Retirement reform battle looms in Lansing
Lansing — Firefighters and police officers are expected to rally Wednesday at the Michigan Capitol, the opening salvo in a battle over pending legislation they fear could limit retirement benefits for local government workers across the state.
House Republicans are preparing to introduce a reform proposal that sponsoring Rep. Thomas Albert calls a “fair and balanced solution” to protect retirees while helping local governments avoid potentially budget-busting bills for retirement benefits they’ve promised but failed to fully fund.
Cities and counties across Michigan face a combined $7.4 billion in unfunded pension liabilities and $10.3 billion in unfunded retiree health care benefits, according to a July report by a task force appointed by Gov. Rick Snyder.
“We’re going to isolate who’s at risk, and whoever’s at risk, they’re going to have to come up with a plan to fix it,” Albert, R-Lowell, told The Detroit News.
“The goal of the bill is to help these local communities that have over-promised but at the same time put them on a path toward solvency to the point where beneficiaries will get the benefits that they’ve earned.”
While sponsors continue to fine-tune details prior to introduction, the proposal is expected to require corrective plans for struggling communities. It could limit the type of retirement health care local governments could provide and may prohibit them from re-opening closed pension systems.
Michigan Professional Fire Fighters Union President Mark Docherty has warned that draft versions of the bill he has seen “all gave the state of Michigan the ability to come in and impose benefit cuts to new hires, active employees and even current retirees.”
Docherty, in a message shared with union members, urged them to contact legislators before they “attempt to jam this through as fast as possible with little public input.”
Many local governments have already taken steps to address unfunded liabilities, Docherty told The News, saying the union “doesn’t want the state to have the ability to come in with another hammer and impose changes” that may not fit the unique needs of individual communities.
The firefighters union, the Michigan Association of Fire Chiefs, the Michigan Association of Chiefs of Police and the Michigan Sheriffs’ Association are organizing a “protect our protectors’ rally” for Wednesday.
Large public safety union protests helped kill a reform proposal introduced late last year, but Snyder and GOP House and Senate leaders have each said that addressing unfunded liabilities remains a top priority this fall.
Albert declined to say when he and Rep. Jim Lower, R-Cedar Lake, would introduce their local government retirement reform proposal but told The News “we want to do something by the end of the year.”
That would mean swift action in the House, which has three session weeks left on its 2017 schedule. The bill would likely be referred to the Local Government Committee chaired by Lower, a lead sponsor on the measure. Hearings could begin as soon as this week.
Albert and Lower have been negotiating details with the Senate and governor, said House Republican spokesman Gideon D’Assandro, who added they’ve also been working with union leaders to address their concerns to try to find a “consensus plan.”
“Obviously, part of the driver for this is preventing bankruptcies that would harm existing fire and police employees and retirees,” he said, calling the protests premature because the legislation is not yet finalized.
But union officials who were part of the governor’s task force said they are fearful legislators will go beyond consensus recommendations released in July.
The report called for new fiscal reporting requirements, a “stress test” system to identify risks, a new Municipal Stability Board to develop a corrective plan and minimum pre-funding requirements for retiree health care.
Nick Ciaramitaro, legislative director for American Federation of State, County and Municipal Employees, told members last week that draft legislation he has seen “would make retiree health care for current municipal retirees optional” unless they retired under a collective bargaining agreement that clearly specified longer-term benefits.
Ciaramitaro said he’s also concerned about what steps the state could take if a local government fails to take corrective actions required by the legislation.
“We’re open to discussion on how to deal with all these things, but I have not seen a lot of progress on those issues,” he said.
Albert said retiree health care will remain an option for local governments to offer and for unions to bargain, but it will be in a “different form” and could preclude direct health care premium subsidies.
“They can offer a stipend or a defined-contribution (health care plan),” Albert said. “The methods might change, but the local governments have gotten themselves into a lot of trouble going forward because they’ve offered a health care premium subsidy going into the future.”
Pensions are protected by the state Constitution, but retiree health care benefits are not. Under a 2005 Michigan Supreme Court ruling, retiree health care benefits are only guaranteed if a public employer binds itself contractually to provide them.
Retiree benefits are “one of the biggest cost drivers” for local government budgets, said Chris Hackbarth of the Michigan Municipal League, which was part of the governor’s task force. The group generally supports reform but is waiting to see specifics in the pending proposal.
“We absolutely feel we need to provide health benefits to get good talented employees... but we also have to be able to fix potholes and hire police officers,” Hackbarth said. Those every day services are starting to get crowded out when you see communities with wih 30 percent health care cost increases year over year.”
Senate Majority Leader Arlan Meekhof has advocated for an aggressive approach to local governments that are struggling with unfunded liabilities.
“If they’re looking to the state for help, maybe it includes dissolving them as a public entity and redrawing some of the lines,” the West Olive Republican said earlier this year. “Because if they can’t handle their financial business, then the taxpayers need to be protected.”
Local governments and unions agree reforms are needed, but the governor’s task force acknowledged there is “fundamental disagreement” on how to proceed. The 41-page report urged against a one-size-fits-all solution, noting some communities have already addressed the issue.
Prohibiting cities or counties from offering health care premium subsidies is a “one-size-fits-all solution” that would amount to a “massive cut to retirement security for local government employees,” said Todd Tennis of the Coalition for Secure Retirement.
“What they’re trying to get rid of is any kind of guaranteed benefit from the employer so that when you retire you know what you’re looking ahead to, that you’ll have a certain percentage of health care paid for,” he said. “That would be gone.”
Cities like Lansing, Warren, Flint, Taylor, Pontiac and Saginaw have each underfunded promised retiree health care benefits by more than $200 million. Kalamazoo, Dearborn, Southfield and Ann Arbor each have more than $162 million in unfunded retiree health care liabilities.
“Over time, if prefunding is minimal or inaccurate, liabilities can grow to a point where they jeopardize the fiscal sustainability of the local governmental unit,” the task force said.
Detroit has the state’s highest pension liability of $2.9 billion, according to Snyder’s task force, which said the city had funded municipal pensions at 65 percent of promised levels. Detroit had been saddled with an estimated retiree health care obligation of $6 billion, but that liability was largely eliminated during the largest municipal bankruptcy in U.S. history.
“A retiree health care benefit is not constitutionally protected like a pension, so what happens is these local units get into serious financial stress and then the just cut the benefits and the beneficiary ends up with nothing,” Albert said.