State workers are bracing for changes that could affect their work practices and their bottom line when Gov. Rick Snyder delivers his first annual State of the State address on Wednesday.
The state faces a shortfall of up to $1.8 billion in the budget that starts Oct. 1, and Snyder has made it clear state workers will share in the sacrifices needed to balance the books. He hasn’t given any specifics so far, but the former accountant and Gateway computer executive is certain to suggest some practices from the private sector.
He’s likely to call for doubling workers’ share of health care premiums to 20 percent. Either in Wednesday’s speech or next month’s budget presentation, he also could float ideas such as dumping across-the-board raises in favor of pay hikes based on performance reviews, requiring workers to stay on the job until they’re older or eliminating longevity bonuses.
“We’ve heard that we’re going to be asked to make some pretty serious concessions,” said Ray Holman, spokesman for United Auto Workers Local 6000, which represents 17,000 state workers. “We’re going to be watching the State of the State very closely.”
Snyder’s Wednesday address will be the first time the governor translates his general pledges about public employee costs into specifics. He can’t just impose new ways of doing business on unionized state employees. But he has hired a tough negotiator as the new state employer, and Jan Winters could try to get many of Snyder’s ideas into the next round of contract talks that start later this year.
The governor isn’t interested in adjusting compensation only for state workers. Teachers, university professors and local government workers all eventually could see changes resulting from his policies.
Snyder and GOP House and Senate leaders say the state can’t afford to spend as much on personnel as it does now.
“I’ve been clear: There’s going to be pain,” Senate Majority Leader Randy Richardville, R-Monroe, said Jan. 6 during a taping of Michigan public television’s “Off the Record” program. “There are going to be difficult decisions. And for all of us to come through in the long run, all of us are going to have to sacrifice in the short run.”
One way to start lowering costs is to pass a law banning any public employer from paying more than 80 percent of workers’ health care costs, affecting not only state employees but teachers and local government workers. It wouldn’t affect individual contracts until they’re up for renegotiation, but it’s something Republicans who control the House and Senate are likely to consider this year.
The federal Bureau of Labor Statistics reported last March that workers in private industry on average paid 20 percent of their health care premium for single coverage and 30 percent for family coverage. Among state and local government workers nationally, those with single coverage paid 11 percent of the premium and those with family coverage paid 27 percent.
The Mackinac Center, a free-market think tank based in Midland, would like to see far more drastic changes, such as moving all public employees to health savings accounts.
Under one scenario for state workers, the state would pay 100 percent of their health care premiums but require higher deductibles – $3,000 to $5,000 a year per family, in some cases – with the state reimbursing workers for half or three-quarters of that expense. Workers could set up health savings accounts to set aside money for their share of expenses tax-free.
The center’s James Porterfield estimates the move could save $106 million in the first year and nearly $6 billion over the coming decade. Seventy percent of Indiana state workers already are in such plans.
Holman notes that state workers in Michigan have given $750 million in concessions since 2003 through unpaid furlough days, higher health care premiums and other cost-saving moves. They’ve increased their share of premiums to 10 percent, with workers hired since last April paying 20 percent. Deductibles and co-pays have risen for all state workers, who also are paying 3 percent toward their retiree health care costs, although that’s being challenged in court.
“I don’t think the public realizes we have changed our health care already,” Holman said. “I don’t think people realize the majority of us have 401(k)s.”
Unlike most states, which still offer all employees a defined benefit retirement plan, Michigan switched to a defined contribution plan for new hires in early 1997. The state still has around 21,000 active workers eligible for a defined benefit pension and more than 55,000 retirees already receiving one, but many current state workers – more than 29,000 – are enrolled in the 401(k) defined contribution plan, according to state figures.
Michigan’s constitution protects pension benefits from being changed retroactively.
Pay and health care benefits aren’t similarly protected, which is why Snyder is likely to start there as he tries to reduce personnel costs, which last year came to $4.8 billion – about 10 percent of the total state budget. The Senate Fiscal Agency reports that the state is spending 38 percent more on personnel costs than it did in fiscal 2000, even with fewer employees. Most of the increase came from higher costs for retirement and health care benefits rather than higher pay.
The state could try to reduce its costs by cutting employees, although state employment already is down 15 percent from fiscal 2000 to around 49,900. The state this year should have 10,000 fewer employees than it did then, even after it replaces some of the workers who left last year under a sweetened retirement deal.
Roger Martin, who represents the group Citizens for Accountability in Reform that includes state and local public employees, said claims that state workers are doing better than their peers in the private sector are refuted by studies done by the nonpartisan House Fiscal Agency, Michigan State University economics professor Charles Ballard and the Center for State & Local Government Excellence at the University of Wisconsin.
While he concedes the deficit may require cutting state worker compensation, Martin wants it the discussion to center on facts, not incorrect perceptions.
“Over the past decade in Michigan, public and private workers have shared alike in the pain,” he said. “To claim otherwise is to demonize 1.5 million public workers and retirees.”

(Copyright 2011 by The Associated Press.  All Rights Reserved.)