The Republican-led Legislature early Thursday overwhelmingly approved legislation aimed at fixing underfunded municipal retirement plans, after deciding to abandon contentious proposals including state intervention in communities unwilling or unable to solve the problem.
The scaled-back versions of the bills were written after GOP Gov. Rick Snyder and legislative leaders ran into resistance from police, firefighters, Democrats and many Republicans concerned about potential cuts to health care benefits. Lawmakers will finish passing the 13 bills next week before adjourning for the year.
Snyder and others worry the cost of the liabilities jeopardizes basic city services and — if not addressed — the ability for communities to meet their promises to workers and retirees.
"We are taking a solid step forward in preserving and protecting the promises made to our local workers," a lead bill sponsor, Republican Sen. Jim Stamas of Midland, said when final voting began at 2:30 a.m.
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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 ordered by for Snyder. The roughly 340 governments that provide retiree health care have $10.1 billion in unfunded obligations, with average funding ratios of 19 percent.
The legislation closely reflects recommendations from the task force and stops short of additional, more controversial steps such as the creation of financial teams to intervene in municipalities with severely underfunded systems and an unwillingness or inability to better fund them over time.
Local governments would have to prefund new hires' retiree medical costs starting next July. There also would be a multi-stage process to identify and address underfunded pension and health plans.
Beginning in 2018, municipalities would annually report data to the state. Those with plans not meeting minimum funding thresholds — 40 percent for health care and 60 percent for pensions — would receive special attention from the Treasury Department and could get a waiver if they show the underfunding is being addressed. Communities without a waiver would be subject to oversight from a new three-member state Michigan Stability Board of gubernatorial appointees — one representing state officials, another representing local officials and one representing employees and retirees. The board would approve or reject proposed "corrective action" plans.
Options adopted locally could include closing pension plans to new hires in favor of 401(ks), capping employer health costs and making retirees pay more.
"This is the step that we need to make sure that we know the problem, that we know who has issues, who needs help, how we can get them information, how we can get them to work together," said Democratic Rep. Andy Schor of Lansing.
Majority Republicans dropped a proposal that a financial management team be able to impose measures if the corrective action failed or was not made locally.
"Is there a takeover where a board can sell off properties and things like that as an emergency manager does? No. And I don't think that should be in there," Schor said.
Before the bills were redrafted, Republican Sen. Rick Jones of Grand Ledge, a former county sheriff, had warned against the possibility of cities being told what to do with their police and fire labor contracts.
"That is absolutely not acceptable and I will never support it," he said.
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 when considering unfunded liabilities. 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."
The main bills won approval 36-0 in the Senate and 105-5 in the House at the end of marathon sessions.
GOP Senate Majority Leader Arlan Meekhof said legislators found a spot "where everybody does agree on something. You didn't get the touchdown but you got a couple first downs."
House Bill 5298: http://bit.ly/2jzBQwb
Senate Bills 686: http://bit.ly/2zCJ3lS
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