Michigan Senate passes school retirement system reforms

Sen. Kevin Hertel and legislators question Gov. Gretchen Whitmer and Budget Director Christopher Harkins after the governor presented her budget proposal to the Michigan House and Senate Appropriations Committees on Feb. 8, 2023. (Andrew Roth/Michigan Advance)

Updated, 7:06 p.m. 9/17/24

Legislation to permanently eliminate the 3% tax some public school teachers pay into a health care fund for retirement passed through the Michigan Senate along party lines Tuesday.

SB 911 , sponsored by state Sen. Kevin Hertel (D-St. Clair Shores), already won approval by the House in late June as the Legislature was working to finalize an $82.5 billion budget for Fiscal Year 2025.

“This is a large investment in public education,” Hertel told the Michigan Advance on Tuesday . “I would say it’s transformational, and getting this done will allow us to then hopefully continue to build on those per-pupil increases year after year as we go forward.”

Michigan House passes bill to divert excess teacher retirement funds into K-12 budget

That FY 2025 budget, which goes into effect Oct. 1, was the first in nearly a decade that failed to include an increase to the per-pupil allowance for the School Aid Budget, keeping it at $9,608 per student.

However, it did include a decrease in rates paid to the Michigan Public School Employees’ Retirement System (MPSERS), allowing the Democratic-led Legislature to redirect $670 million from the system into additional funding for schools, which Gov. Gretchen Whitmer’s administration originally proposed when she rolled out her $80.7 billion budget blueprint in February.

The bill passed 20-16, with all Democrats in favor and all Republicans who were present voting no. Sens. Rick Outman (R-Six Lakes) and Jim Runstead (R-White Lake) were excused.

Hertel said he was disappointed not to get any support from his Republican colleagues.

“I’m somewhat shocked by that because we’re talking about freeing up $600 million across the state at our school districts,” he said. “And for the teachers that are paying the 3% for the pension portion, you’re talking about putting those dollars back into their paychecks as well. So I was hopeful that we would have some support on the other side of the aisle. This is a game changer. It will fix a structural problem in how we fund our schools.”

The bill was a substitute proposed by Sen. Darrin Camilleri (D-Trenton) which incorporates a previously passed House version sponsored by state Rep. Matt Koleszar (D-Plymouth). It automatically codifies a 5.75% rate reduction in payroll costs starting in FY 2026, which Camilleri said when combined with the FY 2025 budget, will make that savings permanent and “put hundreds of millions of dollars back into the classroom immediately and for the long term.”

That sentiment was echoed by Al Latosz, Superintendent of Algonac Community Schools and President of The K-12 Alliance of Michigan.

“We are grateful to the Michigan Senate for engaging in an ongoing dialogue with educators about the importance of responsibly and permanently reducing these decades-old debt payments that have been forced on our schools and students,” said Latosz. “The passage of SB 911 will free up hundreds of millions of dollars annually that schools across Michigan will be able to invest directly into the programs that support the needs of our students.”

Republicans, as they have been from the outset of the plan, expressed concern about the legislation doing long-term damage by not fully funding future pension debt.

“Failing to pay your obligations has long-term implications,” said Sen. Thomas Albert (R-Lowell). “It makes it harder to fund education in the future, and it makes it harder for us to make sure we can pay our retirees the benefits they earned and are constitutionally protected.”

Senate Minority Leader Aric Nesbitt (Porter Twp.) also expressed his opposition.

“The bill before us is everything that is wrong with government,” he said. “A cynical money grab whose victims won’t notice it until the thieves are long gone out of this building. Another empty win for the tax takers over the taxpayers. A raw deal dressed up to look like a good one. A shameless attempt to fool people, the same people who step up to teach our children. The bill is theft, pure and simple.”

Hertel said he was perplexed by that characterization.

“I actually think you could call it theft if we continue to take 3% out of educators’ paychecks and take this money from school districts and put it into the health care side of the pension fund that is over 140% funded today,” he said.. “I don’t understand why we would continue to plug money into a fund that the experts tell us is properly funded when that money can do the work it needs to do in our classrooms and go back into the paycheck for educators across our state.”

Sen. Dayna Polehanki (D-Livonia), chair of the Senate Education Committee and a former educator for 20 years, shared that point of view from the Senate floor in support of the bill.

“So in this year’s state budget, we reduced MPSERS’s payments instead, directing $600 million more state dollars right back into our schools. This is the average equivalent of approximately a $400 per student increase statewide. We also delivered a 3% pay increase for teachers who hired in before 2012 by removing the requirement of paying into this fully funded system,” she said. “This bill will grant school districts more flexibility in deciding how to use these surplus funds, including but not limited to investing in student mental health, in school safety, paying teachers more, staff more, and specialized academic interventions to meet unique school needs.”

Hertel said the legislation will solidify the savings for school districts in perpetuity.

“They can plan their budgets provided by these savings, and now they know it’s ongoing, so they can use those dollars to plan out year-over-year,” he said.

The legislation now goes back to the House for a final vote, which Hertel expects will be next week. If it passes it will go to Whitmer for her signature.

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