Michigan $1 Billion Closer to Bringing Benefits In Balance

Michigan made a giant stride toward bringing benefits into balance as the Michigan Legislature approved Senate Bill 7 which restricts local governments, including school districts, from offering health insurance more generous than exists in the typical private-sector job. If implemented appropriately, and the law allows considerable wiggle room, this ought to save up to $1 billion dollars annually and help keep local governments away from bankruptcy.

Because local governments and school districts substantially rely on local property taxes to pay for their services, the continual decrease in housing values in Michigan will strain their budgets. This bill should help them lower the costs of providing their services instead of simply doing less or looking to taxpayers to make up the difference.

The new act caps the rate that taxpayers will pay for government employee health insurance, although those caps are still above private-sector averages. The cap also escalates at the rate of national medical care costs — which increased around 4 percent per year in the past decade. The government can opt instead to require each employee to pay at least 20 percent of their health insurance premium, a typical requirement for insurance coverage in the private-sector for full-time professionals, though larger premium sharing is common.

The bill also allows government entities other than school districts to opt-out of these requirements given a two-thirds vote of their governing boards, including city councils, township boards, and university boards of trustees and the like.

Even with those limitations, six Republicans still voted 'no' (five in the House and one in the Senate). Outgoing Rep. Tim Melton, D-Auburn Hills, who recently accepted a new position in the education reform organization StudentsFirst, was the only Democrat to vote in favor of the bill. Melton also was the only Democrat to vote for all four of the teacher tenure reform bills late last spring.

While the limitations were added to make this more tolerable for local governments, it will dip into the total savings figures. Our research shows that the state can save $5.7 billion annually by bringing government benefits in line with the private-sector — $2.2 billion of which is in the costs of health insurance, with the rest being in retirement benefits, paid leave and other benefits. Since the new law does not apply to all governments — employees covered by the Michigan Civil Service Commission are exempt and others can opt-out — and because the benchmark is set higher than private-sector averages, savings could approach $1 billion when fully implemented.

This also may stem the substantial rise of government employment benefits in Michigan. Since 2000, payments for government employee benefits increased by nearly 25 percent, adjusted for inflation, while the means to pay for them fell substantially — private earnings dropped nearly 20 percent in Michigan over the period. So while private-sector households struggled this past decade, they were also required to pay more for benefits that they were not offered.

The new law will fix a portion of the problem. There is more to do, especially in light of generous and expensive government retirement benefits in Michigan. This new law is a solid step in the right direction of bringing benefits into balance and lawmakers should be congratulated for it.

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Video: Benefits in Balance