A state-appointed board could gain control over the most seriously underfunded municipal retiree funds under legislative proposal.
A 16-bill package focused on shoring up retiree benefits in some financially struggling communities was introduced in the state House of Representatives and Senate on Thursday.
The plan would put a five-phase process in place to determine if a municipality’s pension and retire health care funds are financially secure. The least secure funds — those where pensions fall below 60% funded and retiree health care funds are less than 40% funded — could have those funds taken over by a three-person, state-appointed board that could assume control of a town’s budget or force the sale of city assets to make sure that retiree benefits are fully funded.
“This is about doing everything we can to preserve and protect the benefits that our first responders have spent so many years working for,” said Speaker of the House Tom Leonard. “We want to ensure they’re not going to have to face a federal bankruptcy judge and lose everything that they’ve worked for.”
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The first two phases would have the units of government — more than 900 cities, townships, villages and counties as well as other organizations like Library or Parks’ authorities — turn over financial information to the state and have the Treasury Department review the materials and make a determination if the funds are financially sound.
The vast majority of communities in Michigan — roughly 85% said Senate Majority Leader Arlan Meekhof, R-West Olive — have retiree pension and benefit funds that are at or near fully funded and wouldn’t need to take any corrective action.
“The folks who are managing their finances well, they’re not going to be impacted,” he said. “They can continue to do what they’re doing.”
But about 30 funds across the state would fall below acceptable levels and require state intervention.
The third phase would look at communities where the retiree funds are below acceptable levels, but the towns have come up with a plan to deal with the shortages. Those communities would be given waivers and be allowed to continue with periodic state oversight.
The fourth phase would require the community to come up with a plan that’s negotiated with elected officials, union members and approved by the Treasury Department.
If all else fails, the fifth phase would require appointment of a three-member, state-appointed financial management team to come in and come up with a plan to fix the retirement benefit shortfalls.
“If a municipality reaches that critical stage, the financial management team would have the power to straighten out the problem without having to send in somebody to run the entire community,” Leonard said.
That could entail shifting a community’s budget priorities or selling city assets in order to fully fund pension and retiree health care funds.
“If you’ve got a local municipality that values funding a golf course over our firefighters and police officers health care, they ought to have that authority,” Leonard said.
The bills are the latest proposal from Republicans in the Legislature that would have the state wrest control of underfunded pension and retiree health care funds in local units of government. Similar legislation was introduced last year and was met with a furious response from police and firefighters.
An earlier version of the bill this time around would have required that retiree health care be shifted from pension-type benefit to a health savings accounts. That prompted yet another rally from hundreds of police officers and firefighters who descended on the Capitol Wednesday to oppose the legislation.
A coalition of police and firefighter organizations still oppose the revised proposal and fear state-mandated changes could make it more difficult to attract good employees into a risky profesions. And Democrats aren’t thrilled with the package either.
We’re very concerned that’s what’s already been agreed is not going to be upheld,” said Rep. Patrick Green, D-Warren. “A lot of cities and counties are already making these changes and have experts in place.”
The bills are expected to receive committee hearings next week in both the House and the Senate and could be teed up for votes before the end of the year.
Contact Kathleen Gray: 313-223-4430, kgray99@freepress.com or on Twitter @michpoligal.
