Earlier this week, Ingham County Circuit Court Judge Richard Giddings ruled that the Mackinac Center is correct in determining that post-retirement health benefits provided by the state, public schools and local governments are not enforceable obligations, and so politicians therefore have no duty to impose on taxpayers the cost of providing them. The ruling is a victory that could save future Michigan taxpayers literally billions of dollars.
Actually, the ruling came in a case to which the Mackinac Center is not party, dealt with issues that have little to do with the government’s supposed liability to pay these benefits, and for reasons unrelated to the nature of these benefits may well be overturned by the state Court of Appeals or Supreme Court. But it nevertheless provides indirect reinforcement from an unexpected direction for the Center’s assessment of the status of government retiree health benefits and related “Other Post-Employment Benefits,” or OPEBs.
Specifically, Judge Giddings declared, “Since health care benefits are not encompassed within the term ‘accrued financial benefits’ found in [the Michigan Constitution] ... the legislature may reduce or eliminate those benefits without contravening of this constitutional provision.” He went even further, characterizing the lifetime retiree health insurance benefits promised by politicians in fuzzy statutory language as “naked, unenforceable and revocable promises.”
Some pundits have noted that the principle Judge Giddings invoked applies just as much to the power of Congress to trim or even eliminate Social Security and Medicaid “entitlements” at any time — a correct, if purely academic, observation, given that Giddings is a state judge ruling on a state law and constitution.
Some readers may also be surprised by Judge Giddings’ vigorous defense of property rights in a different part of this ruling — at least those of government and school employees — given an earlier case in which he allowed the Michigan Department of Environmental Quality to strip the property rights of one Richard Delene, owner of an award-winning wildlife conservation project on his property in Baraga County. Giddings’ rulings on behalf of government regulators in that case eventually forced the Delene family to flee the state and abandon their property. Mr. Delene was crushed by $25,000 per day administrative fines authorized by the state’s wetland law. (They may even be still accruing 20 years later, in which case his tab is nearing $200 million).
In addition, those who closely follow current state affairs may be scratching their heads, since there has been nothing in the news about a court case involving the enforceability of government employee OPEBs. They won’t be the first to scratch their heads over a Giddings ruling — in the 1990s, the judge famously went toe-to-toe with Gov. John Engler over prison management policies, at one point causing the governor to tell an audience, “The guy’s a lunatic. I think he got his law degree from a mail-order school.”
This time, the case was the MEA school employee union’s lawsuit against a law passed last year requiring state and school employees to contribute 3 percent of their salary toward their pension benefits. At least that’s what Gov. Jennifer Granholm originally proposed, but the MEA itself lobbied to divert the payments into an “irrevocable trust fund” created by the amended legislation to pay for these employees’ post-retirement health benefits — not their actual pensions. Judge Giddings ruled that since the state has no contractual obligation to pay these other benefits, it can’t deduct 3 percent from employee paychecks to fund them.
Taxpayers are (probably) on the hook for the cash pension payments no matter what, but may be able to get out of the OPEBs. So, the union demanded and got a bill that keeps the new money out of the pension funds that pay the real obligations — the cash pension benefits. After all, why pre-fund those pension checks when extra dollars can always be extracted from future taxpayers once the bills come due?
It all may seem very confusing, but here’s the bottom line: Last year, Michigan legislators — especially Republican ones — got “rolled” by a union that is much better at playing these kinds of games.
One result of the ensuing lawsuit — specifically an earlier ruling that the new 3 percent employee contributions must be held in escrow until it is resolved — is that school districts are now struggling to pay much greater pension fund assessments. Ironic, given that easing these payments was one of the main goals of the legislation.
The correctness of his OPEB interpretation aside, the byzantine twists and turns of Judge Giddings’ convoluted ruling may well be overturned. But the Legislature could put the case out of its misery almost immediately — and give fast relief to school districts — by doing what it should have done in the first place: Simply apply the new 3 percent employee contributions to the real contractual obligation recognized by the state constitution — their actual cash pension benefits.