Lawmakers cut back bills aimed at underfunded retiree plans
LANSING, Mich. — The Republican-led Legislature was poised late Wednesday to vote on legislation aimed at addressing underfunded municipal retirement plans, after deciding to abandon contentious proposals including state intervention in communities that were unwilling or unable to better address their liabilities.
New drafts of the bills were being written after GOP Gov. Rick Snyder and legislative leaders ran into resistance from Democrats and rank-and-file Republicans. Police and firefighter unions had strongly opposed the measures as passed by legislative committees Tuesday.
Snyder, who wants local governments to get a handle on billions of dollars of liabilities, said earlier Wednesday: “This is an issue that doesn’t get better with time. This is an issue that’s only growing in terms of potential risk to retirees and local government.”
The nearly 600 Michigan municipalities that offer pensions have unfunded liabilities totaling $7.4 billion, and 180 have funding ratios below 60 percent, according to a task force report produced for Snyder in the summer. The roughly 340 governments that provide retiree health care have $10.1 billion in unfunded obligations, with average funding ratios of 19 percent.
The bills are now expected to closely reflect recommendations from the task force. It had proposed requiring local governments to fully prefund ongoing health costs, which is already mandated for pension plans. Such “normal” costs equal the amount of money needed to pay for that year’s earned benefits.
The task force also developed a multi-stage process to identify and address underfunded plans.
Local governments would annually report pension and retiree health care data to the state. Those with plans not meeting minimum funding thresholds would receive special attention from the Treasury Department and could get a waiver if they already have a long-term fix. Communities without a waiver would be subject to oversight from a board of state and local appointees, which would review proposed “corrective action” plans.
Law makers, like the task force, hit a stalemate over letting the board impose benefit changes if the corrective action failed or was not adopted.
Republican Sen. Rick Jones of Grand Ledge, a former county sheriff, warned that an emergency management-style option outlined in the initial legislation could lead to the alteration of union contracts and benefit cuts for first responders.
“That is absolutely not acceptable and I will never support it,” he said.
Snyder, whose use of an existing emergency manager law to appoint state managers to run financially distressed cities has come under criticism, previously defended the proposed management teams and said their powers would be “very limited.”
“If we don’t have a program like this and communities are in dire straits, they could end up in traditional emergency management,” he said. “Wouldn’t it be better to have a limited version rather than a full version?”
Democratic Rep. Patrick Green of Warren, a former city councilman, said cuts in state revenue-sharing to municipalities are a factor that should not be ignored in the debate. This year’s payments are a combined $173 million below what they were 15 years ago, a 12 percent reduction, which over time has totaled billions of dollars.
“The state hasn’t taken enough time over the years and dedicated the funds that cities need to pay for cops and fire and all their transportation and infrastructure needs,” Green said. “We can’t talk about solutions to the underfunded liability problem without also talking about a revenue component.”