Michigan's Mechanism for Funding Retiree Health Care Ruled Unconstitutional
By Kathleen Gray and Paul Egan
Michigan school employees got an early Christmas present Wednesday from the Michigan Supreme Court, which ruled that the state has to refund $554 million that was taken from them during the height of the last recession.
The Supreme Court upheld a state Court of Appeals ruling that said the 3% taken from school employees' pay checks to help fund retiree health care from mid-2010 to the start of 2013 was unconstitutional. The pay was taken during the administration of former Gov. Jennifer Granholm to help deal with the state's struggling economy.
As many as about 275,000 current and former school employees could be eligible to share in the money now held in escrow, Department of Technology, Management and Budget spokesman Kurt Weiss said.
The court ruled 6-0 in favor of the school employees.
The 2010 law "substantially impaired the plaintiffs' employment contracts by involuntarily reducing the plaintiffs' wages by 3%, and the state failed to demonstrate that this measure was reasonable and necessary to further a legitimate public purpose," the Supreme Court said in its ruling on Wednesday morning.
The court's newest member, Justice Beth Clement, did not participate in the ruling. The court gave no reason, but Clement had not yet joined the court when it heard oral arguments in early November and teacher unions had asked that Clement be disqualified because she served as legal counsel to Gov. Rick Snyder when he was defending the law.
The court's order means that more than 200,000 current and former teachers and other school employees in the state will get a portion of the $554 million, including nominal interest earned, that was withheld from their pay, although the details and amount per teacher haven't been worked out yet.
Weiss said it wasn't clear Wednesday when checks will go out. But there will be a two-step process to getting the money into the hands of current and former school employees, he said.
"The contributions will be returned to the school districts where the contributions were withheld," he said. "The school districts will then, in turn, issue the refund to members through the school districts."
Michigan Education Association President Paula Herbart said she "cannot imagine a better pre-holiday gift to Michigan's school employees than getting their hard-earned money returned to them."
Herbart described the ruling as a "culmination of years of work by both AFT Michigan and MEA on behalf of our members" that "reinforces why being a member of a union matters."
"Working collectively, we won this case that no individual could have fought for themselves," she said.
Snyder, who hired outside attorneys to fight the ruling by the Michigan Court of Appeals after Attorney General Bill Schuette said he was no longer prepared to argue the government's case, said he was pleased that taxpayers now have a resolution.
"The funding has been held in escrow, so Michigan will continue to have a balanced budget," Snyder said in a statement. "We will not need to raise new revenue or remove funding from other priorities to refund the money that was collected for retirement health care."
Schuette, who is seeking the Republican nomination for governor, issued a statement through a spokeswoman that said he "strongly agrees that the Michigan Supreme Court made the right decision."
David Hecker, president of the American Federation of Teachers Michigan, said he hopes the Snyder administration and Schuette will now work to get the money paid in a timely fashion.
"Michigan's school employees have waited eight long years to get their hard-earned money returned to them -- no further delay is necessary," Hecker said.
In 2012, the Republican-controlled Legislature under Gov. Rick Snyder passed a new law that continued the 3% deductions but gave an opt-out provision. The Michigan Supreme Court has upheld that law as constitutional. The state argues the 2012 law cured any constitutional defects the 2010 law might have had.
Attorneys for school employees had argued that not only did the 2010 law give school employees no option, but it was applied to many employees who would never get a chance to benefit from retiree health care.
In continuing to pursue the appeals, despite losing at every court level, Snyder said through a spokeswoman the money was needed to help assure the financial stability of retiree benefits.
"It's so frustrating that the state keeps fighting it," Mary Jo Hardy of Okemos, a former Lansing Community College teacher, said in November at a union-sponsored vigil outside the Michigan Supreme Court Hall of Justice.
"They've already taken enough from the teachers," said Hardy, who estimates she is owed between $2,000 and $3,000.
Sen. David Knezek, D-Dearborn Heights, called the ruling long overdue justice.
"Coming from a family of educators and as a son of a high school lunch lady, I know exactly what this win means for the hard-working teachers and support staff in our schools," he said in a news release. "Their hard-earned money was held hostage for seven years but now it will finally be back in their hands."
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