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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 — Unable to get the votes needed for sweeping changes to shore up struggling municipal retiree benefit programs, lawmakers in the House and Senate scaled back their plans and approved more reporting requirements and early warning triggers for communities

After hours of trying to corral the votes for the broad changes for communities and the retiree benefits they offer employees, the Legislature began voting on the less ambitious version at about 2 a.m. Thursday. The Senate passed the bills unanimously while the House racked up votes of 107-3 on the bills.

“Our goal throughout this process was to protect those who serve our communities, guard against irresponsible use of tax dollars and allow for local control and local solutions,” said state Sen. Jim Stamas, R-Midland, a sponsor of one of the bills. “We’ll accomplish these goals and we’re taking solid steps toward preserving the promises made to our local workers.”

The new plan mirrors a task force report that Gov. Rick Snyder commissioned this summer. That report calls for communities to issue reports on the fiscal health of their retiree benefit programs more fully and frequently. The state would also develop a “stress test” system for local government that would act as an early warning and provide state assistance for communities where the benefit programs were underfunded.

And a three-member Municipal Stability Board in the state Department of Treasury will be created to review a local community’s finances and help the community develop a corrective plan.

The biggest change from the 16-bill package proposed in both the House and Senate last week was the removal of a state-appointed financial management team that could assume control of a town’s budget or force the sale of city assets to make sure that retiree benefits are fully funded.

That proposal drew the ire of Democrats, a coalition of law enforcement and firefighters and municipal government organizations. Some Republicans also balked at taking a vote that would put them at odds with police and fire departments in their districts. When it was removed, the votes materialized and the police and fire unions signed off on the deal.

“It appears that we have prevailed,” the Michigan Professional Fire Fighters Union tweeted early Thursday morning. “Legislation is going to be presented tonight that require the Task Force recommendations are followed.”

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 Wednesday afternoon 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 initial plan would have 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.

While the financial management team was removed from the final package, some of the initial plan remained in the proposal up for a vote in the House and Senate, including:

  • 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 pension and retiree health care funds are financially sound.
  • The third phase would look at communities where the retiree funds are below acceptable levels, 60% funded for pension funds and 40% funded for retiree health care, 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 that reports a pension fund that is funded at less than 60% and retiree health care fund that is funded at less than 40% to come up with a plan that’s negotiated with elected officials, union members and developed with the help of the Municipal Stability Board.

Most communities in Michigan — roughly 85%, — have retiree pension and benefit funds that are at or near fully funded.But about 30 funds across the state fall below acceptable levels and would have to come up with corrective plans to work toward more fully funded retiree benefit plans.

“The idea here though is hopefully local governments can solve the problem with their own employees without it coming to state intervention,” Snyder said,.

That provision was the biggest sticking points for many legislators, who viewed the initial bill 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?”

Similar legislation was introduced last year and was met with a furious response from police and firefighters. The coalition of law enforcement and firefighter organizations was able to prevail again this year with the argument that 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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