Michigan House passes bill to divert excess teacher retirement funds into K-12 budget

Rep. Matt Koleszar (D-Plymouth) discusses his legislation, HB 5803, that would reduce school district contributions toward teacher retirement and use the excess money to supplement classroom needs. June 25, 2024. Photo by Jon King.

The Michigan House on Tuesday passed a key piece of legislation toward finalizing a budget for the upcoming fiscal year, which begins Oct. 1.

After nearly six hours of behind door caucusing, House Democrats emerged onto the floor and quickly passed along party lines House Bill 5803, sponsored by state Rep. Matt Koleszar (D-Plymouth). The bill reduces school district contributions toward teacher retirement and uses excess money from the fund to supplement classroom needs. It is a companion bill to SB 911, sponsored by state Sen. Kevin Hertel (D-St. Clair Shores), which passed the Senate last week.

The bills would eliminate the 3% tax some public school teachers pay into a health care fund for retirement, and is supported by educational organizations like the Michigan Education Association (MEA), the Michigan Association of School Board (MASB) and the Michigan Association of Superintendents and Administrators (MASA), which has lobbied the Legislature to pass the bill.

Koleszar, a former public school teacher, said the bill represented a win-win for teachers and students.

“When I first came to Lansing nearly six years ago, my number one goal was, and remains, to do everything in my power to ensure that our schools would have every resource they need in order for Michigan students to be successful,” he said on the floor. “This is why, as the only teacher that is speaking to this bill, I am in strong support of my bill, House Bill 5803, which would take us a great deal closer to that goal by putting hundreds of millions of dollars directly and annually into classrooms across Michigan without raising taxes and still ensuring our pension liabilities are paid off by the original 2038 date that we have all known about in this chamber for years.”

However, Republicans in both chambers have characterized the diversion of funds as a “raid” on the teacher’s retirement fund that endangers its future sustainability by separating the pension and health care liabilities in the Michigan Public School Employees’ Retirement System (MPSERS).

Last week, Senate Minority Leader Aric Nesbitt (R-Porter Twp.) called the legislation “last-minute maneuvering … without public hearings or proper scrutiny is sadly only par for the course for this new Democrat majority in the Senate. 

“This ill-advised raid on Michigan’s teacher retirement fund is not worth the cost of our children’s education. Unfortunately, we have seen the results of this kind of financial irresponsibility before — the hardworking people of Michigan simply cannot afford to return to the Lost Decade policies of the [former Gov. Jennifer] Granholm administration, racking up debt and sticking future generations with the bill,” Nesbitt said in a statement.

Speaking with reporters afterward, Koleszar said the bill is not raiding anything as it keeps the money being saved in the classrooms, where it is needed most.

“Since schools were overpaying into OPEB (Other Post-Employment Benefits), it takes that money and puts it directly back into the classroom,” he said. “It also makes it so any public school employer that is paying the 3% no longer has to pay the 3%. The schools absorb that cost, but they also get a big increase in the money that they’ll see because of the rate reduction.”

He added that the payoff date for the MPSERS liabilities remains in 2038, where it had always been scheduled. 

“We were faced with a decision here in the Legislature,” said Koleszar. “We could not return that money to schools and maybe help kids in 12 years, or we could return that money to the schools now, help kids in 12 years, but also help kids now.”

Rep. Ann Bollin (R-Brighton) countered that the change in MPSERS funding is being incorporated into the next fiscal year budget, although they have yet to see the specific details other than what was passed out of committee several weeks ago.

“I’ve sat through, as a member of the Appropriations Committee, a lot of the hearings, and I don’t see a whole lot of cuts going on. I see a lot of increases. I mean, at some point, where does the money come from?” she asked. “First, I think we need to meet our constitutional requirements, our statuatories, and then our priorities. And to me, this is an obligation to meet those pensions and secure those retirements for our teachers who work hard every single day fighting for our kids to make sure they have a future. And to potentially jeopardize their retirement is not fair.”

The idea to divert the funds began when Gov. Gretchen Whitmer rolled out her $80.7 billion budget blueprint in February, proposing to use $670 million her administration said had been freed up by the early payoff of certain MPSERS liabilities.

While both the House and the Senate have passed their own versions of the budget, lawmakers continue to negotiate with Whitmer for a final plan with broad targets announced last week. 

Working out the details, including both the House and Senate versions of the MPSERS legislation, still remains, with votes expected to begin Wednesday on two omnibus bills, one for the K-12 budget and then another for the remainder of the state’s departments and agencies. 

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