CRC Memorandum

Proposal 02-01

The Michigan Constitution defines the way compensation for most top elected officials is determined. Proposal 02-01 would amend the Constitution (Article IV, Section 12) and change that process in several ways. The State Officers Compensation Commission (SOCC), whose duties are defined in the current constitutional language, would be retained, but the Michigan Legislature would have to act affirmatively in order for salaries and expense allowances to change.

Background

The people of Michigan have maintained influence or control over state officers' salaries in a variety of ways since Michigan's first Constitution. From the Constitution of 1835 to the Constitution of 1963 and a subsequent amendment, many changes occurred in the officials covered and the amounts of compensation and manner in which compensation changes were made.

The current language replaced Article IV, Section 12 in the 1963 Michigan Constitution as originally approved. Under that language, salary and expense determinations were made by law. The legislature passed salaries and expense allowances subject to the governor's review and approval or veto.

The Current SOCC Process. Proposal 2 of 1968 amended Article IV, Section 12 of the Michigan Constitution. It created the SOCC to determine compensation and expenses for members of the legislature, the governor and lieutenant governor, and Justices of the Supreme Court. SOCC determinations take effect unless rejected by a two-thirds vote of both houses of the legislature.

The determination of compensation for the affected officials has operated under the 1968 language for more than three decades, but not without controversy from time to time. The 1968 amendment was apparently aimed at eliminating the conflict of interest associated with legislators determining their own compensation.

Practices in Other States. More than 20 states use compensation commissions to evaluate legislative salary levels. Roughly half play purely an advisory role and legislators actually determine their pay. Six states including Michigan have commissions making advisory determinations that take effect unless the legislature rejects them. Five states have commissions with complete control over legislative compensation.1

History of SOCC Determinations. Section 12 requires 2/3 of the members elected to and serving in each house to disapprove a SOCC determination in order for it not to take effect. This has happened once in the 34-year history of the process. Both houses, largely in reaction to the State's fiscal difficulties, rejected the SOCC determinations for 1991 and 1992. In every year following a SOCC determination, at least one concurrent resolution disapproving the SOCC action, usually for all affected state officers, has been introduced. In only five of those years have resolutions reached the floor of the house originating the resolution. In 2001 the House of Representatives voted to reject the determinations and the Senate did not vote. In the other four cases they were defeated in the house originating the resolution.

Examining the salary histories of the affected state officers is instructive in understanding how the process has worked over its 34 years of existence. In order to summarize the history of SOCC salary determinations, the annual percentage rate of increase in salaries was computed for 1968 through 2002. For comparative purposes, several broad measures were compiled for the same time period. These computations are displayed in Table 1.

Comparing the SOCC outcomes with general economic indicators yields some interesting findings:

• None of the SOCC-determined salaries has grown as fast as per capita personal income, generally the most widely used measure of the economic well being of a state.
• The annual increases for the governor have lagged behind the rate of inflation for the period.
• None of the SOCC categories has increased as fast as hourly wages in manufacturing and transportation equipment.

Comparing the SOCC outcomes with other data on state government salaries shows:

• Only the legislature exceeded the general pay raises for classified state employees.
• The salaries of the attorney general and secretary of state grew more slowly than the SOCC-covered officials and all of the other indicators.

The data included in this analysis support the conclusion the SOCC-determined salaries have not exceeded general measures of compensation gains in Michigan.

The Genesis of Proposal 02-01. Since 1968, the announcement of pay raise recommendations by the SOCC has encountered occasional public outcry when the size of the increases exceeded the public perception of what a reasonable and fair increase would be at that point in time. The increases cover the next two years and are usually described as making up for past gaps in appropriate compensation levels and/or to allow for cost of living increases. Therefore, the increases often seem large in the context of the general public's perception of annual rates of inflation or publicized annual compensation increases awarded to large groups of employees, such as members of large union bargaining units.

The most recent example of public objection to a SOCC action occurred when the commission issued its determination for 2001 and 2002. This event occurred in December 2000 and many view Proposal 02-01as a result. That SOCC determination called for the increases summarized in Table 2.

Largely in reaction to public objection to the size of their salary increase, the legislature, by joint resolution, approved placing Proposal 02-01 on the August 2002 statewide ballot. Both chambers approved the language without a dissenting vote.

Description of Proposed Changes

Table 3 compares the current and proposed processes. If the proposal is approved, it becomes effective September 20, 2002, and the following changes will occur:

• The attorney general and secretary of state will be added to the SOCC determination process.
• The legislature by majority vote will have to approve the SOCC determinations in order for the increases to occur.
• The legislature may amend SOCC determinations by proportionate reductions, but without reducing salaries or expenses below the pre-SOCC determination level.
• The SOCC determinations or amended determinations, if approved, are effective for the legislative session after the next general election. Therefore, no legislature would be voting to determine its pay increase or the increase for other state officers serving at the time of legislative action.
• The legislature may establish by law qualifications for members of SOCC.

Potential Problems with the Proposal

Defining "Determination". The definition of "determination" is open to possible interpretation and could affect the action the legislature could take to "reduce the salary and expense determinations by the same proportion". Two alternative definitions might be chosen by the legislature:

• The determinations are the new recommended salaries and expense allowances
• The determinations are the recommended increases in the existing salaries and expense allowances

The definition of determination would presumably be included in statutory language implementing the proposal. Current statute (Act 357 of 1968) defines determination as the salaries and expense allowances rather than the recommended increases. If the definition of determination is the new recommended salaries and expense allowances and the SOCC determination produces different percent changes in salaries or expenses for the various officials, the reduction by the same proportion produces a different final result than by applying the same proportion to the increase.

The mechanism to reduce a determination does not permit the legislature to discriminate among the officers, so an effort to reduce one determination would not be permitted. Since the 2000 SOCC determination for legislators generated most of the public outcry, it is ironic that the proposal would not allow the legislature to target reductions on one official or group of officials as out of line with others.

Timing Issues. Approval of the proposal would present some timing issues potentially requiring speedy legislative action. Current law (Act 357 of 1968, as amended) requires, in Section 6, that the SOCC file its determination after December 1 and before December 31 of each even-numbered year. The proposal makes a determination that has been approved by the legislature effective for the legislative session following the next general election. This means if a pay increase is to occur for the affected officers in January 2003 or January 2004 the following will need to happen:

Public Act 357 of 1968 would have to be amended to move the filing date for SOCC determinations to a date considerably before the general election of November 5, 2002.

• The SOCC will have to meet, make a determination, and file that determination in time for the legislature to:
• Approve or reduce the SOCC determination before the general election.

These events imply that current legislators running for office for the next legislative term would be faced with approving a raise that might directly benefit them, just before the election. If the timing of SOCC filing is left unchanged, the earliest time at which increases could take effect is after the general election of 2004 (in January 2005).

The Proposed Changes-Pros and Cons

Arguments for the Proposal

• An affirmative vote by the legislature would be required for an increase to take effect in contrast to the current process that permits the legislature to ignore the issue of state officer pay. By the legislature having a direct responsibility in the pay determination process, the public can oversee the action and express its opinion.
• Since reductions in the determinations are possible, the legislature is not faced with an all or nothing vote.
• Pay and expense allowances could not be reduced below current levels by legislative action. This would protect all officers from extraordinary actions by the legislature.
• Legislation would be permitted to establish qualifications for members of SOCC. This might lead to requirement that members possess expertise in field such as compensation and finance.
• Increases take effect after the next general election so legislators would technically be voting on pay changes for future legislators and other state officers.
• The secretary of state and attorney general are added to the process that already determines pay for the governor and lieutenant governor.

Arguments against the Proposal

• Requiring an affirmative vote removes the legislature from the political insulation provided by an independent commission
• Requiring a legislative vote makes the compensation of other state officers subject to the same factors that might influence the legislative pay decision, even if the circumstances for the other officers are different.
• If the validity of the independent SOCC process is in doubt, elimination of SOCC and having the legislature set the pay is a more direct approach.
• If the objective and independent SOCC process generates appropriate results, elimination of the legislature from any vote on its pay would preserve an effective process and eliminate the legislature's (potential) role in its compensation.
• The current process has not produced compensation levels for affected officials that are out of line with economic indicators.