Pension reform is start
Legislature’s attempt at addressing pension, retiree benefit shortfalls will add transparency but not much teeth
Gov. Rick Snyder made tackling local pensions and retiree benefits a priority this year, as most Michigan communities have not adequately saved to fulfill these obligations. The Legislature got on board and both chambers have passed bills addressing retiree funding shortfalls. The bills aren’t perfect, but they’re a start.
The House and Senate on Wednesday passed similar packages, but they left out some tougher oversight provisions that had garnered criticisms from local government leaders Democrats, who feared the system looked too much emergency management. Because of that, the bills lost the support of some Republicans who sponsored the original bills.
Lawmakers will now need to iron out any differences in the package.
The legislation has gotten a lot of criticism from unions, including police and fire department workers who didn’t want to lose any of their benefits.
Because of the compromises, there appears to be bipartisan support. Senate Minority Leader Jim Ananich, D-Flint, said the revised bills offer broader appeal to lawmakers.
The serious problems with Michigan’s pensions and retiree benefits have been well documented. In a recent report, Business Leaders for Michigan found that unfunded pension liabilities and other retiree benefits such as health care were putting the state at a disadvantage. The report found that Michigan ranked 28th in unfunded public pensions and 37th in other non-pension liabilities. As those costs consume more of state and local budgets, other priorities such as education and infrastructure are jeopardized.
In response to the House and Senate action, Doug Rothwell, president and CEO of BLM stated the legislation was an important first step: “We believe the data will show that the problem is serious and that additional action will be necessary to provide stability for our local governments.”
State Treasurer Nick Khouri told lawmakers that local governments have only committed $3 billion to cover $12 billion in promised benefits. Some are doing better than others, but those numbers aren’t sustainable.
The legislation would require local governments to report more information to the state. That transparency should help, although it’s no guarantee anything will change. There is still room for some extra involvement from the state, including by the Treasury Department, if communities don’t meet funding thresholds.
James Hohman, director of fiscal policy for the Mackinac Center, doesn’t think the legislation goes far enough, saying it’s “based on bad premises,” especially when it comes to retiree health care. Pensions are contractual rights that need to be funded, he says, but retiree health care is a gratuity that can be reduced or reformed at local discretion.
“The state missed an opportunity to encourage local government managers to be practical about providing benefits that few in the private sector receive,” Hohman argues. “Instead of providing that encouragement, political leadership sought to fund benefits that should never have been provided in the first place.”
This was the time for lawmakers to make a bolder move on addressing these retirement funding concerns. But this plan is better than nothing.