New Michigan school budget shifts more teacher pension costs to districts, prompting pushback

Tawanna Jordan, a Detroit Public Schools Community District teacher, instructs students with ModEL teaching tool | Ken Coleman

As Gov. Gretchen Whitmer signed the state’s new education budget; she also made official a number of changes to the Michigan Public School Employees’ Retirement System, or MPSERS, which provides pension and health care benefits to public school teachers. 

One of the biggest changes to that program was a $100 million cut to a program that, last year, offset a portion of the money that individual districts were required to pay into the system for pension and health care benefits of retired public school employees. 

In the Fiscal Year 2026 budget, however, that specific reimbursement was rolled into the “foundation allowance” — the per-pupil funding that every district receives based on their enrollment numbers. 

State Sen. Darrin Camilleri (D-Trenton), the Senate PreK-12 Appropriations Subcommittee Chair, said the decision to change that funding structure was what he considers the biggest thing that Senate Democrats had to give up in budget negotiations. 

“That line item just got pushed into the larger Foundation grant, instead of being something that directly goes to traditional school districts,” he told Michigan Advance. “I was frustrated by that, but that’s the nature of compromise.”

Thomas Morgan, a communications consultant at the Michigan Education Association, told the Advance that, all things considered, it could have been worse, but that doesn’t mean this should be a model for the future. 

“Despite losing that 1% of payroll, [school districts] still come out ahead so, as a compromise goes, it’s fine, but it’s not good policy to do it this way going forward,” Morgan said.

The per-pupil funding has been touted by many, including Camilleri, as the highest per-pupil funding level in the history of the state, at $10,050 per student. In last year’s budget, per-pupil funding was $9,608.

But with these changes to the teacher retirement fund, some advocates are saying that’s misleading. 

“Districts are getting a little bit of extra money in this budget. It’s not a lot. In many cases, it’s not even an inflationary increase,” Robert McCann, executive director of the K-12 Alliance of Michigan, said. “But you add in these additional costs that they’re now going to have to pay, you might be putting some districts in the red in terms of this year’s budget. They may have less spending power because of all these shifts than they did a year ago, even ignoring inflation.”

Camilleri pushed back against that, saying that the per-pupil funding level is higher even without factoring in the re-allocated MPSERS money. But the impact of the shift varies district-to-district, largely depending on how many employees each school has that are eligible for coverage by the retirement fund. 

Charter school employees are largely not paid retirement benefits through the MPSERS fund, so those schools are not required to pay back into this system — but they did receive the same boost in per-pupil funding that traditional public schools received. 

“Charter schools receive the same amount of money as the traditional school districts do, but don’t pay into the MPSERS system,” McCann said. “So those systems are already tilted in their favor, meaning they get whatever they get from the state and keep all of it, and while a traditional school has to send a whole bunch of it right back to the state to cover that MPSERS payment.”

The debate over this funding boils down, in many ways, to freedom for districts to allocate their money as they see fit, with this change eliminating some of that freedom. 

“It’s a policy choice,” Peri Stone-Palmquist, the executive director of the Student Advocacy Center and the co-chair of the Michigan Education Justice Coalition’s school funding committee, said. “That diverts money away from our community schools, and takes away local control, because it’s a mandated cost, they have to pay it, and so the more you push that down into the school aid fund, the more that takes away local choices and resources for local communities.”

Local districts have seen changes to this program in their favor in previous years. For example, last year the amount they were required to contribute toward long-term retirement costs was reduced from 20.96% to 15.21%. These costs come from a gap between what the state has set aside for pensions and health care, and what it still needs to pay in the future. Because the health care fund is currently fully covered, districts have fewer costs to worry about in that area.

The cap shift also happened at the same time as the end of a 3% tax that many public school teachers previously paid into a retirement health care fund. 

State Rep. Matt Koleszar (D-Plymouth), whose bill last year codified those rate changes, was also opposed in this year’s budget negotiations to the elimination of that MPSERS cost offset. 

“I’m afraid it’s a slippery slope,” he said, “that because there is such a large amount of money in MPSERS, it would tempt future legislators to try to find ways of raiding it further in the future, and that’s something I would definitely stay opposed to.

A former educator, he said that for current teachers seeing these changes, they get nervous to see their retirement funds on the negotiation table. 

“You work hard as a teacher,” Koleszar said. “That was deferred income. You want to know that the state’s going to uphold their end of the bargain when you go to retire.”

David Arsen, a professor emeritus of Education Policy and K-12 Educational Administration at Michigan State University, said that these are annual struggles between districts and the state on the proportion that each pays into public retirement benefits. 

“Give us greater discretion over the use of our foundation funding,” he said of what districts are asking. “Cut back on the number of categoricals. It’s too much. It’s too limiting. Give us some credit. Lansing, please give us some credit,” Arsen said.

Part of the lack of freedom afforded to districts by this change is the constitutional requirement for public employees to have retirement benefits — meaning that even with this change, teachers will not be left holding the bag on their own benefits. 

Jason Burns, a research specialist at Michigan State University’s Education Policy Innovation Collaborative, said the cut in MPSERS offset funding will be experienced by districts as a loss of revenues since that funding has been appropriated over multiple fiscal years. 

“Relative to the prior fiscal year this is a decrease in funding, but districts are now paying a smaller share of payroll toward [Unfunded Actuarial Accrued Liability] than they were 2 years earlier,” Burns said in an email. “In other words, on net the package of MPSERS funding/subsidies is less favorable to districts now than in FY25 but more generous than in FY24.”

In a long-term sense, Burns said that districts are overall responsible for far more retirement funding. 

“If we rewind the clock 30 years, the state basically covered, funded the entire system. Districts weren’t really paying into it at all,” Burns said, noting in a September 2025 report which he and PhD student Matthew Guzman prepared, that Proposal A, passed in 1994, established the current system of district and state funding for K-12 schools, including retirement benefits. 

Burns also said that many of the changes in this year’s budget were scheduled based on previously passed legislation. 

“Those are largely enacting legal changes that have been made in the last few years,” he noted. “So there’s nothing last minute that was like, ‘Oh, this is a big shock’.”

But that sentiment was not shared widely — especially since the school aid budget, which is required to be passed by July 1 each year, was not passed until early October. 

“If this was something that they had passed in June, for example, we probably could have made it work best,” McCann noted. “But when you’re passing this in October, it means that districts were already starting off without any budget certainty.”

He added that the closed-door nature of the negotiations meant that no one, including rank-and-file legislators, had any idea what was going to be included in the budget, including the balance of MPSERS funding. 

It’s a broader concern that advocates, including Stone-Palmquist, also shared. 

“We have increased retirement loss and liabilities getting pushed onto our districts, and they’re mandated to spend that. So what that means is that there’s less and less resources for kids who need the most,” she said, referencing teacher salaries and building infrastructure as crucial needs. 

“I think our kids deserve better than that,” Stone-Palmquist said.

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