Whitmer seeks $670M for Michigan schools. Critics call it a ‘raid’

• Michigan Democrats proposing to boost school budgets by reducing teacher retirement fund contributions
• Gov. Whitmer and allies contend it’s safe to redirect payments to the fully funded health care system back into classrooms
• Republicans call it a ‘raid’ on teacher pension system that could jeopardize promises to retirees

With federal pandemic funding running dry, Michigan Gov. Gretchen Whitmer is seeking savings from the state's teacher retirement system in order to avoid cuts and support other priorities for K-12 schools.  

The Democratic governor's budget plan would reduce state contributions to the shared retirement system, which would free up $670 million that her office says could be "invested into classrooms to help children learn."

While health care obligations are fully funded on paper, Republicans have blasted the proposal as a “raid” on the teacher pension system, which remains underfunded by nearly $30 billion.

They warn the governor’s plan could jeopardize long-promised benefits for retired educators. 

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Whitmer, however, compares her proposal to a homeowner paying off a mortgage early. After years of helping districts make payments, she contends it is safe for the state to scale back and redirect retirement contributions.

Fellow Democrats, who have narrow majorities in the state House and Senate, appear to generally be on board with the governor’s plan but are crafting their own budgets ahead of final negotiations in coming months.

Because a massive influx of federal and state surplus funding has run out, Whitmer’s school aid proposal is $849 million smaller than the version she signed last year. 

That means her plan to free up $670 million by reducing retirement contributions could be especially important for funding local schools already facing a so-called COVID cliff that could force spending cuts. 

The governor also wants to expand free preschool access to all families, regardless of their income, and create a tuition-free community college guarantee for Michigan high school graduates, among other things. 

What is MPSERS? 

The Michigan Public School Employees’ Retirement System (MPSERS) is designed to centralize management of retirement income and health care benefit programs for educators across the state. 

Members include employees in more than 600 traditional public, intermediate and charter school districts, along with 28 community colleges, some libraries and some universities.

As of last year, there were about 226,087 retirees and beneficiaries receiving benefits and 154,688 active employees in the system.

While Michigan offers both 401k- and hybrid-style plans, nearly half of all active employees are part of a "member investment" pension plan that requires them to contribute 7% of the costs.

Is MPSERS underfunded? 

The health care portion of the teacher retirement system is fully funded, but the pension portion remains roughly $29.9 billion underfunded, meaning long-term cost projections exceed current funding levels. 

Michigan caps the amount that local school districts have to pay to fund the system. 

Because the health portion is fully funded, Whitmer contends the state is no longer obligated to pay additional costs mandated under a 2017 law.

“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,” Whitmer said earlier this year when unveiling her budget plan. 

But MPSERS is “one promise” with “two parts,” said Jase Bolger, policy advisor at the West Michigan Policy Forum and a Republican former Speaker of the Michigan House. 

“The two parts are retiree healthcare and pension,” he said, arguing the state government should not treat the two separately. “And so it is massively underfunded. We're making progress, but now is no time to stop.” 

The state is in a “unique situation,” added James Hohman, director of fiscal policy at the Mackinac Center for Public Policy, a free market think tank. 

“The state only began pre-funding retiree healthcare benefits in 2012 and surprisingly they were able to catch up on what they owed within 15 years,” he said.

Why are Republicans objecting to the Whitmer plan? 

Bolger contends it’s the legally and morally correct thing to do to put any funds the state would have been putting toward healthcare benefits toward the remaining pension debt.

“They both want to rob from teachers’ pensions, which will gamble with their future retirement, so that they can spend the money today,” Bolger said. 

Michigan law prohibits the state from reducing funding to the retirement system debt until it is fully funded. But Whitmer’s plan is built around the assumption of separate funding “floors” for health care and pensions.

State Sen. Thomas Albert, R-Lowell, who sponsored a 2018 law that amended the state pension system, said that is incorrect. He argues that the $670 million isn’t even savings, it’s money that must be put in the larger retirement system. 

Albert has requested the Office of Retirement Services to explain its rationale for dividing the debts into two parts. 

“We have to make sure our teachers that have earned this benefit get it,” Albert told Bridge. “...If we're not responsible, we're going to continue to take money out of the classroom, which is not going to help us in making sure our kids have the opportunities that they need.”

What do Democrat lawmakers want to do?

Both the Senate and House budget proposals agree with the governor’s proposal to spend the money elsewhere.

But the House’s proposal would use $290.8 million to lower how much school districts have to pay into the system and $51.6 million to help districts reimburse employees for their portion of healthcare contributions.

That’s more than Whitmer’s proposal, which would use $94.3 million to lower how much school districts have to pay into the system. 

State Rep. Regina Weiss, D-Oak Park, chair of the House appropriations subcommittee on School Aid and Education, said reducing districts’ contributions is important because it equates to more funds districts can use directly in classrooms. 

The focus on additional funding sources comes as school districts are seeing the end of their federal pandemic relief funds, Weiss acknowledged. 

She said the House proposal provides savings for districts and employees while also freeing up money for other Democratic priorities, including free school meals, student transportation and efforts to address declining enrollment.

What are Michigan school groups saying? 

Despite GOP warnings that Whitmer’s plan amounts to a “raid” on teacher pensions, education leaders appear open to the debate but want to ensure that they benefit from any savings realized by the state. 

In particular, school groups have praised the state House proposal, which would use some of the savings Whitmer anticipates to cut retiree contributions for schools.

Doug Pratt, director of communications and public engagement at the Michigan Education Association union, said “taking that money and spending it on current needs as opposed to overfunding that system makes sense.” 

But, he said, the state should share some of the savings with employees who have been paying into the system and the spending should not be used as a bandage to solve a larger revenue program.

“This can’t be another reason why the School Aid Fund gets used to fix revenue problems that have to be addressed in the long term,” Pratt said. 

Bob McCann, executive director of The K-12 Alliance of Michigan, which represents 123 Southeast Michigan school districts, said the state has a “once in a generation” opportunity to pay down debt and ultimately, “schools would have more money to spend on students.”

He would like to see the state put the money it is expected to save directly into the remaining pension debt.

“The debt load on schools was meant to be brought down to zero,” McCann said. “That's how it was supposed to go forward. And that's all we're asking them to do.”

What is next?

The full House and Senate will vote on their appropriation bills as early as next week. Then, representatives from the governor’s office and both legislative chambers will negotiate a final budget deal. 

It is not yet clear whether Democrats will need any Republican votes for passage. 

“I think it's important just to remember, you know, in the end, this is all one big negotiation,” said Pratt, with the MEA union. “...There's a revenue side. There's an asset side. There's an expense side.”