School districts have also faced budget challenges from the cost of school employee pensions, which include a post-retirement health benefit. These pensions, along with those of the employees of charter schools, state colleges and state universities, are financed through the Michigan Public School Employees Retirement System, a state program.

School districts are required to make annual payments into MPSERS to cover the cost of their retired employees pension and health care benefits. In fiscal 2000, this payment was 11.66 percent of a district’s total payroll. That percentage, however, climbed to 17.74 percent of payroll in fiscal 2007.[84] The nonpartisan Michigan Senate Fiscal Agency estimated that districts will need to pay about $1,040 per student into the MPSERS system in fiscal 2007 to cover their pension and health care liabilities.[85] The nonprofit Citizens Research Council of Michigan has projected that school districts’ MPSERS payments could reach 32 percent of payroll by 2020.[86]

The increase in retiree pension and health care liabilities has increased school districts’ incentives to reduce other costs, particularly in districts where operating revenues have been declining, stagnant or growing slowly.