The Marketing and Service Program Agreement

In 1981, the Executive Directors of MESSA and the MEA entered into a compact which has since served as the basis of the financial relationship between the two corporations.106 Entitled the "Marketing and Service Program Agreement," the document lists the vague guidelines of a complete financial exchange in just over three pages. As explained in the agreement, MESSA will compensate the MEA for various marketing, legislative, and research expenses, along with a rental fee for "various offices around the state." In return, the MEA will "utilize its personnel" in order to enhance enrollment in MESSA programs and improve service to MESSA participants.

The agreement is a joint venture, where MESSA primarily benefits from having access to the MEA's resources and representation during contract negotiations. In turn, the MEA gains favor with its membership by "sponsoring" MESSA's innovative but costly insurance benefits. The objectives of the agreement are stated towards the beginning of the document: 107

  1. "All MEA local units will participate in MESSA programs."

  2. "All MEA local units will seek maximum benefits under MESSA programs."

  3. "All MESSA members will receive the best and most responsive service attainable, which will be better than that available from any other administrator or insurer."

There is already cause for concern at this point, because the objectives demonstrate that the desired end of this financial exchange is to have MESSA dominate the market for provision of insurance to public school employees. The consequence to public education, of course, is that school districts are forced to shop in a market with little or no competitive pricing. And with each subsequent section of the agreement, the problems compound:

Representation in contract negotiations. The MEA maintains a staff of professional contract negotiators known as the Uniserv division. Pursuant to the agreement, Uniserv develops strategies that make every reasonable attempt to incorporate MESSA insurance into labor contracts with school districts. In cases where the goal of maximum participation in MESSA programs has not been attained, "appropriate corrective action" is taken.108 Since the Uniserv division is managed and paid by the MEA, MESSA must reimburse the MEA for representation during contract negotiations. But what the transaction effectively amounts to is a gratuity for MESSA's unfair bargaining advantage of having contract negotiators on its side. This practice raises further questions about damage to competition, since no other insurance administrator can contract for representation with the group that bargains for most public school employees.

Lobbying and political activity. MESSA also uses funds received from school districts for unspecified political purposes, in conjunction with the MEA. The one-sentence section subtitled "Public Affairs" states:

With respect to legislation which has an impact on MESSA programs, MEA and MESSA will coordinate their efforts in legislation deemed beneficial to MESSA. 109

An addendum to the agreement added that MESSA now reimburses the MEA for the cost of a full-time lobbyist in the MEA's Government Affairs Division, even though MESSA employees also devote time to similar activities."110

No criteria is identified for determining the legislation which might impact MESSA, and any such criteria is assumed to be purely subjective. According to a MESSA promotional flyer from April of 1989, "MESSA and MEA work together to represent MEA members when dealing with your legislative needs on the state and federal levels."111 Yet, for all the public knows, the "legislative needs" of MESSA members could be private endorsements of political candidates or battles against legislation which would permit school districts to locate the most cost-effective insurance administrator-all conducted with money that was intended to provide public school employees with insurance benefits.

The MEA division which actually contributes to political causes is the Michigan Education Association Political Action Committee. The MEA PAC contributed $1,461,442 to its political allies in 1992 alone-with the majority given to the Democratic party and its assorted constituencies, such as the Fund for a Democratic House, the House Democratic Campaign Committee, and the House Democratic Victory Fund.

The use of public funds collected from school districts for political purposes is an abuse of taxpayer trust, because those funds were given a specific, non-partisan intent. The necessity of these lobbying expenditures is further cause for concern because it is likely that MESSA is using the money to oppose legislation which might improve matters for public education at the expense of MESSA.

Other stipulations. MESSA also pays the MEA for various research, information, and consultation services. The MEA collects information for MESSA pertaining to budgets, labor contracts, and fringe benefit levels in school districts. Included in the overall service fee is the cost of an employee in the MEA's Professional Development/Human Resources department.112

Calculating the service fee. Another deficiency of the operating agreement between MESSA and the MEA is the lack of specificity for determining which expenses MESSA will cover. The service fee is based on items such as information that may have an "impact" on MESSA programs or "legislation deemed beneficial to MESSA," but the agreement fails to explain how impact or benefit will be measured.113 If the parties have made no reasonable attempt to identify the goods, how can the transaction be completed? How is MESSA figuring the precise amount of funds that it will transfer to the MEA? The document merely suggests that on September I of every year, before MESSA even takes advantage of MEA services, the parties determine the "fair market value" of the services MESSA is supposed to use during the upcoming year. Any specific expenses are added to the estimated cost of utilization, and disputes can be adjudicated by an auditor. Yet, this "calculation" would appear somewhat deceptive if there is any truth to the testimony of a former MESSA trustee, who noted in conversation that MESSA is not provided with any details or line item cost breakdowns of the annual service fee.

The Funneled Funds. Between 1981 and 1992, the MEA received approximately $12 million in direct payments from MESSA-money that MESSA received through taxpayer support of education. This figure excludes the annual rental payments MESSA has made to the MEA since it began leasing MEA property in 1974.114 The service fees for the past 10 reporting periods are shown in Table 1.

Even though the service fee increased 61.5 percent over this 10 year period, the annual increases have generally kept pace with the rate of inflation. Based upon the trends revealed in the yearly updates to the operating agreement, roughly 16 percent of each annual fee can be applied to legislative and research services with the remaining 84 percent applied to marketing services rendered by the MEA's Uniserv division.