LANSING – Public school employees are on the verge of refunds that could total thousands of dollars unless Governor Rick Snyder appeals the Court of Appeals decision Friday finding that a 2010 law mandating them to contribute 3 percent of their pay toward retiree health care coverage violated the U.S. and Michigan constitutions.
Snyder has 42 days to decide whether to appeal to the Supreme Court. If he does not, then some 227,000 public school employees will receive refunds of the contributions they have made out of an escrow account that currently stands at $508.1 million.
Leaders of the teachers unions that challenged the law, which was signed by then-Governor Jennifer Granholm, urged Mr. Snyder not to appeal. Kurt Weiss, spokesperson for the Department of Technology, Management and Budget, said in a statement that no decision has been made, but alluded to the 2-1 vote in which Judge Henry Saad dissented from the majority’s finding of widespread unconstitutionality.
“Judge Saad wrote a compelling dissenting opinion, concluding that the 2010 statute did not violate either the Michigan or federal constitutions,” Weiss said. “The state will review both the majority and dissenting opinions with the attorney general to explore any necessary legal action.”
Under the 2010 law, those 3 percent contributions were to go to a health care trust to help pay for current retiree health care costs. During the litigation, the funds have instead gone into escrow. The case had been pending before the Court of Appeals for more than a year after the court in May 2011 agreed to hear it on an expedited basis.
Judge Douglas Shapiro wrote the majority published opinion in AFT Michigan et al v. State of Michigan (COA Docket No. 303702) that found three problems with the law. It violated state and federal constitutional prohibitions on impairing contracts and unlawful takings, as well as violating due process rights.
“The contracts provide for a particular level amount of wages and the statute requires that the employers not pay the contracted-for wages, but instead pay 3 percent less than the contracts provide,” Shapiro wrote in an opinion signed by Judge Jane Beckering. “We note that this is not a broad economic or social regulation that impinges on certain contractual obligations by happenstance or as a collateral matter. Rather, the statute directly and purposefully requires that certain employers not pay contracted-for wages. Such an action is unquestionably an impairment of contract by the state.”
The court also noted that the 3 percent contribution does not go toward each employee’s own future retirement benefits, but toward those of current retirees.
But Saad said the law, in fact, is constitutional.
“Here, because the challenged public policy does not even touch upon, much less impair contracts and no property is taken by the state in the sense contemplated by the Fifth Amendment and because substantive due process is not a catch-all for failed constitutional claims, it would have been prudent and in keeping with our Court’s limited charge under the Constitution to uphold this legislation as constitutional because – it is,” he wrote in his dissent.
Regardless of whether the administration appeals, how that 3 percent is allocated will soon change. But under SB 1040 , passed Wednesday by the Legislature and set to be signed by Mr. Snyder, those 3 percent contributions would be redirected toward prefunding the unfunded liability in the Michigan Public School Employees Retirement System.
Arthur Przybylowicz, general counsel for the Michigan Education Association, said he and others are analyzing “very carefully” whether to challenge the revised plan for the 3 percent contributions.
Przbylowicz said the sweeping findings by the Court of Appeals, coming after the Ingham Circuit Court also found the law unconstitutional, should hopefully lead to the Snyder administration not appealing.
“We take comfort in the fact that there were three independent bases for the court of Appeals to find that the law was unconstitutional,” he said. “Hopefully, that will cause the state to take a long hard look at what they did.”
Said David Hecker, president of AFT-Michigan, in a statement: “Once again, the courts have found the Legislature’s attacks on working families. Charging people for retiree healthcare while refusing to guarantee it is clearly unfair and unjust. We call on the governor and attorney general to accept the court’s ruling and pay educators back all the money that has been withheld from their paychecks immediately.”
Shapiro and Beckering were both appointed to the court by then-Governor Jennifer Granholm. Mr. Saad was appointed to the court by former Governor John Engler.
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