(Source: MIRS.news, Published 09/17/2024) Public school districts would spend nearly 6 percentage points less on their employee retirement payments under legislation that cleared the Senate on a party-line, 20-16, vote Tuesday. 

The latest version of SB 911 gives school districts a statutorily lower debt obligation for the Michigan Public School Employees' Retirement System (MPSERS), mirroring the changes made in the recent state budget. The bill received the blessing of education groups after months of tension between them and state officials over the future of funding the system. 

When the K-12 budget was signed into law this summer, education groups criticized the budget for only providing lower retirement payments for the next fiscal year. Meanwhile, SB 911 makes the change permanent unless the law is changed again. 

The House will need to OK the alterations before they are sent to the Governor's desk. 

"The permanent rate reduction provides school districts with significant, ongoing, and predictable financial relief, empowering them to invest more resources directly into classrooms – directly benefiting their students, teachers and communities," reads a statement today from multiple education groups including the Michigan Association of Superintendents and Administrators, the Michigan Association of School Boards and the Michigan Alliance for Student Opportunity.

It described today's Senate passage of SB 911 as the chamber recognizing "the decades of sacrifices made by Michigan public schools and their employees to pay down the MPSERS OPEB fund." 

Additionally, starting in 2026, the bill eliminates the 3 percent paycheck contribution to MPSERS that employees hired before Sept. 4, 2012 had to pay for their retiree healthcare benefits, or other post-employment benefits (OPEB). 

For FY 25, educators hired before fall 2012 will still pay 3 percent of their paycheck for retiree healthcare benefits, but will later be reimbursed for that contribution, covered by a $181.5 million budget appropriation.

As for school districts, the statute created under SB 911 recognizes public school districts going from needing to spend 20.96 percent of their payroll expenses on MPSERS to around 15.22 percent. 

Until the Fiscal Year (FY) 2025 begins, public school districts have needed to contribute up to 20.96 percent of their payroll expenses to debt – or unfunded actuarial accrued liability (UAAL) – to MPSERS. It was the equivalent of schools spending nearly $21 on MPSERS debt for every $100 spent on an employee's payroll, whether for a school bus driver or English teacher.

Originally, before the changes, the bill would have gradually reduced school districts' payment obligations, possibly creating a system where districts could go up to spending 17.46 percent of payroll costs on MPSERS in FY 26, 17 percent in the following fiscal year and 16 percent afterward, reaching 15.21 percent after a four-year period. Today's changes were put forward by Sen. Darrin Camilleri (D-Trenton), chair of the Senate PreK-12 appropriations subcommittee. 

Overall, the FY 25 School Aid Fund budget, HB 5507, redirects $631.7 million that would have otherwise been spent on MPSERS retirement benefits. 

Although MPSERS pension debt is at $29.7 billion, OPEB debt was 126.9 percent funded as of Sept. 30, 2023.

"The Republicans you saw today voted against this $600 million going to local school districts forever. I don't know how they can complain about school funding when we just sent back the most amount of school funding, ever, to our local school districts with this policy," Camilleri said. 

Ultimately, Camilleri views the newest version of SB 911 as giving local school districts "autonomy" to make decisions on teachers' pay, other healthcare benefits and classroom materials on the local level. 

It was observed that to have the state spend less on MPSERS overall, legislators and the Governor did not offer the traditional increase to the per-pupil foundation allowance that the state distributes to schools. 

Camilleri believes going forward there could be additional dollars for the per-pupil foundation allowance and other future budget items. 

"That's why we locked in this money today, because we know that the rate reduction will allow us to then have future conversations about new revenue going towards per-pupil allotments, as well as the other increases that you saw in at-risk, preschool and all the other amazing things that we've done," he said. 

Sen. Thomas Albert (R-Lowell) was the original mind behind the MPSERS floor provision, mandating that the state not spend less on MPSERS than it did the previous year until the debt is completely paid off. 

Both the education budget and SB 911 view there being two floors, one for MPSERS pension debt and one for OPEB, instead of there being one floor altogether. 

Albert said school districts' contribution rates and employee OPEB contributions are policy decisions and "don't affect how well the system is funded over time." 

"But the floor funding does," he said, noting Democrats were "undermining the floor funding provision, and it is to fulfill their insatiable appetite to spend $670 million that should be going into the retirement system, a system that's over $30 billion in debt." 

He said the costs are not going to go away, "they're only being pushed down the road" with more interest costs to be incurred, increasing expenses and putting benefits at risk.