Mich. Legislature Caps Employee Benefits; ‘Fiscal Terrorism’ Accusations Fly

Mich. Legislature Caps Employee Benefits; ‘Fiscal Terrorism’ Accusations Fly
August 31, 2011

Whitney Downs

Whitney Downs is a research assistant in education policy at the American Enterprise Institute.... (read full bio)

Michigan lawmakers have taken another step to curb public-sector employee spending, passing a bill giving municipalities, local governments, and school districts a choice: cap your employee healthcare benefits or forfeit 10 percent of your state funding. Gov. Rick Snyder signed this provision, inside Senate Bill 7, into law in September.

Starting January 1, school districts must choose to limit healthcare payouts to $15,000 per family or cap their healthcare contribution at 80 percent of the plan’s total cost. Districts failing to do so will forfeit 10 percent of their state funding. That would mean a $44 million dollar hit to Detroit Public Schools’ general fund alone.

Michigan Republican leaders are hailing the bill as a way to help plug state and local budget gaps without layoffs or tax hikes. The 20 percent employee contribution required in the bill comes down to basic fairness, says State Sen. Patrick Colbeck (R-Canton).

“The reason for the 20 percent, that’s what the people who are paying our salaries are paying out in the private industry,” he said. “It doesn’t make sense for us to get a better deal than those who are paying our salaries.” The Mackinac Center recently found insurance benefits per employee in Michigan are $7,149 more per year in the public sector than in the private sector.

The caps won't affect existing union contracts until they are modified or have expired.

‘Conservative Cannibalism’
In an ironic twist, Democratic opponents of the bill have slammed Republicans for interfering with the “home rule authority” of localities.

“It’s an act of big government to impose its will on small governments,” said State Sen. Coleman Young II (D-Detroit). “Not only is this just conservative cannibalism and fiscal terrorism, but I also think quite frankly we’re out of touch with the needs of Michigan, which is to put people back to work. Let’s create some jobs.”

The new law actually provides fiscal space for schools to do just that. In Caledonia, Michigan, the district covers 100 percent of the insurance premium for its 397 employees at an annual cost of around $4.3 million, or $10,700 per staff member. Under the new Michigan law, the district would save around $850,000 a year—enough to hire ten more full-time employees. Allendale, another small Michigan district where employees pay no premium for their health insurance, would save almost $500,000 under the plan. That’s enough to hire four more teachers, two reading coaches, and a guidance counselor.

Then there’s Motor City. Looking through Detroit Public Schools’ current bargaining agreements (there are nine), it seems district employees must pay 10 percent of their insurance premiums. In 2008-2009, the district spent $135,561,757 on employee insurance benefits, which breaks out to $12,000 per employee. Under the new law, which would bump up the 10 percent contribution to 20 percent, the district would have saved over $15 million in insurance premium payments. That would translate into 165 new full time employees, or the district could use the savings to help address its $327 million deficit.

The law is one of many similar surfacing in states as legislators face heavy deficits, partly created by steep pension and healthcare costs. Earlier this year, New Jersey and Wisconsin’s governors signed laws increasing public workers’ pension and healthcare contributions. Unions in both states are contesting the laws in court.

Private vs. Public Pay and Benefits
Some will argue plush benefits are appropriate for public-sector employees—one of the perks they receive in exchange for lower salaries compared to their private-sector counterparts. True as this argument may be for those who are already in the profession, it’s becoming less compelling as the labor market has changed. In Michigan, the average private-sector salary has fallen from $55,605 to $52,748 since 2000, whereas the average state and local government compensation rose from $51,357 to $57,192 in the same time frame.

"For too long, [public employee healthcare] has been like going to a grocery store with your shopping cart and picking everything you want off the shelf," Colbeck said. "Now we have to be aware of what we are spending."

Union leaders are apt to protect all the benefits they can, however, even when it means choosing layoffs over concessions. They find the ire of 100 unemployed teachers is well worth the support of thousands of teachers whose premiums they protected.

The Michigan plan, however, moves these tradeoffs from behind closed doors and into the public’s eye. Superintendents now have the cover they need from Lansing to take tougher stances at the bargaining table. They can lay the blame on the Republican legislators for these new guidelines because, after all, no one wants to lose millions in state aid.

More important, the public can now see firsthand the kind of benefits public employees have been receiving, perks unheard of in the private sector. Since the year 2000, public-sector benefits have risen 35 percent and private-sector benefits fell 5 percent in the state.

With Michigan Education Association spokesman Doug Pratt saying the bill is “just another phase of the attacks the [Republican legislators] are waging against the middle class of this state,” taxpayers now can know exactly what he means.

This article is reprinted with permission from The American, AEI’s online journal.

Image of the Michigan Capitol from Wikimedia Commons

Whitney Downs

Whitney Downs is a research assistant in education policy at the American Enterprise Institute.... (read full bio)