Lansing — A task force formed by Gov. Rick Snyder warned Tuesday of local governments potentially unable to pay impending public retiree costs but pushed back against a “one-size-fits-all solution” for cities, villages and counties.
The 41-page report said “something must be done immediately” about local governments’ growing unfunded liabilities. But there is “fundamental disagreement” within the task force about how best to tackle the problem.
Local governments should meet minimum requirements to pre-fund retiree health care costs for new hires, according to the task force, which is pushing for greater reporting and transparency requirements to better understand “the size and scope of the problem, and where the biggest challenges exist.”
The report also proposed creating a pension and retiree health care “stress test” to alert local governments of looming crises.
Task force member Nick Ciaramitro, a lobbyist for AFSCME Council 25, said he hopes state House and Senate leaders will take the report seriously when it begins crafting potential alterations to the current local government retiree plans.
“Might somebody do something crazy? Yeah,” Ciaramitro said. “But I would hope that the House and Senate leadership would give it the credibility that this task force ... deserves.”
Last week, Senate Majority Leader Arlan Meekhof, R-West Olive, renewed his call to deal with high retiree health care costs for local government but declined to offer any details. He said the Legislature will make it a priority in the fall.
“I think the folks that rely on that income or retirement are gonna know if a local municipality goes bankrupt, they are not likely to have any of those things,” Meekhof said. “So they’re gonna have to find a way to move in a direction that makes it affordable for the taxpayers, still honors the commitments we made to folks that are employed now and maybe you gotta change the benefits going forward, like we did with pensions.”
The task force argues for the creation of a Municipal Stability Board to review local finances and forge a plan. But members have not yet agreed on the powers the proposed board should have.
Some groups praised the principles outlined in the report, but not all task force members were satisfied.
“We strived to form a plan that balanced a desire to reduce costs while maintaining a quality work force. Regrettably, this report falls short of these goals,” said Anthony Minghine, CEO of the Michigan Municipal League and a task force member.
Minghine, for example, wants more authority for cities dealing with any unfunded liability problems related to retiree health costs.
Other groups involved applauded the report.
“Since every local government is unique and already utilizes a variety of retirement plans, there is no one size fits all solution to retirement reform and this task force report underscores that,” said Chris DeRose, CEO of the Municipal Employees’ Retirement System of Michigan. “The report rightly recognizes that many Michigan communities are already taking proactive, innovative steps to achieve full funding of their retirement plans so they can keep their promises to those who have served our communities.”
Most task force members opposed statewide requirements for local government retiree benefit plans. Local communities, through the collective bargaining process “should have the flexibility to agree upon what works best” for them, the report said.
Snyder established the task force to address what he has called “growing financial problems” across the state. Michigan municipalities and counties have a combined $10 billion in unfunded health retiree health care liabilities, $7.4 billion in unfunded pension commitments and $4 billion in bonded debt, according to the report.
While some local governments have fully funded retiree benefits, not all have put enough money into the system. Some used bad assumptions to estimate long-term costs and liabilities, the report said.
The city of Lansing has more than $431 million in unfunded retiree health care liabilities, the largest figure in the state. Health care liabilities top $275 million in Warren, $240 million in Flint, $232 million in Taylor and $231 million in Pontiac.
Detroit’s municipal pension system is 65 percent funded, with liabilities of $2.9 billion. Pension liabilities top $564 million in Wayne County, $306 million in Lansing, $279 million in Warren and $185 million in Genesee County.
Still, the problems are not uniform. The average public pension system in Michigan is 78 percent funded and is “close to what many experts would say is adequate,” according to the task force.