(Source: MIRS.news, Published 02/02/2024) While projecting the state's retiree healthcare system for teachers to be 100 percent funded in its next valuation, Gretchen Whitmer wants to redirect $670 million in otherwise additional public school retirement debt payments to other K-12 priorities for Fiscal Year (FY) 2025.
Michigan is legally obligated to pay into the Michigan Public School Employees Retirement System (MPSERS) at least the same amount it did the year prior until the system is 100 percent funded. There are two parts of the state's MPSERS debt – pensions and retiree healthcare benefits (Other Post-Employment Benefits (OPEB)).
Although Michigan is anticipated to still be paying down MPSERS debt until its fully funded in 2038, a 2022 valuation regarding the OPEB unfunded actuarial accrued liability (UAAL) found that it was funded by 99.2 percent. The Governor's office is expecting subsequent valuations to reveal that the system is more than 100 percent funded for, permitting payments into retiree healthcare benefits to be freed up and spent on other things.
The Governor will be releasing her executive budget proposal at 11 a.m. Wednesday, Feb. 7.
"Since I took office, we have enacted five balanced, bipartisan budgets and paid down billions in debt while making strategic investments to save money for a rainy day fund," Whitmer said in a statement on her proposal. "In this year's budget, we will pay down more debt early, freeing up hundreds of millions of dollars for students now while shoring up the retirements of our educators."
Since beginning her time as Governor in 2019, Whitmer has signed off on more than $11.3 billion in paying down pension and OPEB MPSERS debt from FY 2020 through the current FY 2024.
Part of Whitmer's game plan is to be free of the "floor provision" from Public Act 300 of 1980, which mandates the state's annual contributions into pension liability and OPEB UAAL to be no less than what the government paid in the previous year.
Currently, employers paying into MPSERS debt are capped at 20.96 percent of payroll contributions into pension and OPEB UAAL, with the state covering any required amounts above the cap. The executive branch projects that if the floor provision is automatically lifted specifically for OPEB UAAL alone, Michigan's obligations for payments above the 20.96 percent cap would be freed up by about $669.4 million.
This freed up money could assist the Governor and the Legislature's Democratic budget-makers now that COVID-19 recovery money and the recent past's historic tax revenue surpluses have nearly run out.
The strategy is being backed by Michigan Education Association President Chandra Madafferi, an Oakland County-based educator.
"Governor Whitmer's proposed budget pays down MPSERS liabilities early, securing the retirement of countless educators and freeing up more funds to invest in students. We are grateful for the governor's commitment to Michigan's students and the public school employees who serve them every day," Madafferi said in a statement.
In his statement, Executive Director Peter Spadafore of the Michigan Alliance for Student Opportunity said that he sees the Governor's executive budget recommendation freeing up more money to support students, educators and schools.
"Continued responsible stewardship of our state finances will result in more historic investments delivering results for Michigan's children," Spadafore said.
However, multiple Republican voices are concerned that now is not the time to reroute money that would otherwise be new MPSERS debt payments.
While total unfunded health liabilities were at around $88.5 million in FY 2022 for MPSERS, accumulated pension unfunded liabilities were worth more than $34.96 billion. Similar unfunded liabilities were listed at more than $5.95 billion for state employee pensions and more than $895 million for state police pensions, according to a December 2023 update.
"Using the governor's apparent appreciation for '80s song lyrics, you could say she's playing 'Footloose' with the facts again, leading the state of Michigan into the 'Danger Zone' when it comes to paying off our debt," said Jase Bolger, the West Michigan Policy Forum's policy advisor, and a former Republican House speaker. "We're making great progress on paying off pension debt, but we've got to stay the course in order to fully get there. We need to fund our kids' education without leaving them in massive debt that will crush their future."
Senate Minority Leader Aric Nesbitt (R-Lawton) described the idea as "raiding the state's teacher pensions fund to play shell games with tax dollars because of short-term political ambitions."
Meanwhile, Sen. Thomas Albert (R-Lowell), a long-term advocate for paying down more debt, informed MIRS through a statement that the strategy was reckless and irresponsible.
"It would end up costing taxpayers more in the long run, while potentially putting retirees at risk. We must continue the work to make the pension system more secure – not change course midstream and make it less secure," he said.
Albert is minority vice chair of the Senate Labor Committee, and served as the House Appropriations chair during the majority of the 2021-22 legislative term.
