IN THE NEWS

New CRC Report Shows how K-12 Funding has been Limited by Growing Retirement Liabilities

May 22, 2013,Michigan public schools have seen fewer dollars remain available for classroom education in recent years as more of their revenues have been needed to meet unfunded retirement system liabilities, according to Funding for Public Education: The Recent Impact of Increased MPSERS Contributions a new report from the Citizens Research Council of Michigan.

Public school contributions to the Michigan Public School Employee Retirement System (MPSERS) have increased dramatically over the last decade. MPSERS provides for retirement benefits for public school teachers and staff as well as the staffs of community colleges and certain universities and public libraries. The contribution rate for public schools increased from 13.0 percent of payroll in FY2004 to 24.5 percent of payroll in FY2012. The primary cause has been sluggish growth in value of pension fund assets, an issue that came to a head with the severe financial market declines in 2008 and 2009. What followed was a significant increase in unfunded liabilities within the system, which fueled the increase in employer contributions to make up for the shortfall.

These new retirement costs have taken up a growing share of overall school revenues, leaving less for other educational purposes. Measured on a per-pupil basis, districts' contributions to the retirement system increased from 8.7 percent of per-pupil revenues in FY2004 to almost 14.8 percent of those revenues in FY2012 when public school employers contributed over $2.0 billion to cover their MPSERS obligations. The report shows that per-pupil revenues available to all public school districts in FY2012, after netting out the revenues needed to meet MPSERS contributions, declined by 8.8 percent from FY2004 levels after adjusting for inflation. For traditional K-12 school districts, the situation was even worse with inflation-adjusted per-pupil revenues after accounting for MPSERS costs falling by 13.1 percent from FY2004.

"Traditional public school districts are required to participate in MPSERS, and they really have no control over their contribution levels," said Bob Schneider, CRC's Director of State Affairs. "From their perspective, a big increase in the MPSERS contribution is effectively the same as getting a decrease in their foundation allowance or other state aid. It means something else has to go to make the budget balance. In effect, the MPSERS costs end up crowding out other spending."

The report notes that while funding from the state has increased in recent years, most of the increase has been related to meeting these growing retirement costs and to restoring funds that had been offset by temporary federal stimulus funding.

"During his budget presentation, the Governor noted that per-pupil state appropriations for K-12 schools would increase by $735 per pupil under his FY2014 proposal from the level in FY2010," said Schneider. "That's absolutely correct, but the FY2010 budget also included $282 per pupil in temporary federal stimulus that's now gone. And about $364 per pupil of the FY2014 state funding is directly tied meeting the increases in MPSERS costs. That eats up much of the increase. What's left over to meet other K-12 operations is pretty limited and isn't keeping pace with inflation."

The report notes that recent legislative changes aimed at reforming MPSERS should help contain and eventually reduce future public school contribution costs. But, in the near term, the crowding out effects of increased MPSERS contributions will remain an issue for public schools.

CRC's report is available at no cost HERE.

IN THE NEWS

CRC Report Highlights Health Care Cost Drivers and Policy Solutions

May 21, 2013, In light of constantly increasing health care costs, policymakers at the state and federal levels are seeking policy options to reduce the burden for families, businesses, and governments. In 2009, Michigan families, businesses, and governments spent $65.9 billion on personal health care services and products, which is more than $6,600 per Michigan resident.

Perhaps even more alarming than the level of health care spending, is the growth rate. While health care spending growth in Michigan is below the national average, it is still higher than the rate of inflation and increasingly growing in its share of the economy. On average, households spend 6.2 percent of their adjusted personal income on health care costs. Businesses spend the equivalent of 10.2 percent of wages and salaries on health care costs. In 2003, health insurance premiums paid by individuals and their employers in Michigan represented 14.6 percent of household income, and by 2011, this figure had risen to 20.0 percent. At the same time that insurance premium prices are rising, employees are covering a larger portion of their health care costs through increased deductibles and other out of pocket expenses. High health care costs are a significant financial risk to the uninsured and even to some covered by health insurance.

CRC's new report, Health Care Costs in Michigan: Drivers and Policy Options outlines the problem with the current level and growth rate of health care spending. The report synthesizes the research on 17 potential cost drivers, and discusses over 20 state policy reform options that may lower the level of spending or cost growth going forward.

"It's not just that health care spending is growing over time, but that it is growing at rate faster than the rest of the economy, and it is not clear that improvements in health outcomes are commensurate with this increase in spending" said Nicole Bradshaw, a Research Associate with CRC.

Major topics covered in the new CRC report include:

• An overview of the state of health care spending nationally and in Michigan and how it has changed for families, businesses, and governments since 1990.
• Analyses of various health care cost drivers and how they may be adding to Michigan's health spending. These drivers include high prices, opacity of prices, provider payment systems, competition among providers, medical malpractice, and no-fault auto insurance.
• State-level policy reform options for each health care cost driver.
• Pertinent information about how the federal Affordable Care Act may play a role in certain health care cost drivers.

A variety of factors are contributing to the high levels and growth rate of spending. The health care market does not operate like other markets and there are perverse incentives that encourage spending factors such as overuse by patients and providers.

"Policy intervention has the potential to reduce health care spending. Families and businesses may be able to use the savings generated toward more productive ventures," said Bradshaw. "Many of the policy reforms, if implemented thoughtfully, will have little to no impact on the quality of health care, and may even improve quality in addition to providing a greater value for service."

The full report is available HERE.

IN THE NEWS

Moving Michigan Farther, Faster: Personalized Learning and the Transformation of Learning in Michigan

April 25, 2013, Michigan Virtual University (MVU), a private nonprofit Michigan corporation established by the State of Michigan to serve as a champion for online learning, recently commissioned Public Sector Consultants (PSC) and the Citizens Research Council of Michigan (CRC) to answer two questions:

• What is the future of education in Michigan?
• What role does/could technology play in that future?

To answer these questions, PSC and CRC interviewed more than 30 state and national education leaders. In addition, the research team conducted an extensive literature scan including policy briefs and academic literature. The results of this research were recently published in the report Moving Michigan Farther, Faster: Personalized Learning and the Transformation of Learning in Michigan. This report contains a description of personalized learning and includes policy recommendations relating to students, teachers, schools, technology, data, and quality and accountability.

The full report is available at no cost HERE.

IN THE NEWS

CRC Report Details the City of Detroit's Revenues

April 1, 2013, The Citizens Research Council of Michigan has released a report analyzing the tax and other revenues available to the City of Detroit for financing city services. The report provides context for Detroit's revenues by examining how major revenue streams have changed over time, as well as how the revenues available to city government compare with the revenues available to other large cities in Michigan.

"We found that total revenues have declined sharply over the last ten years falling by over $400 million (22 percent) from FY 2002 to FY 2012," said Bettie Buss, CRC Senior Research Associate. "At the same time, we found that Detroit revenues are far higher on a per capita basis than any other large city in Michigan."

It is clear that the City of Detroit faces profound fiscal problems resulting from population loss, legacy costs, and the decline of its economic base. However, when seeking a resolution to Detroit's fiscal problems, it is important to consider that Detroit generates significantly more revenue on a per capita basis than other large cities in Michigan, and that Detroit's tax rates are high compared to other Michigan cities and other cities across the U.S. While some actions, such as improving the rate of collection of income and property taxes, may enhance Detroit's revenues, the ability to address Detroit's fiscal problems through additional tax revenues will be extremely limited.

This version of the paper was revised on April 8, 2013. The original version had a problem with Chart 12 on page 17.

The full report is available HERE.

IN THE NEWS

CRC Looks at Issues Created by Capture of Taxes

January 31, 2013, The Detroit Free Press ran a series of articles last week that documented Wayne County communities diverting for their own economic development purposes taxes were levied to support the Detroit Zoo. Other governmental entities have asked the state Attorney General or the courts for clarification of issues similar to those raised by the zoo officials. Now the Citizens Research Council of Michigan has released a brief paper that asks: Can Dedicated Millages and Tax Increment Financing Coexist in Michigan?

Since 1975, Michigan law has authorized cities, villages, and townships to establish special authorities with the ability to "capture" taxes levied within a confined geographic district to be funneled back into that district as an economic development tool. These authorities include Downtown Development Authorities, Tax Increment Financing Authorities, Local Development Financing Authorities, Brownfield Redevelopment Authorities, Historic Neighborhood Tax Increment Financing Authorities, Corridor Improvement Authorities, and Water Resource Improvement Tax Increment Finance Authorities.

Tax increment financing takes tax revenues from where they were intended when they received voter approval and diverts them for economic development purposes. This practice has caused the governments from whom the revenues are being captured to levy taxes at artificially higher levels to yield sufficient revenues for their own purposes. It also creates a shadow government structure wherein resources are directed for economic development purposes without being subjected to the budgetary scrutiny that other resources and expenditures are put through.

"The ability of these authorities to capture the taxes levied by overlapping jurisdictions was tolerated during periods of economic growth and stable growth in the tax bases," said Eric Lupher, CRC's Director of Local Affairs. "The contractions of the tax base caused by the housing bubble burst and the scarcity of tax resources seems to have lessened the tolerance of officials in those jurisdictions."

The full report is available at no cost HERE.

IN THE NEWS

New CRC Report Looks to Improve the Process for Village Disincorporations

October 5, 2012, For parts of 2011 and 2012, CRC worked with the residents of Onekama, a village and township in Manistee County on the shores of Lake Michigan, to investigate the possibility of disincorporating the village government. As the first community to use disincorporation provisions in the General Law Village Act that create a commission to investigate the changes that would result from merging with the township, Onekama discovered the benefits of this process and several weaknesses in the law's provisions.

Although the Onekama voters voted not to merge their two governments by disincorporating the village, their experiences can be valuable for communities contemplating use of these provisions in the future. A new CRC Report, Lessons from the Proposed Merger of Onekama Village with Onekama Township, chronicles the experiences of the merger efforts and suggests several amendments to the General Law Village Act that could address the perceived weaknesses or simply improve the process.

The full report is available at no cost HERE.