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Michigan legislators declared victory last week by passing a state employee early retirement package that also included a temporary increase in the amount that remaining staffers will kick in for their own retirement health benefits. While this takes any talk of tax hikes off the table for now, the package once again shows that too many legislators care more about the welfare of state employees than they do about state taxpayers.
Given Michigan's decade-long economic malaise, it's shocking that some politicians still want to raise taxes. Since 2002, this state has endured two substantive tobacco tax hikes, a major income tax increase and a business tax increase. This is in addition to a sneaky property tax hike, fee hikes and other gimmicks.
Meanwhile, during that same period state employees have been given 10 across-the-board pay hikes, plus regularly scheduled individual employee "longevity" increases and "step" increases. The cost to taxpayers of their health benefits has also risen throughout the decade. And yet another 3 percent government across-the-board hike that went into effect Oct. 1.
The new retirement bills dip into that benefit, however, since they require 3 percent of a worker's pay be contributed to cover retiree health care. These contributions lessen taxpayer obligations to pay for state worker retirement benefits, but they illustrate the problem: the provisions that benefit taxpayers are temporary, but the increase in compensation is permanent.
All told, an employee for the state receives an average compensation package, benefits included, that costs taxpayers $93,039.
On the plus side, the package passed last week also reduces the future retirement health benefits for newly hired state employees, but even this highlights the current coddling: no legal prohibition prevents lowering these costs for current retirees.
When the state raises income and business taxes, in contrast, it doesn't do so in ways that hold harmless current businesses and current levels of income — everyone has to pay the bill.
State employees generally receive compensation packages more generous than those available in the private sector, much of which is because of retirement benefits. Legislators missed an opportunity to bring these in line with the private sector. Doing so would show that they are interested in benefiting the state more than the state employees.
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James Hohman is a fiscal policy analyst at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
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