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Gov. Rick Snyder on Wednesday defended legislation intended to address shortfalls in pension and retiree health care funding in local governments. The bills are strongly opposed by police and fire unions.
Paul Egan/Detroit Free Press

LANSING — Lawmakers on Wednesday were digging in for a long night of negotiations as Republican leaders in the state House of Representatives and Senate were having a hard time coming up with the votes for changes to protect benefits for municipal retirees.

Both the House and Senate ordered dinner for members after it became clear in the afternoon that a 16-bill proposal wasn’t getting support from key groups, including police and firefighters and local units of government.

“It’s not soup yet,” said Amber McCann, spokeswoman for Senate Majority Leader Arlan Meekhof, R-West Olive.

The bills are designed to tackle the growing problem of about $18 billion in unfunded municipal post-retirement benefits — about $9 billion of which is related to retiree health care.

Gov. Rick Snyder remained optimistic that a compromise could be reached even though the leadership admitted that the votes weren’t there yet.

“That’s the way the process works. There are committee hearings and people are working on what the vote totals might be, and hopefully we can make some progress,” he said Wednesday afternoon.

“This is an issue that doesn’t get better with time. This is an issue that is only growing in terms of potential risk to retirees and to local governments, and what this legislation would do is improve that process so we can have transparency in reporting for most jurisdictions, and then for jurisdictions that have an issue, this puts in place a process to hopefully get them on a positive path to success,” he added.

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The plan would put a five-phase process in place to determine whether a municipality’s pension and retiree health care funds are financially secure. The least secure funds — those where pensions fall below 60% funded and retiree health care funds are less than 30% funded — could be taken over by a three-person, state-appointed board that could assume control of a town’s budget or force the sale of city assets, such as a golf course or community pool, to make sure that retiree benefits are fully funded.

  • The first two phases would have the units of government — more than 900 cities, townships, villages and counties as well as other organizations such as library or parks’ authorities — turn over financial information to the state and have the Treasury Department review the materials and make a determination whether the funds are financially sound.
  • The third phase would look at communities where the retiree funds are below acceptable levels, but the towns have come up with a plan to deal with the shortages. Those communities would be given waivers and be allowed to continue with periodic state oversight.
  • The fourth phase would require the community to come up with a plan that’s negotiated with elected officials, union members and approved by the Treasury Department.
  • If all else fails, the fifth phase would require appointment of a three-member, state-appointed financial management team to come in and develop a plan to fix the retirement benefit shortfalls. That could entail shifting a community’s budget priorities, selling city assets or altering retiree benefits in order to fully fund pension and retiree health care funds.

Most communities in Michigan — roughly 85%, — have retiree pension and benefit funds that are at or near fully funded and wouldn’t need to take any corrective action.But about 30 funds across the state would fall below acceptable levels and require state intervention.

“The idea here though is hopefully local governments can solve the problem with their own employees without it coming to state intervention,” Snyder said, noting that the state takeover of the pension system “should be a last resort and I think that’s the way it’s designed.”

But that provision is one of the biggest sticking points for many legislators who view the move as another form of the state’s unpopular emergency manager law, which takes away a struggling community’s ability to determine its own fate. Snyder disputed that characterization.

“This is not a full emergency manager program,” he said. “If we don’t have a program like this and communities are in dire straits, they would end up in the traditional emergency manager and wouldn’t it be better to have a limited version, rather than the full version?”

“Most of the legislation would have no impact on most jurisdictions in our state, because they’re going to do well enough as long as they do the reporting,” Snyder added. “This is to deal with the problem situations in a graduated fashion to allow them to solve their own problems, and, as a very last resort, more dramatic steps may be needed short of having a full emergency manager. That’s an improvement.”

Similar legislation was introduced last year and was met with a furious response from police and firefighters. A coalition of law enforcement and firefighter organizations still oppose the revised proposal and fear state-mandated changes could make it more difficult to attract good employees into risky professions.

Contact: Kathleen Gray: 313-223-4430, kgray99@freepress.com or on Twitter @michpoligal.

 

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