Republican-led legislative committees quickly approved bills Tuesday that would force local governments to boost their funding of employee retirement plans over time, an effort supporters say is necessary to prevent financial chaos down the road.
Opponents, however, questioned how the move would affect previously approved union agreements and whether it is necessary to threaten state intervention for recalcitrant communities.
The nearly 600 municipalities that offer pensions have unfunded liabilities totaling $7.4 billion, and 180 have funding ratios below 60 percent, according to a task force created by Gov. Rick 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 won mostly party-line passage on the day testimony began in House and Senate panels. The Snyder administration — concerned especially about underfunded retiree health care systems — testified in support. Snyder also briefed GOP lawmakers behind closed doors about the bills, which have an uncertain future in the full Legislature. The Senate planned to vote Wednesday, according to its agenda. House Republicans were expected to continue discussing the measures and no decision had been made about voting.
"We have to act now. The later you wait, the harder it is to solve the problem," said state Treasurer Nick Khouri.
Said Sen. Jim Stamas, a Midland Republican and sponsor of the legislation: "This isn't to punish (the communities). This is to try to help make sure we preserve and protect the commitments that they made."
During a proposed five-stage process, communities with significantly underfunded pension or health care plans would have to submit planned "corrective actions" to a new Local Government Retirement Stability Board comprised of three gubernatorial appointees. If the board rejects the plan or a local government can't agree on a proposal — such as making additional employer contributions, altering benefits, asking voters for a tax increase or not providing retiree health insurance to future workers — the state treasurer would declare a financial emergency and appoint a three-person team to act as an emergency manager. It would have "broad powers" to rectify the underfunded status.
A coalition of police and firefighter unions and organizations opposed the bills, which also were criticized by the Republican and Democratic executives in the major Detroit-area counties of Oakland and Macomb. Municipal groups lodged concerns, too, noting that state revenue-sharing cuts and declining property tax assessments have been factors.
"We cannot support legislation that impacts the promises made in collective bargaining agreements," said Midland Fire Chief Chris Coughlin. "These promises were made, and they need to be kept. The legislation as currently written, jeopardizes those agreements and promised made."
Democratic Rep. John Chirkun of Roseville, a former mayor and executive sergeant in the Wayne County Sheriff's Office, said municipal employees have made concessions during economic downturns. He questioned if legislators really support the Blue Lives Matter movement if first responders who put their lives on the line ultimately have to pay more for their retirement benefits.
Initially, a retiree health plan would be deemed inadequately funded if it was not at least 30 percent funded and cost the municipalities more than 10 percent of general fund spending. A pension plan would have to be at least 60 percent funded. The minimum thresholds would rise over time. The treasurer would issue a waiver from an underfunding status if the debt is being adequately addressed.
The bills also would:
— prohibit municipalities from reopening pension or retiree health plans if they have been closed as of July 1, 2018.
— bar pension benefits for those elected or appointed to office after June 30, 2018, if they are new to the system.
— require local governments to fully prefund ongoing health costs by mid-2023, which is already required for pension plans. Such "normal" costs equal the amount of money needed to pay for that year's benefits that are earned.