CHICAGO — Michigan officials are putting the final touches on a fiscal 2013 budget that will likely mark the state’s first contribution since the early 1990s to prefund its towering retiree health care liability.
By next week, legislators hope to hammer out the final details of an estimated $48.2 billion all-funds fiscal 2013 spending plan, months ahead of the Sept. 30 fiscal year end.
The budget takes advantage of Michigan’s brightening revenue position by setting aside an additional $20 million for local government revenue aid, $10 million for the rainy-day fund — boosting it to $505 million — and $90 million for income tax cuts.
The spending plan includes no new bonding authority.
The general fund budget is expected to total roughly $8.9 billion and the school aid fund would total $12.3 billion.
Driven by Gov. Rick Snyder, lawmakers are also likely to pass bills to reform existing pension and health care systems for the state’s school systems.
The House Appropriations Committee Thursday passed a bill that includes a $130 million prefunding contribution, most of which would come from better-than-expected tax receipts, officials said.
The bill also includes sweeping changes to pension and other post-employment benefits in the Michigan Public School Employees’ Retirement System.
MPSERS is the state’s largest retirement system, with an estimated 400,000 members and a pension and other post-employment benefit liability totaling $45 billion, including a $27.6 billion OPEB liability, according to the most recent comprehensive annual financial report.
The full House is set to vote on the measure next week and may send it back to the Senate.
Michigan has used a pay-as-you-go system for its OPEB liability.
Prefunding the liability would trigger a change in the accounting method used to determine future liabilities, cutting the obligation to $10.8 billion from $27.6 billion, according to a House Fiscal Agency analysis of the bill.
Future contributions would rise to $800 million by fiscal 2022 before starting to fall, the analysis said.
The state briefly made prefunding contributions to the teachers’ retirement system in the 1990s, but let it drop after only a few years, according to budget spokesman Kurt Weiss.
“Gov. Snyder and [budget director John Nixon] are really trying to get that liability under control in this budget,” Weiss said. “With John and the governor, the push will be to continue to do that.”
The legislation would also close the current retiree health insurance plan to new members, shifting them into a less generous program and increasing their required contributions.
On the pension side, lawmakers are considering reforms that mirror changes made to the smaller State Employees Retirement System in the current 2012 budget.
Most notable would be shifting all new employees to a 401(k)-style retirement plan.
“By having the state prefund and take care of some of its liability, we can keep the [contribution] rate in check for the local school districts so that allows them to keep more money in the classroom,” said Ari Adler, spokesman for House Speaker Jase Bolder, R-Marshall.
The conservative fiscal policy group, the Mackinac Center for Public Policy, which has been closely monitoring the legislation, is in favor of the pension and OPEB reforms but not necessarily the prefunding piece.
“The state’s got a golden opportunity to make major reforms that lower the costs of current compensation,” said the center’s assistant director of fiscal policy, James Hohman.
But the benefits of prefunding the OPEB costs are less clear in the long term, he said.
“I think if there’s money, it should be made available to defer the state’s pension unfunded liabilities, which are constitutionally mandated,” Hohman said.
