Stranded Costs in MPSERS

Definition and Causes of Stranded Costs

“Stranded costs” are caused when an employee leaves the system as an employee with vested retirement or health care benefits, with unfunded liability associated with them, but with no requirement for either the employee or any employer to fund that unfunded liability. Examples:

• Normal retirements of employees where benefits are not fully funded.
• Early retirements induced by early retirement incentives with benefits not fully funded.
• “Retire-rehire” schemes to shift responsibility of unfunded liabilities to remaining system
• Privatization of support services (custodial, transportation, food service) – if the released employees have vested benefits but neither employee or employer no longer contributes to the funds
• Privatization of substitute teachers – if these subs have vested benefits
• Charter schools, if the schools caused a departure of employees from the MPSERS with vested benefits with no contributions being made for them in the future.

Note: Of course, if there were no unfunded liabilities (caused by unrealized investment rate of return, mortality and other assumptions used in calculating the “normal costs”, there would be no “stranded costs”.

Misconception

The fact that there are fewer people as active current employees does NOT cause the unfunded liability, although the “missing” employees will not be there to share the burden of prior incurred unfunded liabilities. I.e., the problem is that there were benefits “promised” that have not been funded and now there aren’t new people to shift the cost to, similar to a Ponzi scheme that ultimately fails, but that in itself does not cause “stranded costs”.

Conclusion re Charter Schools

Future potential rapid expansion of charters or charter school enrollment has the potential of creating stranded costs IF they cause displacement of employees from MPSERS participating districts with vested benefits.

Why Current Operating Expenditures ("COE")?

Many districts over the years have converted significant payroll costs to contracted services. Many of the former employees had unfunded pension and health care costs associated with them which was shifted to the remainder of the MPSERS system. A mechanism is needed to restore onto the districts responsible for those "stranded" unfunded liabilities the responsibility to pay for them. Applying a percentage charge to Current Operating Expenditures ("COE") statewide that will collect the current year charge for those unfunded liabilities spreads the responsibility more broadly, including onto contracted services which is included in COE.

Why Current Operating Expenditures ("COE") Instead of a Simpler Allocation Per Pupil?

There is an "equity gap" currently, with some districts receiving a larger foundation grant per student than others. We should not increase this equity gap.

Payroll per pupil is higher in high foundation grant districts than in lower foundation grant districts. If the unfunded liability were recovered charging the districts their proportionate share on a per pupil basis, the high foundation districts' share would be lower than their proportionate share of the state total payroll costs. Therefore, a per pupil allocation of the unfunded liability would disproportionately favor the high foundation districts, contrary to our attempt to ultimately close the "equity gap" between the high and low foundation grant districts.

Stated another way, 12.49% (the current calculated UAL percentage) of a districts payroll per student is a different amount from district to district. The higher the payroll per student in a district, the more MPSERS burden is taken off that district with a flat across the board per student categorical. The districts with high payroll per student would be the winners and the low payroll per student would be the losers in a flat across the board per student categorical.

The flat across the board per student categorical would increase the equity gap, and therefore is not a preferred solution.

The H-3 Approach to Stranded Costs

The H-3 House approved version of SB 1040 contains a solution to the stranded cost problem via the COE or "current operating expenditures" mechanism. Beginning in 2013-14 fiscal year for traditional public schools, their total MPSERS assessment will be split into two parts:

• 11.9% will be applied to Current Operating Expenditures and
• 3.5% will be applied to payroll to cover the normal costs for the revised retirement and healthcare benefits.

Together, this is equivalent to 24.46% of systemwide payroll.

Non-K-12 entities (i.e., libraries, community colleges, ISD's and MPSERS participating charters) would pay 24.46% on payroll, because of their vastly different cost structures. Universities would continue paying their remaining liability under the current plan.

Key Point: The foundation grant received by the districts would not change. However, the MPSERS payments made by the district would be in two pieces,

(1) the lump sum UAL amount based on Current Operating Expenditures and

(2) the remaining MPSERS contribution percentage of wages.

For example, assuming we wish to collect 24.46% total MPSERS contribution rate across all payroll, first we would subtract the amounts due from the libraries, community colleges, ISD’s, MPSERS participating charters and the universities. Next we subtract 3.5% (the percentage set in the bill) of payroll from the remaining K-12 districts. The remainder is then divided by the total COE of the remaining K-12 districts, which based on historical data, equals 11.9%. A computation similar to this would be done each year to set the COE rate.

Because the UAL would be paid by the districts as a percentage of their combined COE (a much larger number than total payroll), the remaining MPSERS contribution rate based on wages can go down accordingly. Thus, the payment made for their share of the UAL based on COE would be offset by a lower MPSERS contribution rate on their wages. However, because districts which have privatized significantly will now be paying the UAL based on their Current Operating Expenditures rather than their wages, the stranded costs of their privatizing will now be covered.

Other Options Explored

Several other options were investigated, but allocating the UAL according to the Current Operating Expenditures (COE) appears to match the district's responsibility for the unfunded liability the best. It is not perfect, but it works as it is a readily accessible figure to obtain by the state due to its being reported by the school districts and published in the DOE annual bulletins 1011 and 1014. See Appendix A for definitions and what is included and what not included.

Cost Control Encouraged

Also, to the extent that we wish to encourage cost control, using current operating expenditures as the factor which affects the UAL allocation creates the most incentive. The higher the Current Operating Expenditures per Pupil, the higher the District UAL per Pupil, which reduces their remaining unallocated funds.

Conclusion

If the stranded cost problem is not addressed now, it is equivalent to sitting in a boat swamped with water, bailing furiously to get the water out of the boat, but failing to plug the hole in the bottom of the boat. Privatization of support services is expected to increase in the future, because of the lower cost usually of the contracted for services (due to a combination of lower retirement benefit costs, health care costs and wages). Any MPSERS reform that does not account for and deal with these stranded costs which are expected to increase in the future will be a reform that does not last.

Appendix A: Definition of “Current Operating Expenditures” from H-3, page 18.

“(17) AS USED IN THIS SECTION, "CURRENT OPERATING
3 EXPENDITURES" FOR A PUBLIC LOCAL SCHOOL DISTRICT INCLUDES
4 FUNCTIONS 1XX, 2XX, 45X, AND ALL OBJECT CODES EXCEPT 6XXX, AS
5 DEFINED IN THE MICHIGAN PUBLIC SCHOOL ACCOUNTING MANUAL BULLETIN
6 1022, AND IS EQUAL TO THE TOTAL OF INSTRUCTIONAL AND SUPPORT
7 SERVICES EXPENDITURES, INCLUDING THE TOTAL GENERAL FUND CHARGES
8 INCURRED IN THE GENERAL, SPECIAL EDUCATION, AND VOCATIONAL
9 EDUCATION FUNDS FOR THE BENEFIT OF THE CURRENT FISCAL YEAR,
10 WHETHER PAID OR UNPAID, AND ALL EXPENDITURES OF THE INSTRUCTIONAL
11 PROGRAMS PLUS APPLICABLE SUPPORTING SERVICE COSTS REDUCED BY
12 CAPITAL OUTLAY, DEBT SERVICE, COMMUNITY SERVICES, AND OUTGOING
13 TRANSFERS AND OTHER TRANSACTIONS. CURRENT OPERATING EXPENDITURES
14 FOR A PUBLIC LOCAL SCHOOL DISTRICT ALSO INCLUDE OPERATING FUNDS
15 FOR ANY PUBLIC SCHOOL OR OTHER PUBLIC EDUCATIONAL ENTITY FIRST
16 AUTHORIZED OR ESTABLISHED BY THE PUBLIC LOCAL SCHOOL DISTRICT ON
17 OR AFTER THE EFFECTIVE DATE OF THE AMENDATORY ACT THAT ADDED THIS
18 SUBSECTION.”

“Expenditures

(Note: To avoid counting the same expenditure multiple times, Statewide and Groupings reports DO NOT INCLUDE expenditures paid to another public school (Function 411 and/or object codes 82xx.) )

Instruction - The cost of activities dealing directly with the teaching of students in the classroom or in a classroom situation. These expenditures do not include capital outlay. Per pupil expenditures for Basic and Added Needs Instruction are calculated using only K-12 and Special Education pupil fte as the divisor. Adult Education Instructional Costs per pupil are calculated using only Adult Education Participants as the divisor.

Basic Programs (Function 11x)- The classroom costs related to basic instructional classroom programs. This includes pre-k, elementary, middle, and high school programs.

Added Needs Programs (Function 12x) - The classroom costs of added needs instructional programs offered by the district. These include special education, compensatory education, or career/technical education.

Adult Education Programs - (Function 13x) - The classroom costs of adult/continuing education programs offered by the district.

Supporting Services - The cost of activities which provide administrative, technical, and logistical support to facilitate and enhance instruction. These expenditures do not include capital outlay. Per pupilexpenditures are calculated using the total pupil fte (k-12, special education, and adult education participants.)

Support Services - Pupil (Function 21x) - Those activities which are designed to assess and improve the well-being of pupils and to supplement the teaching process. These include attendance, guidance, health, and social work services.

Support Services - Instructional Staff (Function 22x) - Those activities associated with assisting the instructional staff with the content and process of providing learning experiences for pupils. It includes teacher in-service, curriculum development, educational media services, computer labs, educational television, and program directors.

Support Services - School Administration (Function 24x) - Those activities concerned with the administrative responsibility of a single school (commonly referred to as the principal's office.)

Support Services - General Administration (Function 23x) - Those activities concerned with establishing policy, operating schools and the school system, and providing essential facilities and services to staff and pupils. It includes the activities of the Board of Education and the superintendent of schools.

Support Services - Business Administration (Function 25x)- Those activities concerned with budgeting, accounting, payroll, purchasing, and internal services.

Support Services - Facilities Acquisition (Function 45x) -Those activities concerned with capital leases/purchases of land or buildings.

Support Services - Operations and Maintenance (Function 26x) -Those activities concerned with keeping the physical plant open, comfortable, and safe for use.

Support Services - Pupil Transportation (Function 27x) - Those activities concerned with the conveyance of pupils to and from school and to and from school activities.

Support Services - Other (Function 28x) - Activities other than those mentioned above which support each of the instructional and supporting service programs. It includes research, personnel, and data processing.”

http://www.michigan.gov/documents/mde/b1011-11_381977_7.pdf

SB 1040 H-3 House Floor Speech

Rick Olson, 6/13/2012

I rise to support this proposal to reform the MPSERS program. The changes proposed will put the program on a sound footing and ensure that the benefits offered by the program will in fact be able to be paid when they come due.

The first step in solving any problem is clearly defining it. Here the problems are:

1. An Unfunded Liability totaling $45.2 Billion according to the last Comprehensive Annual Financial Report, and the CAFR expected soon will probably show that to be over $50 billion.

2. The contribution rates that employers pay into the system are projected to grow from 25.7% this year to 35% in just 5 years. This is compared with 12.17% in 2000 that we thought was outrageous when I became the business manager at Adrian Public Schools.

3. This is a tremendous burden on our schools which takes away money that could otherwise be used for educating the kids. This year, the total contributions into the system is about $1,635 per student, and if we do nothing, $2,552 in 2016-17.

Three Potential Solutions

• Increase employee contributions
• Decrease benefits
• Find additional money
• This proposed solution uses all three

This H-3 Proposal:

• Increases employee contribution to 4% for Basic members and 7% for Member Investment Plan (MIP) members. This is not much of an increase from 6.4% for some employees who have been employed since July 1, 2008, while the increase will be a bit higher for longer term employees. Nonetheless, we cannot continue retirement plans that promised more than the state can afford to fund. At the same time, we should acknowledge the efforts of prior legislatures that have tightened the programs through the years. For example,
• Hybrid retirement plan adopted in 2010 will be continued for new employees
• Same health care options for new employees as state employees
• Retirees would pay 20% of their health care, other than those who are age 65 and retired by 1/1/2013
• Total prefunding of health care – instead of the fiscally irresponsible “pay as you go” method of not paying for the benefits as they are earned
• Partially fund the health care plan by continuing employee 3% contribution for health care, placed into individual accounts
• Total prefunding of health care by $603 million additional funding, spread over 2013-2018
• $470 million in health care escrow account
• $133 million in 2011-12 MPSERS set aside

Goals of Reform

• Decrease the unfunded liability
• Lower future projected contribution rates
• Be reasonable with current retirees, current employees and offer reasonable fringe benefits to prospective employees

This proposed solution achieves all three

Fiscal Impact of H-1

• Unfunded liability reduced by $15.6 billion. This is a "game changer" and will send a strong message that Michigan is serious about addressing its fiscal challenges. In all fairness, note that this is comprised of about $5 billion of real savings and about another $10 billion of reductions to the unfunded liability due to changed actuarial assumptions allowed by the GASB rules because we are beginning to fully fund the health care portion of the program.
  
• Cap the employer contribution rate at 24.46%, assuming state payments continue to fully fund the health care program in future years. In the spirit of full disclosure, it must be noted that the cap on MPSERS contributions will have an Impact on future Per Pupil Foundation Grant amounts, dampening the potential future foundation grant increases.

We need to strike a balance between the effects on employees vs. making a difference long-term in reforming the system. I am well aware of the many good people I have worked with in our schools through the years. Again in the spirit of full disclosure, my wife is a vested member of the MPSERS system and I am a non-vested member.

Let's look at the Reasonableness to Employees Under the H-3 proposal:

• The current employee contribution rates of 4% and 7% are on the high side when compared with other states, although comparing apples to apples is difficult
  
• When we compare the ratio of the burden placed on the employee versus the burden placed on the employer, the proposal's implied employee responsibility of 20% for Basic members and 33% for MIP members is less than the 43% borne by state employees’, and yet the school employees do not bear the market risks of the defined contribution plan that state employees do.
  
• The employees (past, current and future) bear about $9 billion of the total $45.2 billion unfunded liability prior to changes, or 20% of the total burden, with the employer picking up the remainder. From these last two comparisons, you can see that any claim that we are "balancing this problem solely on the backs of the employees" is totally wrong.
  
• Retirees will pay more, but the "granny" provision retaining the 10% cost share for those who are age 65 and retired on January 1, 2013 will protect the aged.

Conclusion: No one wants to pay more or receive less. Nonetheless, the $45-50 billion unfunded liability problem must be solved. On balance, this is a reasonable sharing of the burden.

Stranded Costs: “Stranded costs” are caused when an employee leaves the system as an employee with vested retirement or health care benefits, with unfunded liability associated with them, but with no requirement for either the employee or employer to fund that unfunded liability.

If the stranded cost problem is not addressed now, it is equivalent to sitting in a boat swamped with water, bailing furiously to get the water out of the boat, but failing to plug the hole in the bottom of the boat.

I am pleased that the proposal contains a solution to the stranded cost problem via the COE or "current operating expenditures" mechanism. Beginning in 2013-14 fiscal year for traditional public schools, their total MPSERS assessment will be split into two parts:

• 11.9% will be applied to Current Operating Expenditures and
• 3.5% will be applied to payroll to cover the normal costs for the revised retirement and healthcare benefits. Together, this is equivalent to 24.46% of systemwide payroll.

Other entities would pay 24.46% on payroll, because of their vastly different cost structures.

It is unfortunate that this reform proposal is complex, but this is just one of many complex issues we have been given the opportunity to address. Please join me in supporting this historic reform measure.

My Reaction to the Senators Jansen and Pavlov MPSERS Proposal:

Rick Olson
July 18, 2012

[On Wednesday, July 18, Senators Jansen and Pavlov presented an alternative to the House “H-3” version of SB 1040. H-3 was ultimately voted down in the Senate 16-22, so SB 1040 will next be discussed in a conference committee with the hopes of a resolution of the issue at the one-day August 15th session.]

1. Stranded Costs Left Unaddressed. I will have a hard time supporting any proposal that does not make some effort to deal with stranded costs. To do otherwise is to kick the can down the road again, leaving it for a future legislature to again “fix the problem past legislators failed to do”. This “compromise” proposal fails in that regard.

2. Cost of Conversion to Defined Contribution ("DC") Plan. The major reasons our House Work Group recommended against closing the current hybrid plan for new employees in favor of substituting the a defined contribution plan equivalent to that available to state employees were (1) our belief that the DC plan normal cost was less than the cost of the proposed DC plan (with our desire to control costs, not raise them, the DC plan did not seem to make sense) and (2) with the inability to prefund the health care benefits AND fund the faster amortization indicated by the GASB guidelines, we were uncertain how negative the bond rating agencies would be if the state were unable to fund the calculated Annual Required Contribution. However, the DC plan has a number of very attractive features, and we did not wish to reject the idea without further study. So, we asked that a study be completed to assess the risk that the assumptions used to calculate the normal cost would not be realized, raising the risk of future unfunded liabilities for the hybrid plan that in total would cause the DC plan to actually be less costly, rather than more costly as our initial information indicated. The study was also to explore the variance from GASB issue.

Note that the total cost of a defined benefit plan is the "normal cost" (what the actuaries estimate the future cost to be based on a set of assumptions) plus or minus the costs or savings achieved by the fund actually experiencing less or more favorable results. If investment returns are less favorable than the assumed 7% of the hybrid plan, then additional costs in the form of "unfunded liabilities" would occur. The study is intended to evaluate how likely the assumptions would not be realized and what the impacts would be if various departures from the assumptions were to occur.

Investment Rate of Return Assumptions. Since our H-3 House version of SB 1040 passed the House in June, we have recently received more information. In summary, the DC plan is highly likely to cost more than the current hybrid plan, even according to the latest Arnold Foundation memo publicized by the Mackinac Center. The long term investment rate of return would need to average below 6% for the hybrid plan to be of equal cost to the state employees’ DC plan. Kathryn Summers’ estimates put the breakeven investment rate of return at about 5.5% (or even lower if the .55% cost of the disability and life insurance elements of the plan are included to get the total of 6.75% cost of the DC plan).

The difference between the Arnold Foundation results and the ORS paper dated 6/25/2012 (from which one would conclude that the normal cost is not sensitive to a change in the investment rate assumption) is a difference in assumption regarding the size of the fund investment portfolio. ORS looked at it from its current stage with a very small asset balance, while the Arnold Foundation study looked at it when the hybrid plan would be mature and fully funded. With a larger portfolio, the investment rate of return gets proportionately more important to the final, actual cost of the system. However, even by the Arnold Foundation numbers, it is 78% probable that the 6% rate of return will be achieved, and 84% likely that the 5.5% “breakeven” rate of return be achieved. Now, I admit, that leaves a 16% chance the hybrid plan might be more expensive, but that appears to be a small risk compared with the chance to avoid the higher cost of the DC plan.

The historic MPSERS Investment returns have averaged 9.78% over the 30 years through 2010, 8.93% over 25 years, and 8.15% over 20 years. Of course, past results are no guarantee of future performance, so what we will achieve in the future is cloudy in my crystal ball. Fitch believes the 8% used in the other MPSERS fund is optimistic and is evaluating risk based on 8%, 7% and 6%. The current hybrid plan uses a statutorily established 7%. The Arnold Foundation used information from the MPSERS CAFR to calculate the probabilities of various rates of return, but the reasonableness of any assumption depends on how optimistic one is concerning the future of our country and the world's economy.

Those two "studies" are not the end of the investigation needed, however. The Arnold Foundation is hardly an unbiased organization of the type we, as policy makers, should be engaging to get objective, third-party, unbiased information on which to make these serious policy decisions. Which view of the sensitivity of the investment rate is the better view: ORS's or Arnold Foundation's? Further, the investment rate of return is just one of the many assumptions used by actuaries to calculate the normal costs. We do not know what the assumption of 3.5% payroll increase does to the calculated normal cost and now much the actual total costs may vary if payroll actually grows at a slower or faster rate. Similarly, the retiree mortality rate has varied significantly from the actuaries' assumption in the past. Has a modified assumption been substituted? If not, how sensitive is the calculated normal cost to a different assumption? We don't know, but will know if the study called for in H-3 is completed.

When we get the results of the study, we might very well conclude that the attractive features of the DC plan (most importantly being the certainty funding a DC plan achieves) outweigh the risks that the hybrid plan might ultimately be more costly. I am just reluctant to make that decision on incomplete and biased information.

GASB Variance. It has become clear that the GASB guidelines are intended for reporting purposes, and are not funding mandates, despite the unfortunately named "annual required contribution". However, even if not actually required, the question remains what the bond rating agencies response would be if the ARC were not fully funded. My research indicates that Fitch does not see a variance from ARC as an automatic negative, if the variance is small. Their ratings are dependent upon a wide range of factors, however, so I would not expect that a negative reaction would occur if the reforms enacted, in total, reduced costs and more fully funded the liabilities than before, as our H-3 does. So, I believe that moving to a DC plan, with the result of closing the DB plan and needing to amortize the unfunded liabilities on a faster basis than our cashflow would allow, would not result in a negative bond rating agency reaction. However, getting some direct responses from bond agencies would make the answer to that question more certain, which the proposed study contemplates.

Solid Information and Analysis Trumps Ideology with MPSERS

Rick Olson, State Representative, 55^th District
June 20, 2012 Revised version

The Capitol Confidential article “House GOP Hides Behind Rigged 'Study'” dated June 18, 2012 http://www.michigancapitolconfidential.com/17075 is wrong.

When our House four member Work Group on MPSERS began our work months ago, we all leaned toward having all new employees in the school systems enrolled into a defined contribution plan instead of the “hybrid” plan begun with legislation in 2010. Then we learned that if we were to be consistent in providing school employees with what the state employees’ received through their defined contribution plan, the costs may actually be higher than what the state would incur with the hybrid plan.

How can this be, when the current MPSERS employer contribution rates are 25% and rising? First we need to dissect what is contained in the current contribution rates. Of the 27.37% contribution rate for fiscal year 2012-13 for employees hired before July 1, 2010, 15.86% is for the Pension Unfunded Accrued Liability, 2.66% is for the Early Retirement Incentive enacted in 2010 amortized over 5 years, 8.75% is for Retiree Health Care, and only 3.47% is the “Pension Normal Rate”. The “normal” cost is the amount needed to fund the pension benefits earned in that year according to the actuaries’ calculations. This is the rate that must be compared with the cost of a defined contribution plan.

For state employees, the state pays 4% of wages, plus matches up to 3% more if the employee voluntarily contributes into the plan, for a maximum of 7%. The actual history is the state paying about 6.2%, because all employees do not contribute the amount necessary for that state to reach the 3% maximum match. So, knowing that the hybrid plan is much less rich a benefit plan than for employees hired prior to July 1, 2012, we asked what the “normal cost” was for employees in the hybrid plan. We learned that they were 2.24% for fiscal year 2013 and 2.67% in fiscal year 2014. Hmm, these costs were lower than 6.2%. If we wished to reduce the cost of the MPSERS program to employees, did it make sense to adopt a plan that was higher cost? We opted to recommend sticking with the hybrid plan for new employees.

The Senate adopted a version of SB 1040 that would have closed out the defined benefit plan and placed all new employees into a defined contribution plan. This would have the effect under Government Accounting Standards Board guidelines of requiring a quicker amortization of the unfunded liability than if we stuck with the existing plan. This would make it difficult to do both the pre-funding of the health care benefits that the House favored and funding the amount that the GASB rules indicated needed to be reported as the “annual required contribution” (“ARC”).

We in the House recognized that we did not have all of the information we needed to make a fully informed decision to close the defined benefit program and adopt the defined contribution plan the Senate preferred.

a) That is, the lower normal cost of the hybrid plan is a calculated percentage, based on certain assumptions, including a 7% investment rate of return. We want to see some sensitivity analysis of what the cost would be if the actual rate of return were 6%, 5%, 4%, etc. While we will not be able to predict exactly what the future investment return will be, we would know how sensitive the calculated cost of the hybrid plan is to different investment rates.
Any defined benefit plan, including the hybrid plan, contains the risk that the assumptions used by the actuaries in calculating the “normal cost” are overly optimistic. If the cost of the hybrid plan assuming a 6% investment rate of return is greater than the 6.2% cost likely under a defined contribution plan, we might well decide that adopting the defined contribution plan makes sense. If such a small variance from the actuaries’ assumptions makes such large difference in actual cost, the risk is high that the hybrid plan might end up more expensive than the defined contribution plan that does not rely on assumptions. It might make sense to eliminate that risk altogether and adopt the defined contribution plan. On the other hand, if the cost of the hybrid plan is still cheaper with a 2% investment rate of return, sticking with the hybrid plan would most likely be less costly in the long run.

b) Further, the proponents of the defined contribution program claimed that the state was not required to actually fund the program according to the amounts calculated and reported in the financial statements as required by GASB. We don’t know how the bond rating agencies would react to the state failing to fund the ARC. The study is intended to allow time for our bonding professionals to contact the key bonding agencies and attempt to determine what their reaction might be if that were to occur.

With the results of the study this fall, it may turn out that the risk is low that the defined benefit plan will be more costly and that the bonding agencies will not adversely rate our state’s bonds if we were to close out the defined benefit plan but not fully fund the ARC. If so, then it may make sense to take this step, in addition to the pre-funding of the health care benefits as planned in the H-3 substitute Senate Bill 1040 as passed by the House of Representatives.

If not, we will have made significant progress to bringing the costs of the MPSERS program under control, capped the contribution rate employers would pay, reduced the unfunded liability an estimated $15.6 billion, taken a stride toward taking care of the “stranded cost” problem, and all while being reasonable with our valued public school employees and retirees.

This is a case where solid information and analysis trumped the ideological arguments made by the Mackinac Center when the House approved its version of SB 1040.

“Best Practices Conference on Road and Bridge Maintenance” on Thursday, August 16

2012’s “Best Practices Conference on Road and Bridge Maintenance” will be held on Thursday, August 16 in Lansing at the Michigan Municipal League at 208 North Capitol Avenue #1, Lansing, MI), from 9:00 a.m. to 4:00 p.m.  Rep. Roy Schmidt (Grand Rapids) and I are again organizing the event, joined this year by Rep. Doug Geiss (Taylor).

The goal is to enable attendees to leave with concrete ideas they can use in their home road agencies, and to stretch their imaginations for how to do things better, faster and cheaper, as well as to demonstrate the things road agencies are doing to get value for money spent on road projects.

Tentative items on the agenda include:

• Cold In Place Recycling of asphalt as an example of how to maximize customer/driver and local business satisfaction by getting projects done with the minimum of traffic interference.
• “Safety Edge” for asphalt projects to make roads safer.
• Bridge in a Backpack, using carbon fiber tubes filled onsite with concrete to build bridges much more quickly.
• Transportation Funding Findings to Date and Conclusions Reached
• Status of Transportation Funding Bills Introduced
• Winner: Dumbest regulation or engineering specification that increases the cost of road or bridge maintenance or construction
• Winter maintenance: APWA Excellence in Snow and Ice Control Award
• Working lunch (sponsored by CRAM, MITA and MML)
• Best Practices from other states and how these can be/are being transferred to Michigan
• A review of the MDOT Life-Cycle Cost Analysis process and what that does for efficiency and effectiveness in getting value for money.
• Pavement Demonstration Program successes and things learned.
• Panel discussion on Best Practices Ideas at the local Road Commission level for pavement preservation.

This looks to be an even more exciting agenda than we were able to put together last year.

Note, as the tentative agenda says, we will be announcing the winner of “the dumbest regulation or engineering specification that increases the cost of road or bridge maintenance or construction”. Please brainstorm to make a submission, describing (1) the regulation or specification, (2) the source of the regulation or specification, (3) why it is dumb, (4) the suggested cure for the problem and (5) at least a SWAG estimate of what the savings might be if the cure was adopted. I am not sure yet how we will judge the “contest”, but we will figure that out in time and hopefully have a bit of fun with this as well.

The 2011 conference received high marks from the attendees, so I hope you can make it. There is no cost, so as I recall from my days growing up in the U.P., “anything free is worth savin’ up fer”. Spread the word as well.

For lunch planning and handout material purposes, please RSVP by responding to this e-mail message or call my office at 517-373-1792.

Rick Olson, State Representative, 55th Legislative District
989 Anderson House Office Bldg.
517-373-1792, 734-646-5286 cell
rickolson@house.mi.gov
http://repolson.com