HB 4770 and Domestic Partner Benefits: What’s This All About?

House Bill 4770 (now Public Act 297 of 2011) prohibits all public employers—that is, those employed by the state government, local governments, school districts, and all public universities and colleges, as well as others—from offering any domestic partner benefits (both same-sex partner benefits and opposite sex partner benefits) in their public employee compensation packages.

This bill/act has drawn opposition, on the grounds of (1) discrimination and (2) the desire to attract and retain talent in Michigan, regardless of sexual orientation. Despite the attempt by some to paint this as a social issue, it really is a matter of fiscal accountability to taxpayers and protecting the will of the voters who changed the Michigan Constitution in 2004. HB 4770 provides for the prohibition of live-in benefits for all public employees as allowed under the constitution, which was our intent all along.

The following excerpt from the non-partisan House Fiscal Agency “Legislative Analysis” gives a good background on the legal reasoning we relied upon.

“On November 2, 2004, Michigan voters approved an initiative called Proposal 04-2, to add a "defense of marriage" amendment to the State Constitution. Fifty-nine (59) percent of the electors voted yes, while 41 percent voted no. The proposal went into effect on December 18, 2004. With this constitutional amendment, Michigan joins 30 states that have banned legal recognition of same-sex unions in state constitutions.

Proposal 04-2 makes it unconstitutional for the state to recognize or perform same-sex marriages or civil unions. It is found in Article I, Section 25, and reads:

§ 25 Marriage.

To secure and preserve the benefits of marriage for our society and for future generations of children, the union of one man and one woman in marriage shall be the only agreement recognized as a marriage or similar union for any purpose.

On March 16, 2005, in response to a state representative's request for an opinion regarding the marriage amendment's effect on the City of Kalamazoo's ability to provide same-sex domestic partner health insurance benefits to its employees, Attorney General Mike Cox issued a formal opinion, concluding that the city's policy violated the amendment. Specifically, the attorney general ruled that "Const 1963, art 1, section 25 prohibits state and local governmental entities from conferring benefits on their employees on the basis of a 'domestic partnership' agreement that is characterized by reference to the attributes of a marriage." OAG No. 7,171 (March 16, 2005), 2005 Mich Reg 5, p 35.

On March 21, 2005, National Pride at Work, Inc., filed, in the Michigan Supreme Court, a declaratory judgment action against the Governor, seeking a declaration that the marriage amendment did not bar public employers from providing health insurance benefits to their employee's qualified same-sex domestic partners. The Attorney General, acting on the Governor's behalf, moved to dismiss the suit, on the basis that the plaintiffs lacked standing. Because then-Governor Jennifer Granholm disagreed with the Attorney General's interpretation, she obtained independent counsel, and withdrew the Attorney General's motion. She then filed a brief supporting the plaintiffs' position. Plaintiffs moved for summary disposition, arguing that the amendment does not prohibit public employers from voluntarily providing the benefits. The trial court agreed, saying: "By voluntarily providing domestic partner health care benefits to an employer-defined group of people, the plaintiffs' employers are not "recognizing a marriage or similar union." The Attorney General appealed the trial court's decision. The Court of Appeals then reversed the trial court's decision and granted a stay, concluding that the amendment prohibited public employers from granting health benefits to their employees' same-sex domestic partners, and also granting leave to appeal the case to the Michigan Supreme Court.

Plaintiffs in the case argued that throughout the campaign to pass Proposal 04-2 (both before the Board of State Canvassers during the public hearing to certify their petition, and in written campaign documents), the proposal's supporters—Citizens for the Protection of Marriage, a committee sponsored by Michigan Christian Citizens Alliance—repeatedly stated that the constitutional amendment would not prohibit public employers from entering into contracts with their employees to provide domestic partner health care benefits. Instead, they said that Proposal 04-2 was only about marriage. For example, the attorney for Citizens for the Protection of Marriage, Eric Doster, assured the board that their proposal would not bar public employers from providing benefits to their employees' same-sex domestic partners, saying: "There would certainly be nothing to preclude a public employer from extending [health care] benefits, if they so chose, as a matter of contract between employer and employee, to…domestic dependent benefits…" and, "An employer, as a matter of contract between employer and employee, can offer benefits to whomever the employer wants to…", and "I'd hate to be repetitive, but again, that's a matter of contract between an employer and employee. And if the employer wanted to do that…I don't see how this language affects that. If the language just said 'marriage' or 'spouse,' then I would agree with you. But there's nothing in this language that I would interpret that would say that that somehow would go beyond that."

Plaintiffs, arguing that health coverage is a contractual benefit of employment, and not of marriage, also demonstrated that in an August 2004 poll of 705 likely voters, 65 percent of the voters disapproved of barring cities and counties from providing domestic-partner benefits, and 63 percent disapproved of prohibiting state universities from doing so.

On May 7, 2008, the Michigan Supreme Court, in a 5-2 ruling, interpreted the constitutional ban on same-sex marriage to prohibit employers from extending health care benefits to their employees' same-sex domestic partners. (Those voting to bar health benefits were Justices Stephen Markman, Clifford Taylor, Elizabeth Weaver, Maura Corrigan, and Robert Young; those offering a dissent were Justices Marilyn Kelly and Michael Cavanagh.) In a 34-page opinion whose analysis (among other things) parses the 'marriage amendment's' phrases "similar union," "recognized," "only agreement," "for any purpose," and benefits of marriage," Justice Stephen Markman advanced the argument that the meaning of the intrinsic language of the constitutional amendment, is, on its face, plain. It prohibits the recognition of unions similar to marriage "for any purpose." In his interpretation, the phrase "for any purpose" modified the word "similar." Concluding that marriage and domestic partnerships were similar, he held that the 'marriage amendment' "prohibits public employers from providing health insurance benefits to their employees' qualified same-sex domestic partners."

. . .

Since 1850, Michigan has extended constitutional autonomy to its public universities. Michigan differs from the majority of states in that it has no statewide agency, board or commission responsible for the coordination of higher education, and all four-year institutions have constitutional autonomy. Constitutional autonomy provides for vesting of exclusive management and control of the institution in the governing board. Michigan's language regarding constitutional autonomy, which can be found in all four state constitutions, is designed to keep the legislature from getting involved in areas considered to be the domain of the faculty and university administration. (Indeed, the provision was added to the state constitution in the 1800s because members of the legislature were reportedly firing faculty at the University of Michigan).

In 1963, Michigan rewrote its most recent constitution and once again included constitutional status for all universities in the state. Article VIII, Section 3 states reads: "The power of the institutions of higher education provided in this constitution to supervise their respective institutions and control and direct the expenditures of the institutions funds shall not be limited to this section."

Further, at Article VIII, Sections 5 and 6 of the Michigan Constitution, university governing boards are granted "general supervision of its institution and the control and direction of all expenditures from the institution's funds."

Based on this language, and advancing the argument that market forces decide best what educational services a particular university should offer, individual university boards of regents or trustees have the power to set tuition and to determine how their state appropriations will be spent.

While university presidents and trustees have management autonomy, public universities are public employers, and many of them extend health care benefits, as employee benefits, to the same-sex partners of their faculty (as well as to their dependents), not as domestic partners, but rather as "other eligible individuals." Additionally, some local government officials also extend health care coverage to domestic partners, dropping the "same sex" and adopting the wording "other qualified adults."

Finally, in 2004, before the "defense of marriage" amendment to the State Constitution passed, the Office of the State Employer and the state employees represented by the United Auto Workers Local 6000, reached an agreement to include same-sex domestic partner health-insurance benefits in the benefit package for state employee members of the union. However, the parties agreed not to submit that proposed contract to the Michigan Civil Service Commission until the Supreme Court made its ruling, in order to ensure that the language of the proposed contract did not violate the marriage amendment. More than six years later, on January 26, 2011, the Michigan Civil Service Commission approved the negotiated benefit package, so that the state now extends health care benefits, as benefits of employment, to all of a state employee's qualified domestic partners (whether same sex or opposite sex) and to their dependents.”

The majority in the legislature believed that the Civil Service Commission approval went beyond its authority under the Constitution and HB 4770 was and is intended to send the message that the will of the people as expressed at the voting booth in amending the Constitution should be followed.

P.S. Many of the issues we deal with are much more complicated than can be addressed in a catchy slogan or 30 second sound bite. Obviously, this has been one of them.

2011 Review and the Look Ahead

In this posting:

2011 Review and the Look Ahead
2011 Accomplishments
2012 Agenda
Enjoy Your Holidays
Feedback

2011 Review and the Look Ahead - As the legislative session comes to a close for 2011, the Legislature has accomplished significant tasks this year on behalf of Michigan's residents.

In January, we were told that we had more than a front row seat to history, we had a responsibility to make history for Michigan, and I believe we have done that. I am proud to say we will have a new agenda before us in 2012 because we went above and beyond our original agenda and are now working on what comes next. We will not rest. Literally 13 hours after the completion of our last session day for 2011, our House leadership met with the Governor, Lt. Governor, and Senate Majority Leader to being planning 2012.

The lessons of the past showed us the status quo wasn't working and, therefore, too many Michiganders weren't working. So we rapidly shed the status quo. I believe that to make Michigan a better place to find a job by making Michigan a better place to provide a job, so we've focused on making that so. We also have always remembered that the money we are spending does not belong to us, it belongs to Michigan's families and we have a responsibility to spend it wisely.

Voters spoke loud and clear last November when asking for bold leadership and change. Your needs are urgent and you sent us to Lansing with a simple command: be bold in your thinking and swift in your actions for the good of Michigan's future. I believe we're accomplishing your agenda on your behalf.

Key goals for the House Republican caucus were laid out early in the year and our focus never wavered. The volume of bills approved by the House this year is high, but the quality of the legislation's content is what matters.

The focus has been, and must remain, on the families of Michigan and what we can do to help them, especially by improving the Michigan economy. People don't pay us to stand around and blame each other; they pay us to accomplish the work at hand.

We were told our goals were too lofty because we'd never be able to get done what so many before us had tried and not accomplished for many years. We completed more this year than many people thought we could, but we won't rest. As legislators, we should never feel like our job is done because our job is to continue to move Michigan forward.

2011 Accomplishments - Among the key accomplishments this year, we:

• Reformed the tax code, worker's compensation and government regulations in the firm belief that to make Michigan a better place to find a job, you have to make Michigan a better place to provide a job. After our tax reform Michigan is now ranked in the top 20 states for tax treatment of individuals, the top 20 states for tax treatment of employers, and in the top 10 of states that have an income tax for tax treatment of senior citizens. We have reduced or eliminated special tax favors, credits, and exemptions and instead sought a more simple and fair tax code.
  
• Reformed Unemployment Insurance by working to pay off our long term debt, preventing higher taxes and allowing Michigan workers to make better decisions about their employment. The reforms include:
• Allowing the state to issue bonds to repay the federal loans that funded our Unemployment Trust Fund. This will help retire the more than $3 billion debt Michigan employers owe the federal government.
• Allowing workers who do accept some work to keep more of what they earn as they seek to work their way out of unemployment.
• Increasing job search requirements.
• Disqualifying employees who quit or are fired with cause.
• Updating the definition of seasonal employees.
• Lowering the threshold for 'suitable work' for some recipients.
• Allowing small businesses to spread out unemployment tax payments.
• Creating an amnesty program for employees who owe the Unemployment Insurance Agency.
• Making unemployment fraud penalties similar to those for welfare fraud.
• Crafted a structurally balanced budget, paid down long-term debt and put away in the state's savings account, all four months before it was due, and all without a net increase in taxes.
  
• Improved opportunities for students to get a better education by reforming teacher tenure, lifting the cap on charter schools to expand educational choices, and creating a statewide anti-bullying policy.
  
• Reformed binding arbitration, placed limits on taxpayer spending for public employee benefits and established a true four-year limit on welfare benefits to help break a generational cycle of dependency.
  
• Led by example by taking a legislative pay cut, cutting legislative office expenses by more than 10%, reducing legislative benefits and finally ending legislative retiree health care.
  
• And much, much more. (For comparison, you can look at Governor Snyder’s list of what he thinks were the accomplishments at Year-end interview with Gov. Rick Snyder: His victories and his biggest disappointment)

2012 Agenda: We look forward to continuing to work hard for you in 2012. My personal legislative agenda for 2012 includes (but is not limited to):

• FY 2012-13 Budget - Adopting the 2012-12 Fiscal Year budget by the end of May (as we did in 2011) with no net tax increase, while improving funding for education. The projected carryover from the past fiscal year ending September 30, 2011 (as well as the current fiscal year) and stronger state revenues from a reviving economy bode well for getting past the cutting stage. There are still areas where we can achieve more efficient delivery of services (such as in Corrections) and even complete elimination of some government functions, but hopefully the era of wholesale cuts will be behind us.
  
• MPSERS - Reforming the Michigan Public Schools Employee Retirement System. It currently has a $46 billion unfunded liability and school districts next year will pay either 26% or 27% of wages into the fund unless we take action to fix it. I am on the Work Group to come up with the “fix” and our House team has a proposal to reduce the unfunded liability, reduce the contribution rate, protect the expectations of employees nearing retirement, and not be too onerous on existing employees. Discussions with our Senate counterparts will begin in early January.
  
• Roads and Bridges - Enacting the solution to our crumbling roads and bridges. My work on the Transportation Funding Work Group and our findings that we need at least $1.4 billion more dollars per year to properly maintain our roads and bridges has set the stage for solution. No one wants to vote for more revenue, but the choices are to pay more now or pay much more later as more roads fall into poor condition needing to be rebuilt instead of needing capital preventive maintenance. It is simply fiscal prudence to avoid huge future costs. The secondary benefit of making our state more attractive to start or relocate a business and create jobs is also attractive.
  
• International Trade - Enhancing our international trade through facilitating a freeway to freeway connection highway route between Windsor and Detroit, a second railway tunnel between the two cities to accommodate modern railcars with double stacked containers, promoting the Great Lakes Global Freight Gateway through to the deep water port to Halifax, Nova Scotia (to capture the opportunity for a freight hub in Detroit and avoid losing the opportunity the Heartland Corridor from Virginia, through Pennsylvania, Ohio and Indiana, completely missing Michigan), etc. Tens of thousands of jobs are at stake here.
  
• Natural Resources/Detroit - Promoting the development of our oil, natural gas, timber and mineral resources in northern Lower Peninsula and Upper Peninsula and diverting the increased severance taxes from their extraction to reducing the blight in Detroit. We must assist in the redevelopment of Detroit, and I don’t believe that many people and businesses will want to return to Detroit until we clean up the blight. Over 80,000 homes are vacant and needing demolition, and an untold number of abandoned storefronts, businesses and factories. Again, tens of thousands of jobs are at stake in northern Michigan and in Detroit, which in turn will help everyone in Michigan.

Enjoy Your Holidays - A Merry Christmas, Happy Hanukkah and Happy New Year!

While the end of December and early January will include planning for next year and meeting with constituents to listen to your concerns, I also look forward to spending time with family and friends. Our family looks forward to celebrating Christmas together as we enjoy some time in Pure Michigan. I wish you and your family the best as you celebrate together and bring in the New Year.

Feedback - I regularly hear from many of you and I enjoy your feedback and ideas on how we can turn Michigan around. Please feel free to let me know what you think.

Rick
rickolson@house.mi.gov
517-373-1792
http://repolson.com

Accounts of the “Crisis” in the Michigan Auto No-Fault System are Overblown, But Some Cost Control is Warranted

House Bill 4936 to reform the Auto No-Fault System has drawn a lot of attention. At least three economic studies and numerous other “analyses” have been published, for and against the proposal. Much information has been conflicting. Some has been downright misleading. This posting will examine some of the statements and attempt to reach a reasoned conclusion.

Background: “MCCA Premium Set At $145.00 for 2011-2012”, Michigan Catastrophic Claims Association, March 25, 2011:

“The premium paid to the Michigan Catastrophic Claims Association (“MCCA”) by member insurance companies will be $145.00 per insured vehicle effective July 1, 2011 to June 30, 2012. This represents an increase of $1.91 (1.3%) over the current MCCA charge of $143.09. The $145.00 premium reflects the amount necessary to cover future claims and the partial recoupment of the estimated deficit. The MCCA premium charge is determined each year at this time following its annual actuarial evaluation.

Michigan's unique no-fault auto insurance law provides unlimited lifetime coverage for medical expenses resulting from auto accidents. Created by the state legislature in 1978, the MCCA is a private, non-profit association whose mission is to protect the financial integrity of Michigan’s auto insurance industry by providing reinsurance for these unlimited benefits. The MCCA reimburses auto insurance companies for Personal Injury Protection (PIP) benefits paid in excess of a set amount per claim. That amount will increase to $500,000 on July 1, 2011.

All auto insurance companies operating in Michigan are required to be members and pay premiums for the reinsurance provided by the MCCA. These premiums, together with the insurer’s PIP premium, represent the cost to cover the mandatory unlimited medical benefits which, like other costs and expenses, are reflected in the auto premiums all Michigan policyholders pay.

Michigan is the only state in the nation that mandates unlimited lifetime medical benefits for people injured in auto accidents. (The state with the next highest level of benefits mandates only $50,000.) It is estimated that almost 850 Michigan insured’s will be catastrophically injured in auto accidents next year. Estimating the projected claim payments for long-term claims in which medical benefits are unlimited is complicated due to the difficulty in predicting life expectancies, medical cost inflation, investment returns, and the number of claims.

The MCCA paid out $897 million (more than $128 per insured car) in 2010 for claim costs resulting from catastrophic injuries. The majority of these catastrophic injuries involve closed-head injuries, paraplegia, quadriplegia and burns. Since 1979, there have been over 25,900 claims reported to the MCCA, which will cost an estimated $74 billion.”

1. Statement that there has been a 2400% increase in the MCCA premium from 1997 to 2007.
The assessment history is as follows:

Source: http://michigancatastrophic.com/ConsumerInformation/HistoricAssessmentData/tabid/2939/Default.aspx

A casual look at the data would indicate that the assessment rate has varied little in the past six years and it is only by intentionally selecting a very low starting point that the 2400% conclusion can be reached. While not wrong, the statement is misleading.

2. The statement that the system is broken, because there are $74 billion in claims already in the system.

The $74 billion is the total of loss reserves set up on the books of MCCA based on the data provided to it by the many auto insurance companies. These numbers are nominal dollars not discounted for when the estimated potential payments may need to be paid. Actuaries make numerous assumptions to derive a discounted loss reserve, and as of June 30, 2010 (the last audited statement available) they came up with $13.743 billion, against which they have assets of $13.807 billion. The bottom line deficit on the MCCA balance sheet was $1.035 billion, compared with $2.528 billion a year prior and $2.571 two years prior. While $1.035 billion is still a lot of money, it is a far cry from $74 billion which is discussed to attempt to paint the picture of a crisis.

The total premium charged by the MCCA is comprised of three components: the “pure premium”, the (surplus) deficit adjustment and the administrative cost. The deficit adjustment to make up for the bottom line deficit has been $29, $26, $24, $8, $16, $24, etc. for the past years. Again, while it is better not to have a deficit, the amount of the deficit adjustment and the stability of the total premium of the past few years indicate no “crisis” felt by the board of MCCA.

3. The statement that the actual payments on claims are growing so rapidly that the system is unsustainable.

This statement is supported by showing the following chart:

Source: http://michigancatastrophic.com/LinkClick.aspx?fileticket=ahn6NtlasVY%3d&tabid=2943

It is indisputable that the total payments on claims have increased. However, the total paid is the total number of claims times the average cost per claim. It is expected that the number of claims in the system would increase over time, as about 850 injuries per year exceed the $500,000 threshold for entry into MCCA are added to the total number. We started from zero when the MCCA was established in 1978. Some claims drop out of the total each year as well. Will the total number begin to level off as the system matures? I expect they will, but the data has not been released by the MCCA, claiming protection from the Freedom of Information Act claiming it is not a government entity. In committee, the members were told the information was not being provided because the legislators would not be able to understand it if they got it. Not good enough for me! Not being willing to make a decision on HB 4936 in the absence of good data, I have submitted the following request for information:

“I have a few questions regarding some of the actuarial assumptions from the MCCA that have been used to create the projections that have been presented.

1)  I had received a chart showing the increase in payments for claims from the MCCA, what I am looking for is a forward projection, preferably year by year that would include the presumed number of new claims multiplied by the avg. cost of claims (and factoring any inflationary adjustments) and the methodology that explains the assumptions behind the two factors just mentioned as well as the rate at which claims start to drop off.

2)  I have seen projections that the cost of open claims is estimated to total $70 billion.  The information that I have does not include an explanation of the assumptions for this total.  If you had this information or could direct me to it that would be helpful.

3)  The June 30, 2010 CAFR shows an unfunded liability of just over $1 billion.  What are the assumptions that were used in this calculation and how are they comparable or different from the assumptions used in the projections for the total cost of claims.  Additionally, what are the revenue assumptions that are being used to cover the costs.”

I have received no response to my request. What I expect to conclude once I get the information is that there is no crisis with the MCCA and nothing that requires drastic change to the system. The information I have received also shows no crisis in terms of the premiums owners of autos must pay because of the Personal Injury Protection (PIP) claims that the auto insurance company must pay under the $500,000 the companies are responsible for. While PIP costs are above the national average, 15 states’ rates are higher, while granting much lower benefits. Bottom line, I doubt if “the system is broken”.

While the system may not be “broken”, that does not mean that the system cannot be improved.

There is anecdotal evidence that health care services rendered under auto no-fault cost more (and in some cases, much more) than comparable services provided under workers’ compensation law, Medicaid, Medicare or even in the Blue Care Network. I have not seen any empirical evidence of that phenomenon, however. I can understand how that could happen. I envision medical care costs to be comparable to a balloon. If you squeeze a balloon in some places, it bulges out in other places. Similarly, if medical care costs are squeezed by charges under workers’ comp, Medicare, etc., lower than the cost of delivering that service, the uncompensated costs must be absorbed somewhere, and that somewhere might be the no-fault insurance. This deserves study.

Assuming for the moment that the services provided under no-fault insurance cost more than when provided under other plans, what are the options for cost control? HB 4936 proposes a fee schedule equivalent to that of workers’ compensation. Arguments against this fee schedule are that many health care providers believe that the fees are below the cost of delivering the service and opt not to provide the services. Proponents say that the auto insurers are in poor position to bargain for the appropriate rates as the system is not “managed care”, but rather “fee for service”, in which the injured party is free to choose which provider to go to.

Section 3107(1)(a) of the no-fault law says that an injured person is entitled to recover “allowable expenses”, consisting of, “All reasonable charges incurred for reasonably necessary products, services and accommodations for an injured person’s care, recovery or rehabilitation.” The allowable expense benefits are unlimited in amount and duration. Neither the statutes nor appellate court decisions specifically defines what is reasonable, and therefore each case is evaluated on its own merits as a “contractual dispute”. “The Michigan No-Fault Automobile Insurance Law: Your Rights and Benefits, A Practical Guide for Patients and Providers, 7^th edition, by George T. Sinas, 2011, pp. 4-5.

With little guidance as to reasonableness, it is not surprising that differences in opinion as to the scope of services and the cost of services arise. Advocates for the existing law claim that insurers “delay, deny and defend” to minimize their costs. See “Delay, Deny, Defend” by Dan Calabrese, in Business, November-December, 2011, pp. 66-72. That is, the claim is that the insurers delay payment even if they are required by law to pay within 30 days of receiving “reasonable proof of the fact and of the amount of loss sustained”. MCL 500.3142(2). The claim is that insurers routinely deny claims, with the hopes that the injured parties will not pursue payment. And, the claim is that the insurers will defend the claims to the hilt, knowing the worst that can happen is they will be required by the court to pay the claim, interest, court costs and attorneys fees. The truthfulness of these claims is not substantiated by any empirical evidence that I have seen, but I would expect that they are true to some extent, or at least some bad cases can be found as the insurers try to protect themselves from fraud and abuse.

Other ways the insurers attempt to control the cost of claims is to refer the case to an “Independent Medical Evaluation”, whose independence is open to question since the doctor is paid for by the insurer. Further, insurers may submit a patient’s medical expenses to an “independent” auditing company for an opinion whether the charges are “reasonable”. The Michigan Supreme Court has approved the basic concept of medical-bill auditing, but has not ruled on any specific methodology on how the audits should be conducted.

The bottom line is, despite the fact that we have a no-fault system designed to avoid unnecessary legal fees of determining the liability of someone who may have caused the injury, we still have multiple lawsuits regarding:

• The existence of a qualifying injury
• Medical causation
• Amount of medical expenses
• Amount or necessity of attendant care or replacement services
• The necessity and nature of home accommodations
• The necessity and nature of motor-vehicle transportation
• Work disability and earnings level
• Priority of payment and
• Coordination of benefits and benefit reductions.

Conclusion:

At this point, I don’t see the necessity of eliminating the “unlimited” benefit by placing caps on the total amounts that an injured party may receive. There are many injuries that require lifetime care that would exceed the caps suggested, and I would not wish to deny them the reasonable medical care they need.

I can see the desire to control costs in some way to lessen the “balloon” effect mentioned earlier. While fee schedules are one way to do that, an alternative way may be to allow (or perhaps require) auto insurers to join “networks” such as the Blue Care Network or Cofinity such that the charges for services are determined in arms length negotiations between parties of approximately equal bargaining power. George Sinas is considering potential statutory language that might accomplish that.

There should also be some tightening up of attendant care costs. The following chart shows that attendant care and residential care account for the vast majority of the expenses incurred.

Source: http://michigancatastrophic.com/LinkClick.aspx?fileticket=FzZwt0ugEjk%3d&tabid=2943

HB 4936 as it came out of committee would restrict the attendant care to 56 hours per week, or 8 hours per day. Many injured parties need a combination of skilled (nurse) care and other caregivers who are not RNs or LPNs for more hours than that. Anecdotal stories about abuse by family members or friends who provide such care have been shared. Should this care be compensated at the rates of $17 per hours for skilled care and $11 per hour for basic care as in HB 4936? Opponents say “no”, because these rates are below the charges of commercial agencies. Should there be some training a family member or friend should have before they become eligible for providing the service? Should there be some amount of care that is expected from the family without payment? These questions deserve further discussion.

It may be possible that sufficient cost control may be obtained through this combination of insurers working through networks and control of attendant care costs that substantial savings could accrue in the system without drastic changes. If so, auto owners could expect some savings for their basic PIP coverage within their insurance policy for the expenses under the $500,000 cap on the insurers’ responsibility, as well as some decline in the cost of the MCCA charge.

Appeals Court Decision Again in Favor of MDOT and Against the Ambassador Bridge

Moroun loses court ruling over Ambassador Bridge ramps, Detroit Free Press, December 7, 2011 reports on the appeals court upholding the trial court’s decision against the Detroit International Bridge Company (“DIBC”, aka Ambassador Bridge owned by Matty Maroun) regarding its breaching the agreement with the Michigan Department of Transportation (MDOT) to build its portion of the Gateway Project according to the plans agreed upon.

The failure of DIBC to live up to its agreement to the detriment of the traveling public and to the benefit of DIBC to sell more gasoline duty free and make excessive profits is what prompted me to swing my support in favor of the new bridge proposed by MDOT and Governor Snyder. See “Olson Swings His Support in Favor of NITC - With Conditions“, my blog posting of October 19, 2011.

For those who are still on the fence, you should read the first few pages of the opinion giving the background of the case presented to the appeals court. (For those who don’t like to read legalese, you may wish to skip the rest, as you will probably find the arguments quite esoteric.) The background helps sort out many of the “facts” that the parties assert so that you can know what has actually happened.

Now, the question remains of how the Michigan Legislature will act with regard to the proposed new bridge. I remain in support of the project, under the conditions outlined in the prior blog posting, i.e., placing on the ballot a constitutional amendment prohibiting the use of Michigan taxpayer money to construct the new bridge or bail out any subsequent bridge authority and provisions for a slim, but reasonable community benefits agreement included in the bill approving the project. See the prior blog posting for more precise language.

Stay tuned!

Stanford Study Is a Great Improvement in Analyzing Charter School Performance, But Inconclusive

Defenders of the education status quo point to the conclusions of a Stanford study to assert that charter schools are bad for students.   “Multiple Choice: Charter School Performance in 16 States”, Stanford University, June, 2009.

The study is probably the best out there, in that it takes into account the confounding factors of the demographics of the students, as well as focusing on student growth in learning – probably the most important factor. By using the “virtual twin” concept, it comes as close to a “control” group as one can hope for in education research (as long as the twins have been selected at random and not selected to achieve the results desired). This analysis is far better than the biased and incomplete statements of “Why uncap the lower quartile?” that I have received from traditional public school superintendents and ISD’s which considers none of the above.

With that being said, the results are not determinative of what makes sense as the best public policy in Michigan. Too much emphasis is placed on the “37 percent of charter schools deliver learning results that are significantly worse than students would have realized had they remained in traditional public schools.” That may seem to settle the question, but a thorough and critical analysis of the study raises more questions. For example, one could just as easily quote the study’s conclusions of

“We see positive results for charter school students in poverty – these students realized statistically superior learning gains in reading compared to their TPS peers, as shown in Figure 6. The magnitude of the difference was about the same as was seen for the overall reading effect, .01 standard deviations, though here the sign is positive. While significant, the effect is small. The same relative outcome was realized in math learning gains; students in poverty who attended charter schools see superior results over their TPS counterparts.” At page 27.

Or

“[W]hen a state elects to eliminate its cap, it can expect a gain in academic achievement growth of about .04 standard deviations.” At page 40.

Removing the cap is just what SB 618 would do, so if the study is correct, we should see a gain in student achievement.

Further, the entire conclusions of the study might, in fact, be discounted when you consider this admission in the study:

“[S]tudents generally experience a significant negative impact on learning in reading in their first year of charter enrollment, in the range of ‐.06 standard deviations. By the second year of charter school enrollment, students get a positive and significant impact on learning, but the magnitude is quite small at .01 standard deviations. Greater gains in reading are realized after three years; the average student with three years of charter schooling has a .02 standard deviation gain in learning.

These results help us to further understand the overall pooled effects for charter schools. Because the number of students attending charter schools grows each year, the experience of charter school students reflected in each state’s data is skewed toward first‐year charter students. More than half of the records in this analysis capture the first year of charter school experience. Given the improvement trends shown in Figure 10, the overall charter school effects would be expected to improve if the same cohort were followed for additional years.”At page 32.

If this first year factor were controlled for in the study, the negative conclusions might have disappeared. The “37%” finding was based upon the following:

“The national pooled analysis of charter school impacts showed the following results:

• Charter school students on average see a decrease in their academic growth in reading of .01 standard deviations compared to their traditional school peers. In math, their learning lags by .03 standard deviations on average. While the magnitude of these effects is small, they are both statistically significant.” At page 6.

By the time you offset the improvement over the years by charter schools with the lag in the average, you end up with nothing of statistical significance.

So, the bottom line is quoting the Stanford study in part and overlooking other parts could be viewed as just another example of the defenders of the education status quo cherry picking their data to make their case. That is not surprising, as research shows that we all tend to find data and studies that confirm our prior inclinations and screen out disconfirming data. Nonetheless, as policy makers, we should be willing to look at all data as objectively as we can.

I look forward to the results of the future studies of Stanford with regard to characteristics of charter schools that affect the student performance. Perhaps we can glean some useful information with regard to discerning which of the charter authorizers are doing the best job and/or which of the for profit education service providers are doing the best. Hopefully we can use that to guide us to develop criteria on who should be allowed to provide charter school opportunities to the thousands of students who are on the waiting lists for spots in charter schools, as well as know which traditional public schools to close.

Lifting the Cap on Charter Schools in Michigan Gets My Support

Perhaps next week the House will be voting on Senate Bill 618, the Charter School bill. It passed the Senate and was passed out of the House Education Committee in a somewhat revised form called “substitute H-4”.

“The bill as it passed the Senate on October 6  would amend the Revised School Code to do the following with respect to public school academies (PSAs), urban high school academies, academies, and SOEs.

• Allow two or more authorizing bodies to issue a contract for a PSA or an SOE under an interlocal agreement.
• Require educational goals to include demonstrated pupil academic achievement for all groups of pupils.
• Permit contracts for the operation of the same configuration of age or grade levels at more than one site.
• Delete requirements for a PSA or SOE to comply with a school district's collective bargaining agreement.
• Exempt property of a PSA, urban high school academy, or SOE from real and personal property taxes.
• Require enrollment at a PSA or an SOE authorized by a community college to be open to all pupils in the State meeting the admission policy.
• Require a petition to be signed by at least 5%, rather than 15%, of the electors in a school district, in order to place the question of issuing a PSA or SOE contract on the ballot.
• Revise provisions concerning the responsibilities of an authorizing body and the revocation of a contract.

The bill also would require public school academies [aka “PSA’s” or “charters”], urban high school academies, and schools of excellence to comply with laws concerning participation in State assessments, data collection systems, State level student growth models, State accountability and accreditation systems, and other public comparative data collection required for public schools.” Senate Fiscal Agency, http://www.legislature.mi.gov/documents/2011-2012/billanalysis/Senate/pdf/2011-SFA-0618-U.pdf (no House Fiscal Agency analysis for substitute H-4 is yet available from the Michigan Legislature website.)

There are amendments that are being drafted for consideration on the floor (or perhaps even another substitute bill proposed on the floor with multiple changes from what passed out of committee). So, I need to reserve judgment on what I will ultimately be asked to vote on until I have a chance to review the final version.

Despite that, my preference is to lift the cap on the number of charter schools allowed in the state. Michigan has been at the cap of 150 university authorized charter public schools since 1999, and more than 70 percent of charters have a waiting list of students who would like to enroll. It appears parents want the choice of charter schools. I trust parents to make the best choices they know for their children.

Of particular concern are those areas in which there are failing schools. Parents need to have options on where their child(ren) receive their education if their traditional public school is not performing. For many children, receiving a good education is their only chance to escape poverty – as it was for me and my five siblings. (There may or may not be an amendment restricting the cap lift to those areas, which I lean toward favoring, but working with Policy Staff, we could not come up with satisfactory wording to do that,so, my support for SB 618 is not contingent upon that change). Having been a school business manager for over 7 years in declining enrollment school districts, I understand the difficulty in balancing the budgets with declining revenues, which further departures of students to charters would make worse. Nonetheless, the needs of the students must come first.

I have received much communication from individuals and groups for and against the bill – against the bill from members of the educational establishment and for the bill from others – as expected. The data presented by both sides has been cherry-picked to support their position – as expected. The bottom line is: there are average, above average and below average charter schools just as there are traditional public schools. What I have seen little of is data on the “student growth” from year to year in charter schools, but what little I have seen looks favorable. Comparing charter schools performance to the average of traditional public schools is meaningless unless you control for the difference in demographics between the groups compared. Comparing the charter schools’ performance with that of the neighboring traditional public schools is better data, but still not conclusive until you examine the growth in learning from year to year while a student within the charter schools, especially when you consider that the performance of many students are adversely affected by the preparation they received from their previous schools. From the data concerning student growth, as I said, it looks favorable.

For example, consider the case of the 55 charters authorized by Central Michigan University (including the South Arbor Charter Academy, located in Pittsfield Township on Carpenter Road, which ranked number 3 among the “Top 25 Charter Schools in the State” ranked by 2010 MEAP scores).

                                                              CMU                  State Average

Minority                                                            60.7%              30.2%

Qualify for Free or Reduced Price Lunch              67.8%              46.1%

Qualify for Special Education Services                 10.0%              13.0%

Bldg.that received Education Yes! Ratings of A, B or C     95.2%              83.8%

Bldg. that Achieved Adequate Yearly Progress                  85.5%              79.1%

The CMU authorized charters located in Detroit, Flint, Lansing and Grand Rapids did better in both reading and math than all four of their surrounding resident districts. Even more impressive is that, despite the higher percentage of minority or those who qualify for free or reduced price lunch, continuously enrolled CMU authorized charter schools meet or exceed the statewide average on math and reading proficiency and show consistent student growth in learning. That is, the longer they have the student within its program, the better the student does compared to the state averages – just what you would want for the student. Minority kids in poverty can learn when given a chance to enroll in quality programs!

Years Enrolled Before Fall 2010

2010 MEAP Achievement    0                      1                      2                      3+      

Math                                    73.9%              77.6%              78.8%              85.5%

Reading                               72.6%              73.8%              75.4%              83.6%

The challenge is to sort out the below average charter schools from the rest. Public Act 203 of 2010 already requires the State Superintendent of Public Instruction to identify the lowest achieving 5% of public schools (both charters and traditional public schools) and place them into a State School Reform/Redesign District. The H-4 version of the SB 618 includes the requirement for pupil growth as the most important factor of keeping a charter. At p. 14, line 23 - p. 15, line 2.  On page 18, lines 9-12 also mandate participation in the same accountability assessments as traditional K-12s. Further, a special sub-committee has been formed to study what, if any, further provisions are needed to enhance the quality of all of our schools.

An issue related to charters that many are not aware of (but which I am working on as a member of the Work Group on the Michigan Public School Employees Retirement System) is the problem of the $46 billion of unfunded liability in the program that would be “stranded” and left to be paid by the districts with fewer employees than currently with further expansion of charter enrollment. It is a major issue, but one which I expect will be part of another package of bills to be handled after the first of the year. The charter school question will be just one part of the necessary solution.

This charter issue is just one of many issues we face in the legislature in which we must stay laser focused on what is best for the students.

Rick Olson, State Representative, 55^th District
517-373-1792
989 House Office Bldg.
http://repolson.com
rickolson@house.mi.gov

P..S. There is a lot of misinformation flying around regarding charter schools. A good unbiased source of information is the State of Michigan Department of Education’s “Michigan Charter Schools Questions and Answers”, revised 2009.

Detroit–Immediate Pain but Potential Bright Future

Detroit is in a world of hurt financially.

“Its financial picture is bleak, the City of Detroit may not have the means to fix itself without landing in bankruptcy court, restructuring experts say.

Mayor Dave Bing and city officials insist they can find solutions to fend off a financial meltdown, even as the state begins its review of Detroit's finances Tuesday.

But experts who reviewed the city's finances for the Free Press said that even an emergency manager -- despite sweeping powers to slash costs, abolish union contracts and sell off assets -- will likely find the challenges too great to solve without the help of a bankruptcy judge.

One reason?

The city's long-term debts and obligations to retirees.” Bankruptcy might be Detroit's only option, experts say, Detroit Free Press, accessed 12/4/2011.

The Citizens Research Council of Michigan just released a report on Detroit’s legacy costs and indebtedness.

“At June 30, 2010, all funds of the City of Detroit had $6.4 billion of outstanding bonded debt, including $5.2 billion attributable to the Water and Sewerage system, and over $600 million of other future obligations. Included in the $6.4 billion of outstanding bonded debt was $1.0 billion of general obligation debt, which equates to debt of about $1,400 per resident of the city. There will be $467.7 million of interest due on this $1.0 billion of principal; including principal and interest on general obligation debt equates to more than $2,000 per resident.

The city had $1.5 billion of outstanding pension obligation certificates and other unfunded costs associated with personnel totaling $5.6 billion: $481.5 million of unfunded actuarial accrued liability (UAAL) in the General Retirement System, $134.2 of UAAL in the Police and Fire Retirement System. . . .

Detroit also had $5.0 billion of UAAL for other post employment benefits, but the city continues to pay these liabilities on a pay-as-you-go basis. If the city had made the annual required contribution to fund OPEBs on an actuarial basis in fiscal 2009-10, it would have allocated $313.9 million, rather than the $149.7 million actual payment; an additional $164.2 million would have been paid from city accounts to fund future liabilities, reducing the amount available for current operations. Nonetheless, the city government's future liability for non-pension benefits promised to city retirees is about $7,000 per resident.”

“Legacy Costs and Indebtedness of the City of Detroit”, Citizens Research Council of Michigan, December 2011, Report 373.

Fundamental conditions are the causes of the problem:

1. Declining population – from near 2 million down to 713,777 residents reported in the 2010 census
2. Plummeting property values depressing property tax collections
3. High unemployment depressing city income tax collections
4. Decades of city employee wages and benefits at levels that no longer can be supported by the remaining residents

The shrinking tax base, in terms of number of residents, property values and income might well be called “the perfect storm”. The obligations incurred in the past might have been manageable if the city had not shrunk as it has, but now those liabilities are comparable to the “stranded costs” that electric utility companies bear when the demand for electricity that had been expected when the power plants were built is not realized due to loss of customers. The number of retirees from a city of nearly 2 million far outnumber the number of active employees needed to service the city today. “In FY 2010, there were 8,356 retired members of the Detroit Police and Fire Retirement System (DPFRS) and they received an average annual allowance of $29,163. There were 3,992 active members of the system (2,927 Police and 1,065 Fire); the number of active members has been declining (there were 5,585 active members in 2001).” CRCM, p. 9.

Revision of the pension and other post employment benefits (OPEB) must be a part of the solution. Mayor Bing, the City Council and the unions have not been able to reach agreement. The unions, in particular, appear in denial of the problems. Governor Snyder is loath to utilize Public Act 4 of 2011 (the Emergency Manager act) and appoint an Emergency Manager due to the likely push-back from the Detroit residents. The Mayor and other parties, in a show of solidarity, have declared that it is a Detroit problem to be solved by Detroiters. Member of the City Council has used the “race card” to rile up the troops against the potential appointment of an Emergency Manager.

While we can understand why Mayor Bing (who has announced he will run for re-election), the City Council members and perhaps local legislators as well may make defensive statements for political purposes, it is sad to see politics get in the way of good policy. They make reaching agreement and finding a solution more difficult in the event an Emergency Manager is ultimately necessary. To give Mayor Bing the benefit of the doubt, we might wonder if he was simply seeking to make dealing with him more palatable for the unions than the alternative – under the theory that “it is better to deal with the devil you know than one you don’t know”.

It is clear that the fate of Detroit will have massive impacts on the state as a whole. I look forward to resolution of the problem as quickly as possible – preferably by Detroiters themselves, but if not, via the appointment of an Emergency Manager, and if even he/she cannot solve the problem, with the aid of a bankruptcy judge.

We need to shift our focus as quickly as possible from the immediate cash flow problem to long term solutions to the fundamental conditions. Redevelopment of Detroit is possible by a combination of:

• creation of a expanded logistic center via construction of a freeway to freeway connection to a bridge from Windsor for trucks, a second railroad tunnel between Windsor and Detroit that can accommodate double stacked container cars (to seize the opportunity of the trade corridor from Halifax, Nova Scotia with its deep water port, through Montreal, Toronto, Windsor, Detroit and Chicago) and the expansion/creation of the Detroit Freight Hub. This can also tie into the Aerotropolis consisting of Detroit Metro Airport, the Willow Run Airport and surrounding area, creating multiple options for movement of people and goods, and driving down transportation costs of local businesses to make them more competitive. Tens of thousands of jobs are waiting to be created – if only we see the vision and act on it.
  
• elimination of blighted structures in strategic areas, such as surrounding the Midtown area along Woodward Avenue, where great potential exists for businesses and people to come back in to take advantage of the locations.
  
• creating a regional transit authority to bring modern rapid transit to the area along the four major corridors identified by the Regional Transit Authority Task Force, which, in conjunction of the empty spaces created by the demolition of the over 80,000 vacant and decrepit homes, will encourage redevelopment of residential areas and discourage continued sprawl north and west of Detroit. Of course, a working Metro public transportation system supporting the major lines will also need to be reformed. Secondary benefits of lower cost provision of basic utilities will be realized, as compared with continuing to extend them outward from the city.

Michigan will grow again. A dynamic, redeveloped Detroit must be a major part of that future. We can do it – if we have the foresight, energy and will to work together for the solutions working for the general public good, and not for the shortsighted benefit of the special interest groups.

Tax Reform: Repeal of the MBT and Impact on Seniors

June 12, 2011 posting updated December 3, 2011 to reflect the Michigan Supreme Court ruling discussed at Michigan Supreme Court Upholds Most of Public Act 38 of 2011 (regarding taxation of pension income); Strikes Down Exemptions Phased-Out Based on Income.

In the tax reform package just enacted, in the midst of the historic elimination of the Michigan Business Tax (replaced by the 6% income tax on “C” corporations), we have faced criticism for the changes made to the way pensions are taxed (or not) in Michigan.

We are required to have a balanced state budget, so the questions are always "what is the most fair tax system that has the least impacts on skewing the economy" and "what are the essential services that we must or should fund". Good, intelligent people can have different opinions on such matters but the bottom line in Gov. Snyder's thinking (and agreed upon by a majority of legislators) was that it was not fair for some people to be taxed on their earned income while retirees were exempt from taxes. The fact that previous legislators had catered to seniors for votes did not mean that now our current lawmakers should do the same. We have provided for a reasonable transition period, provided for “household resources” thresholds so that the elderly poor are protected, and allowed those more aged and already retired to continue to be exempt. That appeared to be a reasonable approach so I voted for the tax bill.

What must be kept in mind is that a prime goal of the tax reform was to improve the business climate to create jobs. The tax bills enacted not only relieves the double taxation burden on many small businesses who are significant job creators, but also empowers these businesses to spur additional job growth in Michigan.

Further, the underlying motivation for the change is clear. The percentage of Michiganders who are over 65 is growing rapidly and is expected to grow to over 20% by 2030. Meanwhile, an exploding part of the budget, Medicaid, is significantly affected by the growing nursing home population. To create a structurally sound budget, now and into the future, the “tax expenditure” of the senior exemptions needed to be trimmed. And if we did not do it now, it would be even harder to do in the future when an even higher percentage of the voters would be the special interest group affected by the change.

After the Governor’s initial tax proposal, the input I received from many in the district, including seniors, was that the taxation of pensions would be acceptable as long as there were some income threshold such that the elderly poor were not being taxed on their pensions. $20,000 for a single person and $40,000 for a couple appeared to be what was accepted by most.

The negotiated agreement between the House and Senate leadership and the Governor put in such an income threshold in the form of a “household resources” threshold, but also reduced the impact on seniors in other ways (although it did get more complicated than I feel comfortable with).

The result is a three-tiered system which determines whether retirement income is taxed.

· People born before 1946 will continue to receive the current retirement income exemptions, as well as the personal exemption ($3700), Social Security exemption and the exemption for dividends, interest and capital gains. That is, public pensions will not be taxed. Private pensions will not be taxed if under the current exemption threshold of $45,120 for single filers and $93,240 for joint filers (indexed to inflation). 401(k)s and IRAs will be taxed as under current law. (That is, these are subtractions from income in MI 1040 Schedule 1: (a) Retirement distributions from a 401(k) or 403(b) plan attributable to employer contributions or attributable to employee contributions to the extent they result in matching contributions by the employer and (b) IRA distributions received after age 59½ or described by Section 72(t) (2)(A)(iv) of the IRC (series of equal periodic payments made for life.)

· Taxpayers born between 1946 and 1952 will have the Social Security exemption and the $3700 personal exemption until age 67, but will be taxed on other retirement income (defined as public pensions, private pensions, 401(k)s and IRAs). Taxpayer in this age range can take an exemption of $20,000 for a single return and $40,000 for a joint return against retirement income until age 67. Upon turning 67, they receive a $20,000 single and $40,000 joint senior exemption against all income in addition to Social Security and personal exemptions.

· People born after 1952 receive the personal exemption and Social Security exemption until they turn 67, but will be taxed on other retirement income (defined as public pensions, private pensions, 401(k)s and IRAs). When 67 and older they receive a $20,000 single and $40,000 joint senior exemption against all types of income. This exemption can be taken instead of the Social Security and personal exemptions if it is more beneficial to the filer.

Notes:

· On a joint return, it is the year of birth of the older spouse that controls the tax treatment of both spouses' pensions.

. For people born in 1946 and after, the retirement income and senior exemptions are phased out if total household resources exceed $75,000 for single filers and $150,000 for joint filers.(Nullified by the Supreme Court.) Public pensions are subject to state taxes as of Jan. 1, 2012. People born before 1946 are not affected by either change.

· Military pensions continue to be exempt regardless of age.

· The current deduction for interest, dividends and capital gains for seniors in the maximum amount of $9,420 single and $18.840 joint is eliminated for all age groups.

· The current additional “over 65” personal exemption of $2,300 is eliminated.

· Seniors may also be affected by the elimination of any Homestead Property Tax Credit if the taxable value of the homestead exceeds $135,000. The Credit will also phase out earlier than currently, between $41,000 - 50,000 of household resources. Further, the percentage of the credit allowable has been changed. Only seniors with household resources of $21,000 or less will qualify for the full 100% credit, with it phased done to the 60% everyone else qualifies for for a senior with household resources of $21,000 to $30,000.

Overall, the tax plan enacted is a net tax reduction for the state which aggressively positions the state to be economically competitive. Despite the expected unhappiness by those who will be negatively affected by the tax reform (and in any reform there will be some “winners” and some “losers”), the question is not the fairness of the changes, but whether the final result is fair. I support the changes we have made.

Disclaimer: This is intended to provide you with a general summary of the new provisions. You should always consult with your tax advisor regarding the application of these change to your particular situation.

Michigan Supreme Court Upholds Most of Public Act 38 of 2011 (regarding taxation of pension income); Strikes Down Exemptions Phased-Out Based on Income

Governor Snyder requested an advisory opinion of the Michigan Supreme Court of the constitutionality of PA 38 because of the need to have greater certainty in our state’s budgetary planning. The Court rendered its opinion in “In re REQUEST FOR ADVISORY OPINION REGARDING CONSTITUTIONALITY OF 2011 PA 38”, State of Michigan Supreme Court, No. 143157, Filed November 18, 2011, available online at http://courts.michigan.gov/supremecourt/Clerk/11-12-Term-Opinions/143157.pdf

This blog posting summarizes the Court findings and their rationale, along with its ramifications. (Note that a complete discussion on the impact of PA 38 on seniors is contained in my blog posting “Tax Reform: Repeal of the MBT and Impact on Seniors”, updating my June 12, 2011 posting with the same title.)

The Court held:

1. Reducing or eliminating the statutory exemption for public-pension incomes as set forth in MCL 206.30 does not impair accrued financial benefits of a “pension plan [or] retirement system of the state [or] its political subdivisions” under Const 1963, art 9, § 24;
   
   Rationale: Article 9, section 24 of the Michigan Constitution says nothing about whether pension benefits can be taxed. Article 9, section 2 says, “The power of taxation shall never be surrendered, suspended or contracted away.” The “accrued financial benefits” referred to in section 24 were interpreted to be limited to the deferred compensation embodied in the pension plan. That is, the “deferred compensation” protected as a  “contractual obligation” by section 24 is the pension payments themselves earned by the retiree, while the tax exemption is something distinct and is not the subject of section 24. Thus, there is no contractual right to tax-free pension benefits.
   
2. Reducing or eliminating the statutory tax exemption for pension incomes as set forth in MCL 206.30 does not impair a contractual obligation in violation of Const 1963, art 1, § 10 or US Const, art I, § 10(1). 
   
   Rationale: A fundamental principle of the jurisprudence of both the United States and this state is that one legislature cannot bind the power of a successive legislature. There is a strong presumption that statutes do not create contractual rights. The Court has maintained that absent some clear indication that the legislature intends to bind itself contractually, the presumption is that a law is not intended to create private contractual or vested rights but merely declares a policy to be pursued until the legislature shall ordain otherwise. The Legislature has not indicated any such intention to bind itself, therefore the Legislature is free to change the tax exemption.
   
3. Determining eligibility for income-tax exemptions on the basis of date of birth as set forth in MCL 206.30(9) does not violate the equal protection of the law under Const 1963, art 1, § 2 or the Fourteenth Amendment of the United States Constitution;
   
   Rationale: The United States Supreme Court has made it clear that, unless a classification warrants some  form of heightened review because it
   jeopardizes exercise of a fundamental right or categorizes on the basis of an inherently suspect characteristic, the Equal Protection Clause requires only that the classification rationally further a legitimate state interest. The  Court stated that the right to a tax-free pension was not a constitutional right, much less a “fundamental right”. Further, the Court stated that age has never been held to constitute a “suspect” class, and therefore the states may discriminate on the basis of age without offending the Fourteenth Amendment if the age classification in question is rationally related to a legitimate state interest. The Court discerned a clear rational related to a legitimate state interest. Therefore, there is no violation of equal protection determining eligibility for exemption based on date of birth.
   
4. Determining eligibility for income-tax exemptions and deductions on the basis of total household resources as set  forth in MCL 206.30(7) and (9)  does create a graduated income tax in violation of Const 1963, art 9, § 7; and
   
   Rationale: Article 9, section 7 of the Michigan Constitution provides, “No income tax graduated as to rate or base shall be imposed by the state or any of its subdivisions.”  A graduated income tax is generally understood to be a tax on income that imposes a proportionately greater tax burden on the earnings of higher-income taxpayers than on that of lower-income taxpayers. It was uncontested by the parties that the provisions at issue do not create an income tax graduated as to “rate” because all individual taxpayers will be required to pay a flat 4.35 percent income tax.  Instead, the issue was whether the provisions create an income tax graduated as to “base” because only certain taxpayers, depending on their income levels, will be entitled to (1) the $3700 personal exemption and (2) to the $20,000 or $40,000 deduction.
   
   A taxpayer’s  “base” consists of his or her net taxable income and exemptions and deductions reduce a taxpayer’s base by reducing the amount of a taxpayer’s income subject to taxation. Income-based exemptions and deductions (ones to which taxpayers are or are not entitled solely as a function of their incomes) result in an income tax that is graduated as to base, which can occur even when all income is taxed at a flat rate. Since both the phase out and ultimate extinction of the both the personal exemption and the $20,000/$40,000 exemption were based solely on income, they violated the prohibition of a graduated income tax.

   It is noteworthy that the Court found no distinction between an exemption based on income vs. “household resources”. Also, the Court cited previous Court opinions upholding the constitutionality of the real property tax credit which is income dependent because it was “in effect a property tax rebate the employs the income tax as a vehicle for its reconciliation” and because the rebate may be received whether any income tax is owed or not. Some may view that as a “distinction without a difference”, but that is the current Court stance.

   It may also be noted that, for people born before 1946, private pensions will continue to not be taxed if under the current exemption threshold of $45,120 for single filers and $93,240 for joint filers (indexed to inflation). The constitutionality of this provision was not challenged, but appears to be just as subject to question as the two provisions that were struck down on the basis of instituting a graduated income tax.

5. Pursuant to MCL 8.5, the unconstitutional portions of 2011 PA 38 can reasonably be severed from the remainder of the act, which is constitutional with respect to all the issues raised.
   
   Rationale: Whether the entire PA 38 could stand when a part was found unconstitutional was a question because the act contains no severability clause. Nonetheless, the Court was convinced that severing these unconstitutional provisions is not inconsistent with the manifest  intent of the Legislature. It therefore excised only those offending sentences and kept the remainder of the act.

Ramifications of the Court ruling: The primary impact will be the loss of revenues to the state of somewhere around $60 million in fiscal year 2011-12 and an estimated $91 million in fiscal year 2012-13. Recent estimates of actual revenue collections in the fiscal year closed on September 30, 2011 show substantially more “surplus revenue” than the loss of revenue in the current fiscal year created by the Court ruling. Therefore, the Legislature will likely not make any near-term adjustments, but rather simply deal with the revised projections in the budget discussions for the 2012-13 budget after the first of the year.

My (mis)Adventure Exploring Pure Michigan (Pictured Rocks National Seashore)

During the November In-District Work Period, I decided to take a break from my legislative duties of door-to-door constituent contact, issue studies, blog postings, industry tours, Lansing meeting regarding reforming the underfunded MPSERS system, etc., to explore a bit of Pure Michigan. I completed 38 miles (plus four more, but more about that later) of the 42 mile North Country National Scenic Trail in the Pictured Rocs National Seashore on the south shore of Lake Superior just east of Munising in four days.

Day 1, Friday, November 18 (my 62nd birthday): I left at 7:30 a.m. from Ann Arbor and arrived at the Visitor Center in Munising before 2:00 p.m.. (stopping in St. Ignace for the mandatory pasty - pronounced “PASS TEE”). After I obtained my back country permit and left my car at Munising Falls, the Park Superintendent Jim Northrup graciously drove me about an hour’s drive to the starting point of my trip – Log Slide, 4 miles from the east end of the trail at Grand Marais. We overlooked the long, near vertical sand dune down which the loggers slid the majestic white pine logs in the old logging days down to the lake. To the east were huge sand dunes perched above the lake on sandstone cliffs.

I began my 5.9 mile hike towards Benchmark, my first night campsite, about 3:15 p.m., hotfooting it, as dark was quickly approaching. Hmm, I recall hiking with a 40 pound pack being much easier. I began to discover parts of my body I had forgotten I had. Nonetheless, I arrived at Benchmark and got the tent up as dark closed in.

Now, to get some water from the lake to cook dinner. I made my way over the sand dunes and down to the lake by headlamp, only to find that there was no way to get water from the lake without either wading out into it or digging a hole in the sand with a stick beyond waves into which water could seep from which I could then pump water through my water purifier. Hmmm, well, too late to do the latter and I surely was not going wading in that cold water. So, I decided to make the 1/3 liter of water remaining in my water bottle do until I could reach a stream in the morning. Needless to say, it was a dry night and morning as I nursed that meager liquid.

Backcountry Map

Day 2, Saturday, November 19: I broke camp and started the 10.5 mile hike towards my next campsite at Coves as soon as daylight permitted. I pushed hard to get to water, as I was feeling dehydrated, and came to Seven Mile Creek after 3.2 miles. Ahh, I needed that.

I pushed on along the Twelve Mile Beach of beautiful white sand with snow pellets falling from time to time, but not enough to accumulate. Views of Grand Portal Point beckoned me from the distance. The lake splashed leisurely waves upon the shore under gray sullen skies. I flushed two deer and a ruffed grouse along the route, but saw little wildlife beyond some squirrels and a few small birds.

At about 4 miles, I felt a blister starting on my right heel. While catching a snack and rest break, I put on moleskin to protect it.

Near Beaver Creek, I discovered the sleeping pad was no longer on my pack. Darn! Sleeping without a pad would not be comfortable on the hard frozen ground without the pad’s insulation. I decided to drop my pack and go back along the trail in hopes of recovering the pad. Two miles back I found the pad at a log lying across the trail where I had had trouble getting past. Note to self: securely fasten all items to the pack!.I returned to my pack an hour and 15 minutes after I had left it, relieved, but a bit more tired than planned. I slowly trudged the 1.3 miles remaining to my Coves campsite as it began to rain.

I got the tent up before it really began to rain hard - too hard to want to start my stove in the rain to cook dinner, so it was cold dinner of Ritz crackers, cheese,  almonds, chocolate chips, and raisins. Three young guys arrived in camp in the rain as it got dark.

It rained hard for several hours and then I heard the rain drops on the tent lessen and then stop. Ice was forming on the tent and I thought surely I would wake to 3 – 4 inches of snow on the ground. The wind had picked up as well to perhaps 20 miles per hour. I slept to the sound of thundering waves.

  
Sandy Beach                          Grand Portal Point in the Distance

Twelve Mile Beach

Day 3, Sunday, November 20: I awakened at dawn to discover no snow at all on the ground, but quite a bit colder than the day before, with the wind continuing. The waves were crashing upon the shore and sandstone cliffs. I was becoming more efficient in equipment organization and found I still remembered most of the mountaineering tricks of:

• making the most of my equipment to stay as comfortable as possible,
• eating small snacks frequently to maintain blood sugar levels without overloading the digestive system and depriving the legs of blood,
• a slow and steady pace to avoid stressing the body and minimize effort, gearing down on uphill stretches and lengthening strides on the flats, to maintain as steady an oxygen demand as possible,
• and regulating heat via multiple pieces of clothing going on and off (especially around my head and neck and hands). I was sleeping well, warm and snug as a bug in a rug.

About two miles down the trail towards my next camp 11.8 miles away I was passed by a young couple. Grand Portal Point with its arch carved by time, water and ice came and went, as I put one foot in front of the other. The trail crunched beneath my feet, on frozen leaves and wet earth. The blister was bigger and reminding me of its presence with each step.

I set my goal for the next major landmark 2-4 miles ahead. Then the next. The last 3.1 miles from Mosquito campsite to Potato Patch was not fun. I thought that what I was doing was for recreation, and if it no longer was fun, it made sense to quit. I decided to get to the nearest road in the morning and call to Munising to get picked up. In short, I was exhausted.

Meanwhile, in camp I dined on two packages of Top Ramen, together with graham crackers, cheese, etc. and was asleep by 6:00 p.m. I awoke about 2:00 a.m. and ate again, then went back to sleep.

 
Grand Portal Point Closer       Grand Portal Point Even Closer

 

Grand Portal Point

Day 4, Monday, November 21: I awoke at 6:48 feeling considerably refreshed.

I was encouraged when I discovered my last day planned was 8.9 miles, rather than over 12 miles as I had remembered it. I decided to head out for the first trailhead along my route and play it by ear. Using my browser on my cell phone, I had determined that no taxi existed in Munising to call. I thought it would be a bit of abuse of my position to call the Park Service and ask then to come get me..I also had always thought that fellow mountaineers ought to take precautions to be able to get themselves out of difficulty and not expect someone else to rescue them, so philosophically, I did not want to do that either.

I hiked the little over a mile to the first trailhead fairly easily. Not a creature was stirring in the empty parking lot. I decided to keep going until the next trailhead at Sand Point, about 4 miles further. I thought if I got there, I could drop my pack and walk the 2.9 miles to the car, then drive back for the pack.

When I arrived at a fork in the trail about a half mile from the Sand Point parking lot, the sign said 2.9 miles to Munising Falls via the other direction. Unsure whether there would be any transportation at Sand Point (not realizing that that was the location of the Park Headquarters) and a further total distance to Munising Falls via Sand Point, I elected to stay on the trail direct to Munising Falls.

 
Almost to Munising Falls        Best View of the Trip!

About two hours later and three rest stops, I arrived at Munising Falls to see the most beautiful sight of the trip – my car!

I took the opportunity to brush my face and shave my teeth at the Visitor Center before heading home (via St. Ignace and, yes, another pasty) where I arrived before 9:00 p.m.. I had successfully completed the trip as planned. Another item checked off the Bucket List – a beautiful part of Pure Michigan well worth visiting.

Why do people do these kinds of outdoor adventures when they can involve discomfort? That question is similar to people asking, “Why do you climb mountains?” The flippant answer always is, “Because it is there.” But the better reason is the satisfaction of setting a goal and achieving it. It is the classic story line of man vs. nature, or man against himself. With mountain climbing, there is also the camaraderie of the rope team. In this case, I was alone, so missed the camaraderie of a companion, but was glad for that. I would not have wanted to be responsible for another experiencing the discomforts of dehydration, cold, fatigue and blisters of the trip.

But for me, taking the trip was for a greater, deeper reason: because I still can. It has been only four years since I was confined to a wheelchair for six weeks with a excruciating pinched sciatic nerve, not knowing I would ever be able to walk again without extreme pain. Now I can, and I did!