions to the retirement fund were unconstitutional.
Saad argued the mandatory employee contribution was fiscally necessary in 2010 when the Michigan Public School Employees Retirement System was shelling out $920 million annually for “unsustainable” health care benefits for retirees and their dependents.
“That the state chose a paycheck deduction method simply does not convert a permissible legislatively mandated contribution into an unconstitutional impairment of contract,” wrote Saad.