DALLAS—Local governments would face tighter reporting restrictions under legislation being advanced by Michigan lawmakers to improve the fiscal health of municipal retiree benefit programs.
The legislation implements some recommendations from a task force Gov. Rick Snyder commissioned this summer. The new rules are designed to help local governments address an $18.8 billion pension and retirement health care unfunded liability, though groups including the Michigan Municipal League say they don’t go far enough.
The Senate passed the package in a series of 36-0 votes, while the House approved an identical package of bills in a series of 107-3 votes on Thursday. To become law, one of the versions would have to pass the opposite chamber and be signed by Snyder, who is supportive of changes to address retiree health care liabilities.
“The plan approved in the House and Senate is a good step forward in addressing one of Michigan’s last remaining unfunded liability challenges,” Snyder said in a statement. “It will make municipalities more certain, and Michigan residents more aware, of the amount of local funding needed to provide post-retirement benefits, as well as the actions needed to properly fund the retirement of local workers.”
Michigan governments are said to collectively face an estimated $17 billion in unfunded liabilities in their municipal pension and retiree health care plans. Snyder formed the task force in February to help tackle local governments' unfunded retirement obligations. The total unfunded pension liability is estimated to be around $7.46 billion. The total unfunded liability for retiree health care is estimated at $10.13 billion.
The legislation calls for local units of government to issue reports on the fiscal health of their retiree benefit programs more fully and frequently. The Treasury department will evaluate plans to determine where the benefit programs were underfunded.
For retiree health care, a plan is considered underfunded if its obligations are less than 40 percent funded and if its annual contribution is more than 12% of the unit's revenue. A pension plan is considered underfunded if it's under 60% funded and if the unit's annual contribution is more than 10% of its revenue.
Plans short of funding would be subject to extra scrutiny by the Treasury department. The treasurer will give waivers to communities with underfunded pensions if they have approved plans to rectify the situation. Municipalities that don't receive a state waiver would be overseen by a three-member Michigan Stability Board appointed by the governor.
“This is going to bring more transparency and more consistency and hopefully it will provide a lot of answers in terms of what type of shape local governments are in,” said House Speaker Tom Leonard, R-DeWitt. “At some point we’ll have to figure out what to do with municipalities are in the worst shape. But again our members wanted to find which municipalities are actually in bad shape and until we get consistent reporting we are not going to find that out.”
The plan approved on Thursday is scaled down version of the initial plan which would have put in place a five-phase process to determine whether a municipality’s pension and retiree health care funds are financially secure. Funds 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 would have allowed state intervention to force benefit or budget changes.
The Michigan Municipal League expressed disappointment with the scaled-back product, calling it "a colossal missed opportunity" that leaves many communities with "an unsolvable fiscal problem."
Dan Gilmartin, the league's CEO and executive director, said the league and its members "remain committed to developing comprehensive reforms that balance the desire to manage costs while maintaining a quality municipal work force."