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OPEB bills rolled out, police-fire unions opposed

December 5, 2017

Courtesy of MIRS News Service

The Department of Treasury and the Governor could appoint a three-person panel to hammer out an arrangement with a financially struggling local government to ensure that its retiree pension and health care obligations are paid, under bills introduced in the Legislature Thursday with police and firefighter union input.

The Senate and House introduced identical 16 bills in each chamber in what is viewed as the Legislature’s main policy reform for the waning days of 2017.

Lawmakers are expected to take testimony on the bills this week with the goal being final passage the second week of December, the last scheduled week of session. However, hopes that the legislation will sail to the Governor’s office hit a crosswind when the labor/management coalition of police officer and fire chiefs, sheriffs and deputies came out opposed.

Police and fire officials conceded in a statement that they had agreement with legislative leaders on “conceptual issues,” but the bills “go beyond those concepts.”

The Republicans’ proposal tracks with Gov. Rick Snyder’s municipal retiree health care task force, which Democrats, police and fire officials support. It requires all local government entities to report their employee and retiree obligation data in a uniform matter.

The issue is the hammer Republicans want used against municipalities unable to fund their retiree health care costs at 30 percent or their pensions at 60 percent. The plan creates a three-person panel that would have the power to sell local property and move money across different funds to properly fund the pensions and other post employment benefits (OPEB).

“For instance, if you’ve got a local community that values running a city-owned golf course more than funding their police officers’ or firefighters’ health care, that financial management team would have the ability or the authority to force them to sell assets to ensure that health care is properly funded. Again, this is about protecting the benefits that our hardworking first responders have worked so many years for,” said House Speaker Tom Leonard (R-DeWitt).

Rep. James Lower (R-Cedar Lake), a key sponsor of the bills, said, “the goal of the plan needs to be to solve this problem in the long run. It can’t be ‘OK, next year it looks a little bit better.’ Over a 20-, 30-year look, it has to make sure that these plans are going to be financially solid. Now, if they can’t do that or won’t do that, in phase five, a new financial management team will come in and basically create that corrective action plan and implement it. So that is this package in a nutshell.”

If a resolution isn’t worked out with the gubernatorial-appointed, three-person board created for each community, the fund risks falling to an emergency manager. An emergency manager could cut retiree benefits to make the numbers work, which they are currently allowed to do legally.

Of the approximately 900 individual government retirement plans covered under this bill, it’s estimated less than 30 funds are in significant danger, Meekhof said.

“Cutting benefits to first responders will make it more challenging for municipalities to attract the best talent to serve as police officers and firefighters, which could directly threaten public safety,” reads the statement from the labor/management coalition.

Rep. Patrick Green (D-Warren), representing the House Democrats, and Sen. Rebekah Warren (D-Ann Arbor), the Senate Democrats’ point on the issue both noted the proposal does not fully codify the Governor’s task force report, which presents a problem for them.

“The task force report came out and said this will make sure that everyone has what has been promised to them, and now here we are with something that is completely different,” Green said.

Republican legislative leaders and the Governor’s office have been working with the firefighter and police unions on the issue in the hopes of garnering their support (See “Legislative Leaders Nearing Deal With Unions On OPEB,” 11/29/17). Meekhof wouldn’t say there’s a “deal” with unions, but that changes the unions requested were incorporated in the draft legislation.

The 16-bill package is SB 0686 – SB 0701 in the Senate with SB 0686 and SB 0687 being the main bills of the package. The sponsors are Sen. Jim Stamas (R-Midland), Sen. Mike Shirkey (R-ClarkLake), Sen. Dave Robertson (R-Grand Blanc), Sen. Dave Hildenbrand (R-Lowell) and Sen. Phil Pavlov (R-St. Clair).

The House bills start with HB 5298 and HB 5299. The sponsors include Reps. Thomas Albert (R-Lowell), Lower, Gary Glenn (R-Midland), Kathy Crawford (R-Novi), Eric Leutheuser (R-Hillsdale), Gary Howell (R-North Branch) and Rob VerHuelen (R-Walker).

The Protecting Local Government Retirement and Benefits Act were referred to Shirkey’s Michigan Competitive Committee. In the House, they were referred to Rep. Lee Chatfield’s House Michigan Competitiveness Committee.

The reforms include five steps in addressing pension and municipal retiree health care benefits. 

Phase 1: Transparency and reporting requirements. All units will report uniform data to Treasury based on standards set by the department. These standards include, but are not limited to, discount rates, mortality tables and amortization periods.

Phase 2: Treasury identifies underfunded units. For pensions, criteria is less than 60 percent funded and employer contribution are more than 10 percent of unit’s revenue. For OPEB, less than 30 percent funded and employer contribution is more than 10 percent of unit’s revenue.

Phase 3: Treasury completes review and grants waivers. Waivers are for units that do not need to move on to subsequent phases.

Phase 4: Creation of Corrective Action Plan by the local unit of government negotiated with active employees and retirees.  Treasury approves if actuarially sound.

Phase 5: No plan agreement reached. Unit is moved to oversight by Financial Management Team comprised of one individual with five years experience working in financial matters; one individual with five years experience working in local units of government; one individual who has been a resident of the community affected for at least five years. 

If no resolution is found, the existing emergency manager law would come into play. 

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