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Scaled-Back Local Pension, OPEB Proposal Wins House, Senate Approval

December 12, 2017

Local governments would need to submit a state-approved plan on how to cover their employees’ and retirees’ pension and health care costs, under revamped legislation that passed the House and Senate at about 2:30 a.m. Thursday morning.

The House and Senate overwhelmingly signed off on bills crafted to reflect the first four of the five “stages” the Governor’s local government task force universally agreed to in July with support from local government, police and fire officials, organized labor and lawmakers from both sides of aisle

These stages give a state-appointed independent panel the power to approve a local government’s plan to address its unfunded liability costs, but doesn’t give the board a hammer in case the local municipality doesn’t comply. 

“It appears that we have prevailed. Legislation is going to be presented tonight that require the Task Force recommendations are followed,” reads a tweet from the Michigan Professional Fire Fighters Union. “All collective bargaining rights will remain in place and there will be zero mandates.” 

SB 0686, SB 0688, SB 0689, SB 0690, SB 0691, SB 0692, SB 0693, SB 0694, SB 0695, SB 0696, SB 0697, SB 0698 and SB 0699 all passed unanimously in the Senate, 36-0. Sen. Ian CONYERS (D-Detroit) and Sen. Mike GREEN (R-Mayville) were absent.

“We found a spot where we can agree on these,” said Senate Majority Leader Arlan Meekhof (R-West Olive). “We didn’t get the touchdown, but we got a couple first downs. Let’s keep going, move the ball.” 

Meekhof said there would be no further substantive amendments on the nearly identical House bills once they come over next week. A decision on which House bills and Senate bills will make up the final package will be made next week, he said. 

Senate Minority Leader Jim Ananich (D-Flint) said he was pleased that bills keep the concept of “Promises made, promises kept” to local police officers and firefighters. 

HB 5298, the main bill in the package and identical to SB 0686, passed in the House 105-5. Rep. Tom Albert (R-Lowell) and Rep. Jim Lower (R-Cedar Lake), the two crafters of the OPEB bills in the House were two of the no votes. Other no voters were Reps. Yousef Rahbi (D-Ann Arbor), Rose Mary Robinson (D-Detroit) and Sylvia Santana (D-Detroit). 

Eleven of the bills – HB 5300, HB 5301, HB 5303, HB 5304, HB 5305, HB 5306, HB 5307, HB 5308, HB 5309, HB 5310 and HB 5013, passed 107-3 with Albert, Rabhi and Robinson voting no.  HB 5307 passed 106-5 with Rep. Leslie Love (D-Detroit) and Santana joining Albert, Rabhi and Robinson in voting no. 

Legislation in the House designed to carve out sales tax dollars for a special pot of revenue sharing money did not move. 

According to a pair of sources, bill drafters were literally cutting and pasting language from the task force report into the now 11-bill package. 

In fact, Section 2 of the operative bill, SB 0686, reads, “The legislature finds and declares this act is intended to reflect the July 2017 Report of Finds and Recommendations for Action of the Responsible Retirement Reform for Local Government Task Force.” 

Senate and House leadership’s change of course comes on the back of heavy lobbying from the Sheriff’s Association, Fire Chiefs, Chiefs of Police, organized labor and municipalities, who saw the initial plan with a three-person emergency manager-like panel as being too heavy handed

Under this new plan, all local governments would need to report their pension and retiree health care liability in the same way to the Department of Treasury (Stage 1). From there, Treasury officials would run through the numbers and flag which of the roughly 600 local units that offer retiree benefits are not funding their pension liability at 60 percent and/or funding their other post-employment benefit (OPEB) liability at 40 percent (Stage 2). 

At that point, Treasury will determine if a problem exists and if further action is needed. Communities that already have a plan in place could get a waiver from Treasury if state officials agree the locals are on the right path (Stage 3). 

If not, the local unit would need to submit a corrective plan of action to a three-person Municipal Stability Board made up of a state official, a local government representative and a local employee representative (Stage 4). The Governor would appoint all three. 

A local government flagged with having a problem would need to keep submitting plans of action to the Stability Board until the Board signs off on one it believes will address the municipality’s pension and/or OPEB liability. 

There is no hammer to make sure the plan is being implemented (Stage 5), a sharp deviation from the original proposal, which would have given the board power to sell property and move around assets to address the liability.

SB 0686 does give local government options such as closing a pension plan, implementing multiplier limits, reducing or eliminating benefits and other cost cutting mechanism. 

Snyder, Senate Majority Leader Arlan Meekhof (R-West Olive) and House Speaker Tom Leonard (R-DeWitt) were pushing for more aggressive action to get a handle on an unfunded liability issue that’s been flagged across the country. 

However, their position lost credibility with some members when it was pointed out by police, fire and local unions that Michigan government is doing poorly at funding their retiree benefits, too.

Audits produced earlier this year indicated only 14 percent of the Michigan State Police Retirement System’s (SPRS) OPEB liabilities were funded.

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