MARQUETTE - The cost of retirement and health care benefits to Michigan school districts is growing rapidly, with projections showing future financial liabilities that could eventually break the backs of some struggling districts.
And it's a problem that schools, as well as teachers, have little control over.
"It's an issue for our retirees, it's a big issue for our people who are still working and it's an issue for the school districts," said Stu Skauge, UNISERV director for Marquette and Alger counties for the state teacher union Michigan Education Association.
All Michigan public school districts are required to pay into the Michigan Public School Employee Retirement System, a retirement program that has been in existence since 1945, with health care benefits added in 1975.
Up until 1974, the state was fully financially responsible for MPSERS. However, in that year, it passed legislation that would shift up to 9 percent of the financial burden of the program onto public schools.
Since that time, the cost to public schools in Michigan for MPSERS has continued to grow, ballooning into what some call a crisis for school districts across the state.
Since the 2002-2003 school year, the percentage rate has risen fairly steadily from 12.99 percent to today's 24.46 percent. That's a 26 percent cost increase to school districts from last year - in the wake of a new law that provided an incentive for early retirement by allowing employees to retire early and still collect on their retirement and benefits. Next year the rate is projected to rise to 27.37 percent.
"This rate has gradually increased over the years to benefit our employees and their retirement," said Marquette Area Public Schools Superintendent Deb Veiht. "At one time, the state reimbursed us for this. And then the state wasn't reimbursing us, and the rate continued to keep climbing and climbing.
"(In 2012-2013) It's 27 cents on every dollar we have to add onto employee wages that we put into our budget."
To help school districts manage the jump in cost, the state provided a one-time MPSERS cost offset of $155 million for the current year.
Gov. Rick Snyder's proposed 2013 state budget calls for another one-time offset of $179 million, which would cover 2 percent of the districts' 27.37 percent requirement, according to a review of the budget proposal conducted by the nonpartisan Michigan House Fiscal Agency.
And while those cost offsets can help struggling school districts pay for some of that increase, employees have been asked to contribute more into MPSERS in recent years as well, Skauge said.
"School teachers, for a number of years, have paid 3.9 percent toward their retirement," Skauge said. "Now, recently they've added 3 percent to that. They're up to 6.9 percent. And those hired after July 1, 2010 are paying close to 11 percent for their retirement."
Skauge said teachers had been consistently taking lower wages so districts could offer them better retirement and health benefits. However, now that teachers are required to pay more into their retirement and healthcare, their wages will have to increase to cover the extra cost, he said.
With state aid provided through the School Aid Fund - the majority of general fund revenue for school districts statewide - lagging behind the increase in cost of living, it's unclear where the extra money will come from.
The School Aid Fund provides a set amount of money per pupil to each district and has remained stagnant lately, reaching a peak of $7,316 per pupil in the 2008-2009 school year before dropping to the current allowance of $6,846 per pupil. That number is set to stay the same in the governor's proposed 2013 budget.
With declining enrollments countinuing to plague local school districts, the amount of state aid provided to schools in the area plunges even further.
"The answer to the problem is that schools are being underfunded," Skauge said. "They're not putting enough money into education. These are the kinds of problems you come up with, then."
Most of what a school district spends money on is salary and benefits to its employees, so any increase in the cost of MPSERS makes a large impact on bottom lines of school budgets across the state.
MAPS is projecting an increase in expenditures of roughly $500,000 for the 2012-2013 school year, with the majority of that going toward the increased cost of MPSERS.
Gwinn Area Community Schools is planning for what could be a $190,000 increase in MPSERS costs alone.
Michael Haynes, superintendent for NICE Community Schools, which is expecting an increase of $150,000 for MPSERS, said while the current offsets do help, a long-term solution needs to be examined on a governmental level, before the cost of MPSERS grows out of control.
"Financially, that is a huge burden in our district," Haynes said. "Being able to provide an additional, short-term allocation that reduces that impact is going to be critical.
"On our radar for the future is a deep concern relative to the Michigan retirement system," he added. "Those increasing costs aren't going to be able to be offset forever. We're going to have to look statewide at how that system is structured. We're very pleased that there is still money here to offset the cost, but it doesn't create a solution, long-term, until we take into account reform."
Northern Michigan University pays roughly $4.7 million per year to MPSERS, according to Gavin Leach, vice president of Finance and Administration.
"That's our annual cost. Pretty regularly it's been going up by about a $400,000 to $500,000 increase per year, which is almost equivalent to a 0.8 to 1 percent tuition increase on an annual basis, just to put that in a relative perspective," Leach said.
NMU is one of only seven Michigan universities that was state-mandated to participate in MPSERS. Universities established after 1945 were not required to join the program.
Though legislation allowed those seven universities to opt out of MPSERS in 1996 - which NMU did, offering a different benefit plan instead - NMU still employs people who will benefit from the program after they retire and is still required to pay into it today.
NMU is charged for MPSERS in three different ways: The university must pay for current cash benefit for MPSERS pensions, the actual health care costs of NMU retirees in the program and for a percentage on employees that would have been in MPSERS had they been hired before 1996 that goes toward unfunded accrued pension liabilities.
"We're getting hit with a pretty big bill every year," Leach said, adding that the university has been working with legislators in Lansing to hopefully reduce the cost.
"We're hopeful they can come up with something. We've been meeting with the legislature to discuss this. Hopefully something can come about within the next year."
In a recent interview with the Mining Journal just before releasing his 2013 budget proposal, Gov. Rick Snyder said MPSERS was not being ignored by state government.
"The legislature is looking at it as an issue," Snyder said. "We actually did a fair amount to the state employee and retirement pension plan that was put into law last year. You might want to look at that as a guide."
He cited the two biggest reforms to the state's retirement plan as requiring defined contributions from new employees on their post-retiree medical plans to be set aside for future medical costs as well as providing a defined benefit plan that asks for a 4 percent contribution from employees.
A message left Wednesday with the Office of Retirement Services, which directs MPSERS, was not returned by press time.
Jackie Stark can be reached at 906-228-2500, ext. 242.