Snyder forms task force to handle unfunded liabilities

Jonathan Oosting
Detroit News Lansing Bureau

Lansing – Michigan Gov. Rick Snyder is setting his sights on unfunded pension and retiree health care liabilities that experts warn could cripple local governments, creating a task force to develop a “responsible retirement reform” agenda by spring.

Republican legislators scuttled controversial retiree health care legislation during last year’s lame-duck session amid protests by police offers and firefighters, who argued the proposal backed by former House Speaker Kevin Cotter could have been “devastating” for municipal retirees.

Snyder’s new task force seeks to broaden the conversation by giving local government and labor representatives a seat at the table. The bipartisan panel features 16 subject-area experts and four state lawmakers, including two Democrats.

The Republican governor said his goal is “collaboration among legislators, state and local government officials, and employee representatives to ensure the financial stability and effective delivery of local government services for the coming decades.”

“As we discuss this growing financial problem across the state it is imperative that we also keep retirees in mind who rely on these programs,” Snyder added, referencing municipal workers who could be affected by state policy mandates.

Reform advocates say many of Michigan’s 334 local units of government have promised retiree benefits they cannot afford. They face a combined $10 billion in unfunded health care liabilities, according to the Snyder administration. The unfunded pension liability is estimated at around $4 billion.

A report commissioned last year by the Grand Rapids Chamber of Commerce showed the cities of Grand Rapids, Ann Arbor, Lincoln Park, Saginaw, Port Huron, Kalamazoo and Traverse City had $1.69 billion in unfunded retirement liabilities.

The plan championed last year by Cotter, R-Mount Pleasant, would have required local government retirees to pay 20 percent of their health care costs if they lived in communities that had accrued significant unfunded liabilities.

The legislation would have eliminated retiree health benefits for new hires beginning in May 2017, instead giving local governments the option to contribute an amount capped at 2 percent of an employee’s base pay to a tax-deferred Health Savings Account.

The plan was developed without input from key stakeholders and was “unacceptable,” according to Mark Docherty, president of the Michigan Professional Firefighters Union.

“It took all local control away – all of it – and it took away promises made to employees,” he said.

Docherty, appointed by Snyder to the new task force, is hoping to help craft a more “responsible” plan this time around. Unfunded liabilities are a real problem for some communities, he said, but others have moved to fully fund their retirement systems in recent years.

“We do believe these should be prefunded, because we want to maintain the benefit, but we also support local control and realize these communities are working toward that fix,” Docherty said. “Most are, some aren’t. We need to look at those who aren’t and how do we motivate them.”

The Michigan Municipal League, which represents local governments across the state, supported last year’s retiree health care proposal “in concept” and continues to believe unfunded liabilities are an issue worth addressing at the state level, said Associate Executive Ddirector Tony Minghine.

Minghine, also appointed to the task force by Snyder, said only a “handful” of cities have fully funded their retiree benefits. Unfunded liabilities can place a large burden on local budgets, he said, calling Detroit’s 2013-2014 bankruptcy case “a worst case scenario” for cities that fail to address the looming threat.

Snyder, a certified public accountant, appointed two fellow CPAs to co-chair the committee: David Breen, a retired managing partner for PricewaterhouseCoopers LLC in Detroit, and Ben Carter, executive vice president of Livonia-based Trinity Health.

Sens. Jim Stamas, R-Midland, and Rebekah Warren, D-Ann Arbor, will also serve on the task force, along with Reps. Tom Albert, R-Lowell, and Andy Schor, D-Lansing.

Snyder has directed the task force to make pension and health care reform recommendations by this spring, according to his office.