Lansing — Michigan must move now to ensure local governments have viable plans to tackle underfunded pension and retiree health care liabilities — and act if they do not, state Treasurer Nick Khouri said Tuesday.
“The longer we wait, the harder it is to solve the problem,” Khouri told a Senate panel before a series of 4-1 votes on a 16-bill package that could force benefit changes for public employees and retirees in communities saddled with large long-term debts.
A House panel approved identical legislation in a series of 5-4 votes, with Democrats on the committee voting against the retirement overhaul package.
The Republican-led Senate is expected to vote on the fast-tracked package as soon as Wednesday despite objections from police officers, firefighters and local governments. Police and firefighters fear potential benefit cuts. Local government leaders argue the proposal goes too far in limiting local control.
Khouri championed the legislation in committee and joined GOP Gov. Rick Snyder in a closed-door discussion with legislators later Tuesday. Administration officials continue to negotiate potential changes with various stakeholders.
While some local governments have taken steps to address looming pension and retiree health care costs, they’ve collectively committed $3 billion to cover $12 billion in promised benefits, Khouri said.
“There’s a huge gap between what’s been set aside to fund future benefits and what’s been committed,” he told legislators.
The chairman of the House panel that OK’d identical bills, Rep. Lee Chatfield, R-Levering, said the legislation will protect retirement benefits.
“We all need to be serious and intent on ensuring that police and fire get the benefits they were promised,” he said. “That’s the intention of these bills.”
But the proposal is a “shotgun approach” to the problem and would create a “mini emergency manager law,” said Midland Fire Chief Chris Coughlin, speaking on behalf of a coalition representing roughly 30,000 fire and law enforcement workers.
“We’re opposed to legislating changes that undo collective bargaining agreements or threaten benefits that have been promised,” Coughlin said, suggesting the legislation would do just that.
The proposal would mandate that local governments pre-fund retiree health care benefits over time. It would create a five-step process to identify communities with large unfunded liabilities and require them to create a plan to work down long-term debts.
If a struggling city or county fails to create or follow its own plan, the governor would appoint a three-member financial management team that could force action under the state’s so-called emergency manager law.
The state-appointed team could force a local unit of government to require additional employee contributions for pension or health benefits, reduce prescription drug coverage, put a tax increase proposal on the local ballot or cap the annual amount that could be spent on retirement health benefits.
The emergency management team could also require a local government to revise its budget, employ auditors or sell assets in order to address unfunded liabilities, provisions generally opposed by city, township and county government groups.
“I understand there needs to be a hammer, but once you get to this EM stage, we’re nervous about elevating shoring up future obligations at the expense of very vital services we have to provide right now,” said Deena Bosworth of the Michigan Association of Counties.
Republican Oakland County Executive L. Brooks Patterson and Sheriff Mike Bouchard spoke out against the plan Monday, with the latter calling it an attempted “control grab and philosophical club” by the state.
Several firefighters and police officers sat in on the Senate hearing one week after hundreds protested potential changes outside the Michigan Capitol.
The Michigan Chamber of Commerce and Business Leaders for Michigan support the plan, arguing the financial stability of local governments is important to employers, and Republicans contend their legislation could help protect communities from potential bankruptcies that could force draconian cuts in retirement benefits.
Sponsoring Sen. Jim Stamas, R-Midland, said local governments statewide are spending about 20 cents of every revenue dollar on retirement benefits. “This isn’t an attack on anyone,” he said. “This is to ensure that those who have made a commitment made to them receive that commitment, and if we can’t make the commitment, then stop making the commitment.”
Cities and counties across Michigan face a combined $18 billion in unfunded pension and retiree health care liabilities, according to a task force appointed by Snyder that urged action but warned against a one-size-fits-all approach and failed to find consensus on several several fronts.
State Sen. Rebekah Warren, the lone Democrat on the panel and sole “no” vote, urged a larger debate about municipal funding.
The Republican plan is “a stick” that does not include “the carrot or even the basic resources” needed by local governments,” she said.