Lansing — Michigan’s Republican-led Legislature could be on a crash course with GOP Gov. Rick Snyder over plans to eliminate teacher pensions for new hires, end the state’s “prevailing wage” law and slash personal income taxes.
Snyder and legislative leaders are likely to find common ground more often than not in the new two-year session that begins Wednesday, but an increasingly conservative state House will not find a rubber stamp on the budget-focused governor’s desk.
“You’ve got to have three legs of the stool. You’ve got to have the governor there, too,” said Senate Majority Leader Arlan Meekhof, R-West Olive, noting Snyder is “not always on the same page” as Republican legislators, especially on social policy. “There may be a rub on some of the conservative issues.”
Republicans maintain a 27-11 majority in the Michigan Senate and will return a 63-47 majority to the House after exceeding expectations in the Nov. 8 election. Although the GOP enjoyed the same numerical edge last session, more than 40 freshman representatives will provide a new perspective.
“We have a very conservative class of legislators coming in,” said Speaker-elect Tom Leonard, a third-term DeWitt Republican picked by his caucus colleagues. “Every one of those members are coming in ready to put their head down and work hard to improve our state.”
Leonard says fixing Michigan’s “broken” teacher retirement system is one of his top three priorities for the 2017-18 session. He also wants to address the state’s growing number of mentally ill prisoners and continue to boost training opportunities for the careers in the skilled trades.
“Instead of just throwing money at (the pension) problem — that’s what we’ve done in years past — we’ve got to fix the problem,” Leonard said.
The incoming speaker has a powerful ally in the upper chamber, where Meekhof led a recent lame-duck push for legislation that would have closed Michigan’s teacher pension system to new hires and instead limited offerings to 401(k)-style retirement plans.
The legislation stalled out in late December amid opposition from the Snyder administration, which said the transition could cost the state $25 billion over the next 30 years.
The legislation was not a “cost-effective approach” to pension reform, said Snyder spokeswoman Anna Heaton, adding the governor is “open to working with the Legislature on this issue and reviewing the data again.”
Michigan created a “hybrid” teacher pension plan in 2010 that includes a defined benefit pension component as well as a 401(k)-style component. The hybrid plan is working, Snyder has said. Roughly 18 percent of Michigan Public School Employees’ Retirement System members are on the hybrid plan, and it was fully funded through the end of 2015.
But the teacher pension system is still saddled with more than $26.7 billion in unfunded pension liabilities, up from $22.3 billion in 2011 and $1.38 billion in 2001.
Paying down unfunded pension liabilities can take a big bite out of school budgets. A 2012 law capped district contribution rates at 20.96 percent of payroll. The state picks up the rest, a cost expected to top $1 billion in the current fiscal year.
“This is not about spending less money on education; it’s about being more effective with the money that we spend,” Leonard said.“I’m a firm believer that if we can roll back those pension costs, we can get more money into the classroom and actually talk about giving many of our hardworking teacher’s raises.”
The opposing view
Democrats opposed the lame-duck plan that would have closed the teacher pension system to new hires, arguing the retirement benefit is one way the state can attract and retain talented teachers.
“I think if we’ve learned anything in this last election it’s that people across the state and across the country want more economic security,” said Senate Minority Leader Jim Ananich, D-Flint, who noted the GOP-led Legislature subjected pension payments to the state income tax as part of a 2011 tax code rewrite.
“It’s disappointing they first tax people’s pensions, and now they want to take away working-class people’s pensions.”
Michigan legislators are also expected to resume talks over unfunded liabilities at the local government level. A proposal to end retirement health care benefits for municipal employees stalled last year amid protests from police officers and firefighters, but Snyder plans to convene a task force to propose potential reforms.
New House Minority Leader Sam Singh, D-East Lansing, said the state must take a “comprehensive” approach to addressing unfunded liabilities. He is calling for a broad discussion on local government funding levels.
“Since the state has been balancing the state budget on the backs of these local communities, they’ve had less resources,” Singh said. “We would not be having as significant a problem with teacher pensions or health care retiree benefits if those communities were given the dollars they were supposed to be given up front.”
Prevailing wage battle rages
Meekhof said conservative legislators could also press the Republican governor by taking “another run” at repealing the state’s prevailing wage law, which requires contractors to provide employees with union-scale wages and benefits for work on government-funded construction jobs, including schools.
Snyder vowed to veto similar legislation last session, arguing it would discourage careers in the skilled trades. But the Republican-led Legislature could attempt to go around the governor.
Prevailing wage foes tried but failed to put veto-proof legislation before lawmakers last session, an effort marred by two unsuccessful petition drives.
“Obviously the governor’s not going to sign it, but I think we need to probably hire a better petition drive company, because the last one didn’t do so well,” Meekhof said.
“I think there’s opportunity there yet. ... I firmly believe that taxpayers shouldn’t have to pay more for their buildings than everybody else.”
Leonard disagrees with Snyder that repealing the prevailing wage law could make the skilled trades a less attractive career choice. While repeal is not one of his top three priorities, he said “it’s certainly something I would support.”
Tax relief debate
Meekhof also hopes to revisit a criminal justice reform package that passed the House but not the Senate and continue a long-running discussion over changes to the state’s no-fault auto insurance law.
Expect the Flint water crisis to remain a hot topic as well, with Ananich continuing to lead the push for state aid and substantive policy changes, including recommended revisions to the state’s controversial emergency manager law.
Six years after approving a tax code rewrite that slashed business taxes but led to higher bills for many individuals, Michigan’s Republican-led Legislature is poised to push Snyder for some form of personal income tax relief.
The discussion is sure to ramp up this week when Sen. Jack Brandenburg, R-Harrison Township, introduces legislation that would eliminate the state’s 4.25 percent income tax.
“We believe that when people have more of their own money in their pocket, they spend it in a way that is economically beneficial to the state,” Meekhof said.
Snyder, an accountant who takes pride in balancing Michigan’s books, has already expressed concern over the $9 billion budget hole that full income tax elimination would create. But he’s “open to a constructive” dialogue with legislators, Heaton said.
“His sticking point will be ensuring there is enough revenue to fund a change to the income tax without adverse funding effects for local governments and also allowing solid investments for statewide infrastructure,” she said.
Outright income tax elimination would have a devastating effect on the state budget without a serious proposal to replace the lost revenue, said Singh, who has instead suggested an expansion of the state’s Earned Income Tax Credit.
“You’re already underfunding roads, you’re already underfunding K-12 schools, higher education, our sewer and infrastructure. Why wouldn’t we fix that funding for those key things that are important to our economy and then talk about some level of tax relief?”