Pension dispute derails Mich. budget talks

Jonathan Oosting
Detroit News Lansing Bureau

Lansing – Republican leaders in the Michigan House and Senate abruptly halted budget talks with GOP Gov. Rick Snyder late Thursday, citing his reluctance to embrace their push to close the state’s teacher pension system to new hires and move them into 401(k)-style retirement plans.

Senate Majority Arlan Meekhof and House Speaker Tom Leonard were set to meet with administration officials Friday in hopes of setting final spending targets for a 2018 state budget all sides had hoped to complete in early June.

“House and Senate leaders continue to talk and move the budget forward, but they would like to see a solution to the (teacher pension) crisis,” said Gideon D’Assandro, a spokesman for Leonard, R-DeWitt. “We need to see more progress on that front in negotiations with the administration.”

The state’s traditional teacher pension system is saddled with more than $29 billion in unfunded liabilities, fueling Meekhof and Leonard’s budget-season push to close the system, which could entail significant costs.

Snyder opposed a similar plan last year, balking at transition costs and arguing a newer “hybrid” pension system is working well. The hybrid system that all new teachers now enter is fully funded. The governor recently cracked the door to renewed negotiations but has not signed off on broad enough reforms to satisfy legislative leaders.

“It would be counterproductive to set budget targets without a clear path forward” on teacher pension reform, said Meekhof spokeswoman Amber McCann. “Target meetings are postponed until further notice.”

House and Senate Republicans have attempted to force the issue this year by approving budget bills that trimmed hundreds of millions of dollars in general fund spending proposed by the governor in order to leave room for possible tax cuts or pension reforms, a process complicated this week by new revenue estimates.

Leonard said earlier Thursday he hoped to continue conversations with Snyder but acknowledged “the governor is not quite where I’d like to see him at.”

“I think it’s time, once and for all, to close the door on the broken defined-benefit system we have,” Leonard told reporters. “This is a system that… back in 1999 when I graduated high school had a $250 million liability. Now it’s at nearly $30 billion. We need to address this for our teachers and students.”

The Office of Retirement Services last year projected a Senate teacher pension reform plan would lead to $25 billion in new state costs over 30 years, in part, because it would force the state Treasury to make more conservative investments that are a primary source of revenue for pension funds.

Meekhof has disputed those figures and said this week the Senate is working with two outside firms to calculate pension reform costs. He has not made the projections public but told reporters “it’s significantly less than what ORS has said, that’s all I know at this point.”

Democrats have criticized the ongoing push to close the hybrid pension system to new hires in lieu of 401(k)-style retirement plans, arguing the change would ultimately make the teaching profession less attractive to job seekers.

“Republicans know they don’t have the money they need to fund their half-baked, fiscally irresponsible MPSERS scheme,” Senate Minority Leader Jim Ananich, D-Flint, said in a Thursday night statement. “Playing politics with the state budget has caught up to them this time. It’s shameful and they need to be held accountable.”

State officials on Wednesday reduced state general fund revenue projections for the current and upcoming fiscal years by $292.9 million but increased School Aid Fund revenue projections by a combined $340.3 million over earlier estimates.

Legislative leaders were working with the Snyder administration to set new spending targets for the 2018 budget before talks broke off. They’ve boasted of finalizing budgets by early June each of the last six years but do not technically need to do so until Sept. 30, when the current fiscal year ends.

Snyder, Meekhof and Leonard are expected to huddle next week for a regularly scheduled leadership meeting.