Snyder, GOP leaders unveil retirement reform plan

Jonathan Oosting, and Michael Gerstein

Lansing — Republican Gov. Rick Snyder and legislative leaders are pursuing a plan that could force some public employee retiree health care cuts in communities struggling with major unfunded liabilities.

But it would only happen “in the worst-case scenarios,” Snyder told The Detroit News after long-awaited local government retirement reform legislation was introduced in the Michigan House and Senate.

“I think we’ve designed a system to say: Let local governments work with their employees and their retirees to work out solutions without having to have us get to that stage.”

The new proposal would create a five-step process to identify communities with major unfunded pension or retiree health care 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 require retiree benefit changes or reach a consent agreement with local officials.

Democrats and unions criticized the plan Thursday, calling it a big departure from recommendations that Snyder’s task force made in July. The recommendations, including minimum pre-funding requirements for local governments, are included in the legislation, but the proposal goes beyond them.

“Now here we are with something that’s completely different,” said Rep. Patrick Green, D-Warren.

Green said he and other Democrats are particularly concerned about triggering too quickly a financial management team to step in and reorganize a municipality’s finances to ensure that pension and retiree health care costs are funded.

“That’s a very serious step to take,” he said.

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 task force appointed by the governor.

But roughly 80 to 85 percent of municipal and county governments are managing their employee retirement systems well, and the legislation will not force any changes in those communities, said Senate Majority Leader Arlan Meekhof, R-West Olive.

“They can continue to offer a defined benefit if they wish,” he said, noting committees could take up the legislation as soon as next week.

Snyder has been working with unions to address concerns they had with early drafts of the legislation that prompted hundreds of police officers and firefighters to rally outside of the state Capitol on Wednesday and demand that legislators protect retirement promises made by local governments.

While they had agreed on some “conceptual issues,” a coalition of police and fire union leaders said Thursday they do not support the legislation as introduced.

“The bills will allow the state to impose changes to local government control of health care and pension benefits for active and retired police officers and fire fighters,” they said in a joint statement.

Nick Ciaramitaro of the Association Federation of State, County and Municipal Employees said there are “still problems” with legislation that would allow a public employer to “unilaterally” force health care benefit cuts for retirees. It would also prohibit local governments from re-opening a pension system it had decided to close to new hires.

“I don’t think it’s soup yet, so I think it’s a mistake for the Legislature to try to rush these things,” he said.

Snyder and GOP leaders said several changes were made to the bills at the request of unions that represent police, fire and other public employees.

“This isn’t about one side or another. This is about, how do we collectively solve what is a very tough problem that if we don’t do a solution that problem is only going to get worse?” Snyder said. “So let’s solve it together.”

The legislation would require uniform standards for local units of government to report unfunded pension or health care liabilities. Those with large liabilities would be required to submit a corrective action plan for state review and approval by a new Local Government Stability Board within the state Treasury Department.

If the local government does not submit a plan or it is rejected by the board, the governor would appoint a three-member financial management team that would include at least one resident recommended by the local government.

The state-appointed team would have “broad powers” to resolve unfunded liabilities. Members could force changes in retiree health care benefits or even direct a municipality to sell off local assets, including buildings or property.

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.

The management teams could call for appointment of an emergency financial manager for a community that fails to comply with mandates.

The law creates a new section within the emergency manager law to create the team. Republicans say it’s a necessary step to make sure that firefighters, police officers and other local public employees receive the benefits that were promised to them.

They note that the team has limited powers compared with an emergency manager because the team’s powers are only related to financial matters outlined in the legislation. A state-appointed emergency manager has much broader authority, they say.

“We want to ensure that these benefits are going to be protected. We want to ensure that they’re not going to face a federal bankruptcy judge and lose everything that they’ve spent years working for,” said House Speaker Tom Leonard, R-Dewitt.

“So this is about creating transparency and ensuring that the locals are doing everything that they can to preserve and protect these benefits that these hardworking men and women have fought for all these years.”

Rep. James Lower, R-Cedar Lake, chairman of the House Committee on Local Government, characterized the proposed powers as a simple corrective action in times of severe insolvency.

For communities that are spending more than 10 percent of their annual operating budget on retiree benefits, the state would initially require local governments to develop a corrective plan if they have funded less than 60 percent of pension obligations and/or less than 30 percent of health care obligations. Those thresholds would increase over time.