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BlogsPublications | June 9, 2016
3 minute read

$550 million in public school employee salaries is still being held by the state unconstitutionally, says COA

Though legislative amendments have now made the Public School Employees’ Retirement System constitutional, they did not remedy the constitutional violations that resulted under the prior system, according to AFT Michigan v. State of Michigan, No. 303702.  The prior statute mandated that all public school employees contribute 3% of their salary to a non-vesting retiree health benefit program, with no promise of actually receiving any benefits.  In 2012, the Court of Appeals found this violated the federal and state constitutions on multiple levels; it took property without compensation, impaired pre-existing contracts, and denied substantive due process.  We blogged the earlier decision here.  On remand from the Michigan Supreme Court, the Court of Appeals has reaffirmed its earlier decision, holding that corrections made to the system in the superseding act (such as making contributions voluntary) leaves $550 million in ill-gotten salary contributions in state hands.

2010 PA 75, the act that required all public school employees to contribute three percent of their salaries to the Michigan Public School Employees’ Retirement System, was modified in 2012 by PA 300, to make the contributions voluntary. The Michigan Supreme Court found that amendment to be constitutional (see our post here).  But during the period in which 2010 PA 75 controlled, the state obtained $550 million through the salary deductions mandated under the prior act.  The Court of Appeals had previously found 2010 PA 75 unconstitutional in 2012, but that decision was vacated by AFT Michigan v. Michigan, 497 Mich 197, 205, 866 N.W.2d 782 (2015).  The Supreme Court therein affirmed the constitutionality of 2012 PA 300 and remanded to the court of appeals to determine if 2012 PA 300 had superseded or rendered issues pertaining to 2010 PA 75 moot.

On remand, the Court of Appeals found that, because $550 million raised under 2010 PA 75 was being held in escrow awaiting a decision on the act’s constitutionality, issues pertaining to it were not moot. Furthermore, 2012 PA 300 did not retroactively render the wage deductions that occurred under the 2010 act constitutional, nor did 2012 PA 300 govern the funds collected under its 2010 predecessor. Judging 2010 PA 75 solely, the Court again found it to be an unconstitutional. The act violates the Contracts Clauses of the state and federal constitutions, as it allows the state, by statute, to require that certain employers pay wages below those contracted-for between those employers and their employees. 2010 PA 75 also violates the Taking Clauses of the state and federal constitutions, because it allows the government to assert ownership over a specific and identifiable parcel of money. Lastly, the Court found that the act violated substantive due process, as it was a mechanism that required individuals to fund benefits that they had no vested right to receive. The act was thus deemed “unreasonable, arbitrary, and capricious.”

Judge Saad, again, concurred with the Court’s holding that issues pertaining to 2010 PA 75 were not superseded or rendered moot by the Supreme Court’s upholding of 2012 PA 300, but he dissented in regards to 2010 PA75 being unconstitutional.