Ballot Proposal on Public Employee Benefits

June 24, 2009

State Employee Benefits Linked To Private Sector Under Plan MIRS newsletter, 6/19/09

A new plan titled "Rescue Michigan" would constitutionally reset the health care and retirement benefit levels of state and local government employees to levels no greater than the average benefits level in the private sector.

Apparently, the plan is being discussed within the state's business community and among anti-taxation groups. Michigan Taxpayers Alliance (MTA) is developing the idea, with an eye toward a possible 2010 ballot proposal.

"The numbers are being checked and rechecked for us," MTA Director Leon DROLET told MIRS. "We're having them run from every angle we can think of. We're also getting the legal issues evaluated."

The basis of the plan is basically as follows:

According to U.S. Census Bureau figures, public sector employees average about $25.97 per hour, with average benefit costs of $13.53 per hour. The average salary for private sector employees is $18.83 per hour, with benefits that cost $8.09 per hour.

"This plan involves the benefit disparity, not the wage disparity," Drolet said.

Drolet said there are roughly 411,000 state and local employees in Michigan. That number includes teachers.

"The difference between the benefit costs of the government employees and those of private employees is $4.05 per hour. If you multiply that by total hours in a year it equals $3.4 billion," Drolet said. "That's more than the $2.3 billion that the Michigan Business Tax (MBT) brings to the state."

Drolet suggests that if the proposal were to pass, the state could eliminate the MBT, plus "slash" the Income Tax rate. In fact, he said he's considering including the MBT elimination as part of the ballot proposal or in some other way tying elimination of the MBT to the proposal.

In addition to the potential political appeal of a proposal that would "bring government employees in line" with "the rest of us," Drolet said he thinks there could be a lot of individual governmental employees who might vote for the plan.

"First, they'd still be keeping their wages disparity over private sector employees," Drolet said. "Second, it's an alternative to layoffs. That means it's a matter of a shrinking number of people keeping benefits."

But Alan KILAR, secretary and treasurer for UAW Local 6000, was more than just unimpressed with the proposal. He vehemently opposed it.

"First, this would involve making major changes to the constitution to take away the right of collective bargaining," Kilar said. "Also, the latest data is showing that state employees are falling below their counterparts in the private sector in these basic areas.

"I suggest that the Legislature start cutting the costs of their contracts by 10 percent," Kilar added. "The business community ought to look to themselves when they want to cut government cost savings. I mean look at this $8 million contract for mowing grass along the Interstate 75 corridor. Why is it that they always seem to look to the workers who actually provide the services when they talk about cuts?"

Scott DIANDA, president of the Michigan State Employees Association (MSEA), argued that lowering the compensation of government employees would only make matters worse.

"The way I look at it, state workers have already experienced wage concessions," Dianda said. "We are already seeing the effects the weak economy is having on the private sector. People are leaving the state in search of living wages and benefits. Why would you want to try to bring down public sector employees? Why would you want a race to the bottom?"

"Even the lawmakers are feeling public pressure on this," Dianda continued. "I've been in other states where they have part-time legislatures and the pay level is $35,000 a year -- and some are working part time busing tables. I'm not kidding. I'm not saying there's anything wrong with that, but we're facing huge problems in this state and county. We need to be getting the best people to solve the problem and they should be adequately compensated for it."

Rich STUDLEY, president of the Michigan Chamber of Commerce, told MIRS he has heard about the idea but would need to hear more before forming any concrete position.

"It's not our plan, but we look forward to hearing more about it," Studley said. "I do think there is a lot of discussion and concern at the grassroots level. I don't believe anyone should be surprised to hear about ideas like this emerging from the anti-taxation groups."

Studley said he thinks the significance of the April "tea party" protest at the Capitol has been underestimated.

"Those who mocked or ignored the tea party protest were mistaken," Studley told MIRS. "People out there are becoming increasingly aware of some of these issues, including that public employees have a level of benefits that they've never had."

An additional argument Drolet makes is that local governments aren't going to be able to sustain the costs of continuing to pay the benefits. Then, in the not-too-distant future, bankruptcy could be staring them in the face just as it did with GM.

"Basically, we only have three choices," Drolet said. "We could increase taxes, but I don't know who we'd increase the tax burden on without having a further negative effect on the economy. We could cut more services and lay off more people. Or we could cut the costs associated with providing government services while also avoiding layoffs. That's the aim of this plan."

Kilar said Drolet's premise is wrong to begin with.

"GM did not go under because of the level of benefits and wages they were paying their employees," Kilar said. "Yes, of course we're concerned about sustainability, but getting rid of more jobs with decent pay and benefits isn't the solution."

Studley said he believes future sustainability could and should be an issue.

"I don't think you have to work in the budget office or the fiscal agencies to be concerned about the potential for unfunded liabilities," Studley said. "I think it's a concern at the state level and now we're wearing reports about it being a potential problem counties and other local government s might have to face."