A MICHIGAN ENTITLEMENT THAT NEVER DIES

State Employee Longevity Pay: How To Spend Billions With No Measurable Results

Bill Whitbeck thinks he made a mistake. Now he wants to correct it, but the State of Michigan won’t let him.

Actually, whether he made a mistake or not is open to question. If he did, it was only a failure to act when he might have, and he had lots of company.

Specifically, Whitbeck simply acquiesced, both as the State Employer more than three decades ago and most recently as a member of Michigan’s Employee Relations Board (ERB), in the perpetuation of what is known as “longevity pay” for qualifying state employees.

Longevity pay has cost Michigan taxpayers more than $2 billion over the past seven decades (factoring in inflation and the fluctuating size of the state work force). And it’s scheduled to cost still more, at an escalating rate.

Longevity pay, also known as longevity “bonuses” or “service pay,” refers to extra compensation given to employees who have been with a government agency for a certain number of years. This extra payment has been an attempt by Michigan government to recognize and reward employees’ commitment, loyalty, and dedication to state employment over the long haul. It’s been used in 25 other states besides Michigan. In Michigan, the threshold to qualify is five years. The rationale is that it is an incentive for reducing turnover and as a reward for continuing years of service. The employees themselves often refer to it tongue-in-cheek as “survival pay.”

Late last year, Whitbeck says he finally woke up and smelled the coffee. As one of three members of the ERB, he dissented when the other two members approved DOUBLING longevity pay for non-unionized state employees beginning with the 2025-26 fiscal year. The ERB’s recommendations were then approved by its parent Michigan Civil Service Commission last Dec. 11 and are poised to go into effect in nine months. This additional cost for doubling the longevity payments for FY 2026 for non-unionized employees will be $9.5 million annually, and the total cost for longevity pay for FY 2026 for non-unionized employees will be $19 million. The cost for doubling longevity pay for the entire qualifying work force (both unionized and non-unionized employees) will be $22.3 million, The total cost for the entire qualifying work force will be $44.6 million.

Whitbeck’s late-blooming doubts about the efficacy of longevity pay might remind us of the long history of government — at both the state and federal levels — instituting “temporary” taxes that serve as politically convenient short-term tools to ease the public backlash from tax hikes. As memories fade, temporary taxes rarely do. The state and local levels are replete with examples of how ephemeral measures lead to permanent revenue streams for elected officials. On the national level, there are five major excise taxes that were instituted generations ago that have failed to expire as promised. Together, the gas tax, the telephone excise tax, the tire tax, the sports tax, and the firearms tax have collected more than $1.4 trillion from taxpayers since their inception.

The federal Telephone Excise Tax, also known as the FET, is the levy most frequently cited as a good example of a temporary tax that has never gone away. It was introduced in 1898 as a temporary measure to fund the Spanish-American War, but it has been in place ever since. The tax was initially levied on long-distance calls, but it has since been extended to cover other communication services such as cell phones, fax machines, and other telecommunications equipment. The telephone excise tax generated $5.2 billion in budget receipts as recently as Fiscal Year 1999, and more in the years afterward despite attempts for more than a century to sunset the provision. In 2006, in response to several court opinions, the U.S. Treasury Department announced an end to what it described as this “outmoded, antiquated” tax. The federal government actually issued over $2 billion in phone tax refunds in 2007. However, taxes on local telephone service were not part of the government’s original refund, so a form of the tax remains. The telephone excise tax serves as an apt example for federal legislation — reports of its death have been greatly exaggerated.

Of course, longevity pay is not a tax at all — it’s a taxpayer-subsidized government  expenditure. The effect on taxpayers, however, is the same — it costs them money, lots of it. But at least the federal telephone excise tax had an initial purpose that could be justified. It was to fund the Spanish-American War and, for that matter, many wars afterward — World Wars I and II as well as the Vietnam War. But can Longevity Pay be similarly defended? Has it achieved its purpose of retaining state employees who might otherwise desert state government for better pay elsewhere, like the private sector? Fact is, there is  no evidence whatsoever that longevity pay has ever proven to be successful in its goal of employee retention or recruitment. Indeed, there has never been any effort by the state to measure its performance.

That’s what galls Bill Whitbeck, and why he has belatedly raised crucial questions that have gone unanswered.

Who is Bill Whitbeck, anyway? Anybody who has followed Michigan government and politics for the past six decades knows the answer to that question, but for those who don’t, William C. Whitbeck has worked four different stints for three different governors (Romney, Milliken, and Engler) and one U.S. Secretary of Housing & Urban Development (Romney). He capped off his career as a judge on Michigan’s Court of Appeals for more than 17 years. . He was appointed to the court in 1997, elected to a full six-year term in 1998, and re-elected in 2004 and 2010. The state Supreme Court appointed him chief judge of the CoA in 2001 for three two-year terms. Whitbeck retired on November 21, 2014.

Prior to serving on the bench, Whitbeck was director of the Office of State Employer from 1991-93, director of policy for the Public Service Commission, director of the Detroit area office for the U.S. Department of Housing and Urban Development, an administrative assistant to Governor George Romney, a legislative analyst for the Department of Commerce, and worked for years as an attorney in private practice.

He’s also the author of a novel, To Account for Murder, based on the assassination in 1946 of state Senator Warren Hooper (R-Albion).

Whitbeck received a bachelor’s degree from Northwestern University and his J.D. from the University of Michigan.

 

Here is a transcript of the WHITBECK DISSENT ON LONGEVITY PAY, concluding with an interrogation of current State Employer Liza Estlund Olson, appointed by Gov. Gretchen Whitmer, by former State Employer Whitbeck that makes for highly entertaining reading:

INTRODUCTION

I write separately to indicate my concurrence with the recommendations of the panel in every respect save one: the issue of the proposed increases in longevity pay for qualifying state employees. In its bargained-for contracts with the state employee unions, the state has doubled the costs for longevity pay in Fiscal Year 2026 (October 1, 2025-September 30, 2026). In this proceeding, the state and the limited recognition organizations similarly propose to double the payments to non-unionized employees for longevity for that same period.

Other than a vague and completely unsubstantiated hope that, somehow, an increase in such longevity pay will help in retaining state employees, there is nothing in this record that justifies any increase in such longevity pay. Simply put, these proposed increases are, based on the record before us, unsupportable.

Indeed, we do not know whether the State of Michigan and its taxpayers have ever benefited in any way over the years by making cash payments to state employees as an incentive to remain employed in the state classified civil service. In fact, there is no measurement in place by which to ascertain whether any such benefit has actually occurred in the past. The maxim that if one cannot measure it, one cannot manage it has a special applicability here.

RELEVANT CIVIL SERVICE CRITERIA

Civil Service Commission Regulation 6.06 Standard 4.D.1 sets forth the guidelines that our Panel, when it sits as the Coordinated Compensation Panel, is to take into account when making its recommendations to the Commission. Given the fact that all of the bargained-for contracts with the state employee unions involve an increase in longevity pay, subparagraph b of that regulation is particularly relevant. That subparagraph states that, with respect to such contracts, we should consider:

“Comparison of the overall compensation received by NERES [non-exclusively represented employees] with the overall compensation received by exclusively represented state employees.”

Clearly, on its face, this language does not require us to exactly mirror the provisions of the bargained-for contracts with the state employee unions. Rather, it requires us to compare those contracts with our own recommendations. In making this point, I fully recognize that our past practice has been to mirror the union contracts. But when, as here, there is absolutely no evidentiary support on this record for an increase in longevity pay, such a comparison does not drive the conclusion that we must automatically acquiesce to such a proposed increase in longevity pay.

Stated otherwise, in formulating my position on longevity pay, I have in fact compared the proposed increase with the similar increases contained in the union contracts. When making that comparison, as set out below, I have considered the history, the costs, and the justification for making such payments. I have also examined the—very limited and completely unexamined —information contained in the 2024 Employee Compensation Survey. On balance, I have reached the conclusion that the proposed increases cannot be justified.

With respect to longevity pay, Civil Service Regulation 5-8 currently states that:

“An employee who has completed the equivalent of five years of full-time currently continuous employment, including any credits under rule 5-10.2(b)(4) is eligible for an annual longevity payment, as provided in the regulations, each October 1 in the amount provided below. An employee with a break in service is eligible for a longevity payment based on total years of service after completing the equivalent of five years of full-time currently continuous employment.” (Emphasis supplied)

 

Years of Full-time Service	Minimum Hours	Annual Payment
5–8	10,400	$260
9–12	18,720	$300
13–16	27,040	$370
17–20	35,360	$480
21–24	43,680	$610
25–28	52,000	$790
Over 29	60,320	$1,040

 

According to the 2023 Civil Service Annual Work Force Report, fully 62.4% of classified employees are eligible for longevity. The number of such classified employees as of September 30, 2024, was approximately 47,821 Thus, assuming the same number of classified employees at the beginning of FY2026 and roughly the same percentage eligibility of such employees, the number of classified employees receiving longevity payments would be approximately 29,653.

HISTORY OF LONGEVITY PAY

As set out in the prepared testimony of Liza Estlund Olson, “On January 3, 1956, the Michigan Civil Service Commission adopted a longevity pay plan that paid a fixed sum annually based on years of service, bargaining unit [sic, there were no state employee bargaining units in 1956] and the applicable longevity indicator.” In 1956, G. Mennen Williams was the Governor of Michigan (and I was fully 15 years old). There is no indication on this record whether the administration of Governor Williams either proposed or supported this new longevity pay plan. Nor is there any indication on this record as to what, if any, rationale existed for its adoption.

The Director went on to say that, “Over the subsequent years, the payments were adjusted upward by nominal amounts. The highest rate available in FY 1988 was $1,036, still dependent on years of service and longevity indicator. The longevity indicator was dropped in 1996 with slight adjustments to the payments to have consistency across bargaining units. The highest rate currently available is $1,040 and based solely on years of service.”

There is no indication on this record as to whether, over the years since its adoption, any administration—whether Republican or Democrat, whether liberal or conservative—has taken any position in favor of the continuance or elimination of longevity pay. Nor, to my knowledge, has the Civil Service Commission weighed in on the subject, other than to increase the payments by “nominal amounts.” Simply put, what some state employees sometimes humorously refer to as “survival pay” has survived.

THE COST OF LONGEVITY PAY

According to prepared testimony of the Director of the Office of the State Employer, the additional cost for doubling the longevity payments for FY 2026 for non-unionized employees will be $9.5 million and the cost for the qualifying entire work force will be $22.3 million. However, the total cost for longevity pay for FY 2026 for non-unionized employees will be $19.0 million and the total cost for the entire qualifying work force will be $44.6 million.

To put the question of costs in further perspective, I must observe that these current numbers do not reflect the entire accumulated cost of longevity payments since the adoption of the longevity pay plan in 1956. While there is no data in this record for this 88-year period (See TR, 43; when asked how much the state has paid for longevity payments Liza Estlund Olson responded, “Not a clue . . .”) and while the number of state employees in the classified system has fluctuated both upward and downward over these years, I think one can say that the costs for these payments have been in the hundreds of millions of dollars. And the present-day value of these payments, again uncalculated on this record, can only be in several multiples of that amount. It is certainly fair to ask what quantifiable benefit the taxpayers of this state have received for these expenditures.

THE JUSTIFICATION FOR LONGEVITY PAY; THE EVIDENTIARY VOID

The justification for doubling longevity payments is non-existent on this record, as the following extended colloquies illustrate:

MS. LIZA ESTLUND OLSON: . . .[R]etention of a workforce that has been trained and is knowledgeable. The state, although we get compared all the time to the general public, the state requires a much higher level of education for most of our positions and so pay at a higher rate for that, and they can make money in other places. And we feel this is a retention opportunity for people who have been trained and have chosen to stay in state government.

JUDGE WHITBECK: But that must be more than just a feeling. There must be some data that supports that conclusion. What is the data?

MS. LIZA ESTLUND OLSON: I don’t under—I guess I don’t understand what you’re looking for.

JUDGE WHITBECK: Well, that you could compare retention rates in 1984 with retention rates in the last fiscal year. One could do that. Have you done it?

MS. LIZA ESTLUND OLSON: We did not do it for this presentation, no.

JUDGE WHITBECK: Have we ever done it?

MS. LIZA ESTLUND OLSON: I’m not sure we’ve been asked that question before, so, no.

JUDGE WHITBECK: So, no, you’ve never done it or no, you don’t know?

MS LIZA ESTLUND OLSON: We could know. We don’t know right now.

JUDGE WHITBECK: Okay. So we’re going to grab a benefit, an increase in that benefit of $9.5 million based on no data whatsoever?

MS. LIZA ESTLUND OLSON: Based on the fact that we—well, there is data that we’ve been looking—

JUDGE WHITBECK: What is it then?

MS. LIZA ESTLUND OLSON: Is that we are losing folks who’ve got a lot of seniority to other entities because they can make more and –

JUDGE WHITBECK: How do we know that?

MS. LIZA ESTLUND OLSON: Because wo do exit interviews who say, ‘I’m leaving because I can make more at the federal government level, I can make more in the private sector.’ So, longevity has always been –

JUDGE WHITBECK: So there must be some summary of those exit interviews that gives us some appreciable data. Where is it?

MS. LIZA ESTLUND OLSON: We did not prepare that for you today.

JUDGE WHITBECK: So we don’t have it.

MS. LIZA ESTLUND OLSON: We could have it. We were not requested to provide it, so—

JUDGE WHITBECK: Yes, we could, but we don’t; is that correct?

MS. LIZA ESTLUND OLSON: I’m sorry. What?

JUDGE WHITBECK: Yes, we could have it, but we do not?

MS. LIZA ESTLUND OLSON: We do not because it has not been requested in the past.

JUDGE WHITBECK: So we’re going to expend $9.5 million for data that we cannot quantify, for a benefit that we cannot quantify; is that correct?

MS. LIZA ESTLUND OLSON: It is not correct.

JUDGE WHITBECK: Why is it not correct?

MS. LIZA ESTLUND OLSON: Because we have the information, we just did not prepare it because it has never been asked for before.

JUDGE WHITBECK: Well, ma’am, I am asking for it now.

MS. LIZA ESTLUND OLSON: Okay. But I can’t just pull that out of my –

JUDGE WHITBECK: Don’t you think you should if you’re going to recommend a $10 million of an increase for, and I used to be a state employee –‘survival pay,’ that’s the term we used, don’t you think there should be some data to support that expenditure?

MS. LIZA ESTLUND OLSON: I think as part of the overall compensation package this was an opportunity for us to make a change in that we were (sic) more competitive with what we have seen in other sectors. (TR, 45-48)

JUDGE WHITBECK: So I, I can’t do the math in my head. I can’t even balance my checkbook. But basically for the NEREs [non-exclusively represented employees] the longevity increase is roughly 50 percent.

MS. LIZA ESTLUND OLSON: Uh-huh.

JUDGE WHITBECK: And statewide—pardon me—is roughly the same amount?

MS. LIZA ESTLUND OLSON: Correct.

JUDGE WHITBECK: Why 50 percent?

MS. LIZA ESTLUND OLSON: Why didn’t we give it more?

JUDGE WHITBECK: Or less or not at all?

MS LIZA ESTLUND OLSON: We did feel that this was an important retention issue and so that’s why we doubled it. We did discuss—but, again, we’re trying to be fiscally responsible in addition to a three percent increase. And so we felt that that balanced what we were trying to provide as an overall package while looking at what the budget office had available because there’s other things obviously that they want to do. But we need to be able to recruit and retain people to state service and along with everybody else we’re struggling and so you have to figure you keep people, how do you get them in the door, you know. So this was a package that we thought was an appropriate amount of money without, you know, turning into, oh, my God, we’re paying state employees so much money which is never the case, but, you know it’s always the perception.

JUDGE WHITBECK: So this is my last question on the subject. I’m taking notes on your comments. But you feel that [it] is increased retention, that the basic premise for this increase, that it will increase the retention on state employees?

MS. LIZA ESTLUND OLSON: I do believe that there are state employees who based on this longevity increase, in addition to the base salary increase, will continue to work for state government.

JUDGE WHITBECK: So the answer to my question is yes. That’s what you feel. That by increasing, by doubling the amount of longevity, you will increase the retention rates?

MS LIZA ESTLUND OLSON: Yes.

JUDGE WHITBECK: Is there any data to support that?

MS. LIZA ESTLUND OLSON: Like I said we have looked at the 2018 compensation survey. . .

JUDGE WHITBECK: We’re talking about longevity here.

MS. LIZA ESTLUND OLSON: Yes. But this was an opportunity in another area to work to keep people in state employment.

JUDGE WHITBECK: So in simple terms the answer to my question is no. There is no data to support that?

MS. LIZA ESTLUND OLSON: There is – we do think there is data.

JUDGE WHITBECK: Where is it? I mean, we’re here today on the record. We can’t go beyond it. So we’re stuck with what you tell us. Where is it?

MS. LIZA ESTLUND OLSON: It is in the fact that we are hoping to increase retention rates. And, again, I go back to people who were leaving state government saying that, you know, they can do better in other places.

JUDGE WHITBECK: But we don’t have that data before us, do we?

MS. LI ZA ESTLUND OLSON: Okay.

JUDGE WHITBECK: Yes, we do not; right?

MS/ LIZA ESTLUND OLSON: Okay.

JUDGE WHITBECK: Thank you. (TR, 57-60; emphasis supplied)

As is painfully evident from the foregoing, there is absolutely nothing in this record to support the doubling of longevity pay for non-unionized state employees other than a “feeling” or a “belief” that such an action will increase retention rates. These emotions are, in turn, based only on a 2018 employer survey, a survey taken over six years ago. This survey is not in this record, and it is inconceivable to me that we can rely on it in any way.

I further note that the repeated statements by Liza Estlund Olson that supporting information and data regarding the proposed increase were “not requested” are simply disingenuous. It is axiomatic that a proponent of a particular action in a proceeding such as this must support that proposed action by at least a modicum of supporting evidence. In legal terms, the proponent has both the burden of proof and the burden of persuasion. Here, no party to this proceeding has met either burden..

Of course, we do have the late filed 2024 Employer Compensation Survey. This survey, which we were unable to read before or ask questions about at the hearing, does indicate that some private employers in Michigan do make longevity payments and that these payments are somewhat higher than the current longevity payments to state employees. Therefore, since the survey only provides current data, it does not, and could not, consider the proposed doubling of longevity payments to state employees in FY 2026.

Moreover, I note that, if I read the survey correctly, of the 404 employers surveyed, only 78 responded on the survey question covering longevity. This is a remarkably small sample and the survey makes no attempt to quantify its statistical validity. I think it fair to assume that those non-responding employers, or most of them, simply had no longevity plans at all. Further, and importantly, the survey also covered state governments in Indiana, Illinois, Minnesota, Ohio, and Wisconsin. But in no instance was there any information concerning longevity pay in any of these comparable states.

STATE EMPLOYEES AND THE BELL-SHAPED CURVE

At the risk of oversimplification, it is possible to view employees in state government as collectively positioned on a classic bell-shaped curve. On the right, or leading, edge are those employees who are extremely productive. In the center and apex of the curve are those employees who are only moderately productive but still capable of contributing. On the left, or trailing, edge are those less productive employees who contribute little if anything. Fortunately, at least in my opinion, the highly productive and moderately productive employees considerably outnumber the less productive employees.

The problem with longevity payments—indeed with any compensation system not based primarily on merit—is that such longevity payments within such a system make absolutely no distinctions between highly productive employees and less productive employees. To qualify for these payments all state employees in the classified civil service must only survive for the requisite number of years. After that, the payments are automatic without regard to merit or productivity. Doubling longevity payments only exacerbates this situation.

CONCLUSION

Best-selling author Louise Penny in one of her many novels has her protagonist, Chief Inspector Gamache, remark—and I am paraphrasing—that the words “I made a mistake” are among the most valuable in any language. For when we acknowledge a mistake, we can then correct that mistake. And when we correct a mistake, we can then learn from that correction.

I recognize, however, that taking the first step—acknowledging a mistake—is a very difficult thing for an individual to do. It exposes one’s vulnerability. It may open one to criticism It may jeopardize one’s status in the community. It may perhaps even affect one’s future.

And what is difficult for an individual is considerably more difficult for a public institution and exponentially more difficult for a public official. Rarely if ever does a public official utter those simple words “I made a mistake.”

And even more rarely do the public institutions over which public officials have control and for whom they speak take immediate and public actions to correct such mistakes. Therefore, since such mistakes are both unacknowledged and uncorrected, almost never do such institutions learn from these mistakes. In short, many public institutions have an uncommon tolerance for repetitive error.

This is strikingly true within a public compensation system that rewards longevity with cash payments in the hope that such rewards will increase retention rates, without respect to merit and without the slightest effort to measure the effectiveness of these payments in hiring and retention.

In 1956, our state government made a mistake by adopting a system of cash longevity payments. For decades, various administrations—including three in which I served—have perpetuated that mistake, either knowingly or unknowingly.

We are now asked by the Office of the State Employer and the various limited recognition organizations speaking on behalf of non-unionized employees not only to extend that mistake but to literally double down on it to the tune of $9.5 million dollars of extra expenditures in FY 2026. And they ask this based solely on the hope that in some way this will increase the retention rates for state employees. But a hope is not a rationale. Here, it is only a hope that has not been measured in any way.

As I noted above, I have served three times in state government. In my last iteration I was the Director of the Office of the State Employer. While I did not agree to any increase in longevity pay, I did acquiesce in its continuance. In that acquiescence I made a mistake. It is now time to correct that mistake and perhaps even learn from it.

Therefore, I recommend that the Civil Service Commission reject the request to double longevity pay for non-unionized employees, as such an increase is completely unsupported on this record . And I recommend that it consider in its future deliberations the elimination of longevity payments for all employees, whether unionized or not. The annual savings to state government and the taxpayers who support it would be approximately $44.6 million annually as expressed in current dollars.

— William C. Whitbeck

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