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HB 5298 Analysis

HB 5298 5313

ANALYSIS OF MI HOUSE REPUBLICAN PROPOSAL 1


PROTECTING LOCAL GOVERNMENT RETIREMENT
AND BENEFITS ACT2

*** DRAFT ***


November 28, 2017
Version 1.5
(last revised 12-04-17)

David Parish3

1
This analysis was originally based on the House Republican Proposal that appeared in Gongwer 11-
14-17 and from my discussions with Rep. Thomas Albert & his legislative staff, not on bills not yet
introduced. Update: 12-02-17: Ive started updates based on actual bill; not much difference.
2 View or download copy of this document @
https://www.scribd.com/document/365819014/11-29-17-Local-Retirement-Reform-Bill-Analy-
sis (or search for HB 5298 Analysis of Republican Proposal to "Protect" Local Public Employee
Retirement Benefits)
3 I'm a member of IAFF Local 366 City of Grand Rapids, but my analysis reflects only my personal opinions and is
solely my work (except for referenced excerpts & quotes)

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HB 5298 Analysis

UPDATES:
11-30-19: Added the following sections:

Response to Gov. Synder Editorial: To Protect Our Future, We Must Pay Past Debts

My Initial Response to 11-14-17 Republican Proposal Outline

12-01-17: Added Speaker Meekhof Claims Only 30 Funds Need Corrective Action

12-03-17: CORRECTION: I wrote my section, Speaker Meekhof Falsely Claims , comment


based upon the proposal before the bills came out on-line and based on the language Meekhof
used in his public statements. Last night, while going through the bills in detail, I realized HB
5298 defines municipalities as "underfunded" as a pension (or retiree health) plan underfunded
at a level of 60% (30% health) AND required contribution >10% of general fund. Using that
criteria, Meekhof is right that about 15% of municipalities would come under review TODAY.
(Although, for units OTHER than municipalities, I was correct).

However, in reality, eventually nearly ALL localties, not just 15%, will eventually become
underfunded and come under the control of a State board or Emergency Manager.

First, the required funding standards get tighter over time up to 80%. Second, if the stock
market tanks, even a highly funded plan will become underfunded. Third, and most
important, HB 5298 gives the MI Treasurer the power to set actuarial assumptions for plans (i.e.
he determines the required contributions). So, by the stroke of a pen, he could easily push
many plans into "unfunded" status (e.g. drop fund ROR from 7% to 5% would increase liabilities
by about 1/3).

I apologize for not catching my mistake earlier. I always try to do my homework and get my
facts right, and I don't knowingly put out incorrect information. I will correct this section later
tonight, and post an update.

12-04-17 (Version 1.5): Added or extensively revised the following sections:

West Michigan Policy Forum Urges the Legislature to Act to Protect the Pensions

HB 5298 Protecting (!) Local Government Retirement and Benefits Act"

HB 5299 Financial Management Team (i.e. Emergency Manager) For Local Unit

Corrective Action Plan Options Focus on Increased Employee Contributions

HB 5298 TROJAN HORSE PROVISION draft executive summary of impact of bil

2
HB 5298 Analysis

UPDATES (Continued):
Email AM with stuff treasurer!
Gov. Synder & Speaker Meekhof Claim Only Few Local Funds Need Corrective
Action quotes from guys
Bill will cut benefits & compensation and time bomb

Introduction letter to Committee


Executive Summary

Comment on Bill and cut & paste to other sections

*** need to update page numbers

RX MSU OPEB MI Cities how close to 10%?


GR Fire: how much contributions? How long last if draw down? Bankruptcy?

3
HB 5298 Analysis

TABLE OF CONTENTS
Introduction Dec. 4, 2017 Letter to House MI Competitiveness Committee 8

Executive Summary HB 5298 Trojan Horse Provisions Will Eventually Gut Police/Fire
Retirement Benefits, Instead of Protecting Them 11

...

PART I: STATE REPUBLICANS INTRODUCE LEGISLATION


TO REFORM LOCAL RETIREMENT BENEFITS
Sept. 2016 Business Leaders Warn of Looming Crisis of Unfinded Liabilities:
West Michigan Policy Forum's (WMPF) Top Priority is Addressing Looming Crisis
of Unfunded Retirement and Healthcare Liabilities 22

Doug Devos Sends a Message to Elected Officials to Restructure Government


Employees Pension and Health Benefits 23

Dec. 2016 Republican House Speaker Introduce Bills to Reform Local Gov-
ernment Retiree Health Benefits:
Republican House Speaker Introduces Lame Duck Session Bills Cutting Retiree
Health Care Benefits for Police, Firefighters, and Other Local Public Employees 25

Republican House Speaker Warns of Problem of Looming Fiscal Calamity 26

Nov. 2017 Here We Go Again, House Republicans Will Introduce Bills to Pro-
tect Local Government Pension & Retiree Health Benefits:
Gov. Synder Editorial: To Protect Our Future, We Must Pay Past Debts 28

West Michigan Policy Forum Urges the Legislature to Act to Protect the Pen-
sions 33
Rep. Thomas Albert Will Introduce Local Retirement Benefit Reform Bill 34

Republican Leadership 11-14-17 Draft Outline My Response [11-22-17] 36

Republican Leaders Falsely Claim Their Bill is Built Upon the Retirement Reform
Task Force's Consensus Recommendations (Their Proposal Reflects Only Minor-
ity View, Not Majority) 41

4
HB 5298 Analysis

TABLE OF CONTENTS (continued)


Protecting Local Government Retirement and Benefits Act" (HB 5298 5313)
HB 5298 Protecting (!) Local Government Retirement and Benefits Act" 46

HB 5299 Locality Financial Management Team (i.e. Emergency Manager) 62


...
Bill Imposes Large Unfunded Mandate onto Fiscally Stressed Local Govt. to Pre-
Fund Normal Cost of Retiree Health Benefits 65

Bill Gives MI Treasurer Power to Set Standards for Actuarial Assumptions & Val-
uation Methods. Unnecessarily Strict Standards will Drastically Inflate Liabilities
(On Paper) & Push Many More Retirement Funds into Crisis 69

Bill Gives State-Controlled Board Emergency Manager Powers to Impose Cuts


to Local Govt. Worker's & Retiree's Pension & Health Care Benefits (i.e. Tear up
Union Contracts & Bypass Police/Fire Arbitration) 71

Gov. Synder & Speaker Meekhof Claim Only Few Local Funds Need Corrective
Action and Those Doing Well Not Impacted and Can Continue As They Are
(But, Bill will Cause Many Funds to Fall Under State Control & Face Emergency
Manager Takeover Threat) 73
...
Financial Stability Boards Corrective Action Plan Options:
Reduce Expenses (i.e. Benefits) or Increase Funding (i.e. Reduce Wages)
Corrective Action Plan Options Focus on Increased Employee Contributions &
Cuts to Benefits, While Reducing Local Govt. Retiree Health Contributions
(Closing DB Health Plan, Cap Costs, 20% Employee/Retiree Premiums) 78

Bill Imposes Unfunded Mandate Outlawing Defined Benefit Retiree Health Care,
and Replaces them with Less Secure & Less Efficient Defined Contribution Savings
Plans [11-24-17: In draft proposal; NOT in final bill] 81

Bill Imposes Mandate Outlawing Defined Benefit Pension and Replaces them with
Less Secure & Less Efficient Defined Contribution Savings Plans [11-14-17 In draft pro-
posal; NOT in final bill] 82

5
HB 5298 Analysis

TABLE OF CONTENTS (continued)


PART II: FUNDING PUBLIC PENSIONS IS FULL PEN-
SION FUNDING A MISGUIDED GOAL?
Local Governments Face a Revenue Problem (Largely Created by State), Not a Benefits
Problem. But, State Refuses to Consider Policy Changes to Aid Locals [Note: 12-03-17
Some revenue sharing bills introduced; havent reviewed in detail]:

Lower Benefit Funding Levels Are Symptoms, Root Problem are Fiscally Stressed
Local Governments with Low Revenues & Failure of MI State Policy (e.g. revenue
sharing cuts, caps on property taxes) 87

The State of Michigan's Great Revenue Sharing Heist Created Most of the Fi-
nancial Emergencies at the Local Level 89

Do Synder & MI Treasurer Khouri Hope to Slash Pensions & Retiree Health Bene-
fits to Fill Local Government Budget Holes Left by State Revenue Cuts? (Used to
Pay for Big-Money Donor & Corporate Tax Cuts) 90

Funding Public Pensions: Is Full Pension Funding a Misguided Goal?


The Great GASB 94

Republican Leadership & MI Treasurer Claim Unfunded Retirement Obligations


Pose Looming Fiscal Calamity to Michigan 96
...
Public Pensions are In Better Shape Than You Think 98
Is the Pension & OPEB Funding Crisis Just an GASB Rules Illusion? 99
Is Full Pension Funding a Misguided Goal? 101

Common Solutions That Seldom Solve Anything: Closing a Plan & Fixed Amorti-
zation Schedule 103

Republican Claims That Local Retiree Benefits Are At Risk from Bankruptcies From
Unfunded Retiree Obligations Are Overblown 104

Don't Fear the Reaper -- Bankruptcy May Be Better Option to Protect Benefits
Vs. State-Controlled Board With Emergency Manager Powers to Unilaterally
Impose Cuts to Pension & Health Care Benefits 107

6
HB 5298 Analysis

TABLE OF CONTENTS (continued)

Why Is Republican Leadership Pushing Unnecessary Reforms That Will Harm


Local Government Budgets & Cut Retirement Benefits of Police & Firefighters?

Synder & MI Treasurer Khouri Plan to Slash Pensions & Retiree Health Benefits to
Fill Local Government Budget Holes Left by State Revenue Cuts (Used to Pay for
Big-Money Donor & Corporate Tax Cuts) 109

Bean Counters Obsessed with Debt, Don't Realize Starting Pre-Funding of


Closed DB Retiree Health Fund Doesn't Make Much Sense 111

On Sept. 26, 2016 Doug Devos Sends a Message to Elected Officials to


Reform Public Retiree Health Care Benefits 112

Ideological-Driven Myth Pushed By Devos & Koch Funded Think Tanks that Pri-
vate DC Savings Plans Are Better than Public DB Pension & Retiree Systems 113

Wall Street Enriched by Closing DB Plans and Forcing Public Workers Into DC Sav-
ings Plans Republicans 114

7
HB 5298 Analysis

INTRODUCTION
December 4, 2017 -- Letter to House MI Competitiveness Committee:

For the past 26 years, I've been a firefighter with the City of Grand Rapids (and before that
served in the MI Army National Guard with Co. F (Ranger), 425th Infantry from 1983 - 1991).
Im a graduate of the University of Michigan with a Masters in Industrial Engineering.

This afternoon, I received a notice that HB 5298 (HB 5298 5216) will be introduced into your
House Michigan Competitiveness Committee tomorrow morning. I'm opposed to this legisla-
tion since I believe HB 5298 will, instead of protecting retirement benefits, will eventually re-
sult in the gutting of police, firefighter, and other local public employee's retirement benefits
and wages.
...

Last week, in his Detroit News editorial, Gov. Synder incorrectly claimed that the Retirement
Reform task force found consensus on key reforms. Although the framework of a five-step
process follows the report, ALL of the key bill provisions are based only on the minority view,
and not the task force majority opinion.

Today, most MI local governments face the problem of restricted revenue in the face of the
next recession. not an overblown looming crisis from retirement obligations. But, instead of
helping out localties, HB 5298 imposes a large unfunded State mandate requiring local govern-
ments to pre-fund retiree health care. What would be the cost?

Last Monday, during his coffee hours, Rep. Thomas Albert (who happens to be my representa-
tive in Ada, MI) couldn't give me an answer! (I'd guess that paying ARC would double costs,
100% pre-funding normal costs maybe about a 50% increase?). Nor would he answer my
question of how fiscally stressed cities are going to pay for his mandate. Shouldn't he know the
answers to those questions?
...

I'm concerned HB 5299 establishes a State-run board given emergency manager powers to
tear up union contracts & disregard police/fire arbitration. In the case of police & firefighters,
there's no need for such a heavy-handed approach, since Act 312 binding arbitratrion can be
used to settle police & firefighter issues that have come to an impasse.

8
HB 5298 Analysis

In addition, MI local governments & unions have already been negotiating concessions to deal
with retirement benefit funding (e.g. in Grand Rapids, our pension contribution has doubled,
we took an 8% pay cut during the recession, we pay 20% insurance premiums, etc.) I strongly
believe localities should be able to continue to negotiate contracts that best work for their local
circumstances, instead of having the State (or an emergency manager board) impose one-
size-fits-all mandates.
...

Senate Speaker Arlan Meekhof has claimed that fewer than 30 [3%] out of about 900 local
government benefit plans statewide are in poor shape and likely in need of corrective action
and that those that are doing well are encouraged to continue as they are. However, the Re-
tirement Reform Task Force report said that about 18% of municipalites (95/519) would be con-
sidered underfunded today (I'm not sure which numbers Speaker Meekhof was using).

Regardless, in the future, instead of just a few bad apples, I believe MOST MI communities
will eventually fall into underfunded status, require a corrective action plan approved by a
Financial Stability Board (FSB), and face the threat of a Financial Management Team (FMT)
granted emergency manager powers to impose a one-size-fits-all pension and/or OPEB plan
upon them. Why?

First, over time, HB 5298 raises the required funding level for a retirement plan to be consid-
ered adequately funded all the way up to 80% (the next stock market crash would probably
knock most funds below that level). Why set such a high number to define plan insolvency?
How does that make sense?

Second, I'm especially concerned by HB 5298, Sec. 5 that grants the MI Treasurer power to im-
pose so-called realistic actuarial assumptions onto local retirement systems (taking away local
control). These stricter requirements will create (on paper) much higher liabilities and require
much higher contributions into both pension and/or OEPB funds. With just a stroke of pen, the
MI Treasurer could easily inflate the actuarial required contribution (ARC) of retirement funds
so it exceeds the 10% General Operating Fund (GOF) trigger and/or push the fund into under-
funded status.

And, who will pay the cost of these increased funding requirements? HB 5299 mandates that
the FMT will rectify the underfunded status while preserving the fiscal stability and the ca-
pacity of the local government to provide essential services. In other words, the FSB (or FMT)
will force police & firefighters to increase their fund contributions (decreasing take home
wages) and/or reducing retirement benefits.

9
HB 5298 Analysis

Ultimately, I think HB 5298 will result in deep cuts to the compensation and retirement benefits
of both police, firefighters, and retirees. Some will work into their 60's if they can't afford to re-
tire because of a low pension or retiree health benefit. Recruiting quality police & firefighters
will become more difficult. Why would anyone want to work these jobs in Michigan if they
could work elsewhere?

Finally, I find the title of HB 5298, protecting local government retirement & benefits act to
be a bit Orwellian. Perhaps, instead, HB 5298 ought to be re-titled, the protecting local gov-
ernment financial solvency, essential services, credit rating, and Gov. Synder's corporate tax
cuts act? (maybe I'm just taking this all a bit too personally, but it does burn me that my re-
tirement could be cut to pay for the DeVos family's tax cuts!)
...

Last week, Rep. Jim Lower said, We are ready [to act] There has been a lot of discussion ...
However, I fail to see how quickly ramming this bill through the Legislature will allow sufficient
time for due consideration by stakeholders and legislators.

And, before voting on this bill, wouldn't you think the Senate leadership would provide legisla-
tors with an actuarial report4 (instead of just a one-page myth & reality talking points sheet)
explaining the impact of this bill?

I urge that you carefully study HB 5298 and understand it's long-term impacts, give it sufficient
time for careful consideration, and consider amending these bills to more closely follow the
consensus & majority recommendations of the Retirement Task force, before voting to move it
out of Committee.
...

P.S. I also feel a little heartburn whenever someone like Gov. Synder or Jack Kennedy (WMPF
chair) refer to our obligations to provide for our retired police & firefighters as debt. My re-
tired firefighter brothers are flesh-and-blood, not some number in an accounting ledger!
Would Synder & Kennedy be happier if, once they're off the job, retired firefighters just hurry
up and die so they're no longer a legacy cost?
4Here's an example from Kentucky: Report says Kentuckys proposed pension reforms could make
everything worse (John Cheeves October 16, 2017) http://www.kentucky.com/news/politics-govern-
ment/article179147066.html and https://protectpensions.org/wp-content/uploads/2017/10/Kentucky-
Retirement-Review-for-KPPCKRTA101017-1.pdf and http://kypolicy.org/dash/wp-
content/uploads/2017/08/KY-DC-Report.pdf

I would also HIGHLY suggest taking a look at Tom Squoro's thought-provoking report, many of my notes
are taken from his report http://theweek.com/articles/682082/public-pensions-are-bet-
ter-shape-than-think and Still a Better Bang for the Buck http://www.nirsonline.org/index.php?op-
tion=content&task=view&id=871

10
HB 5298 Analysis

EXECUTIVE SUMMARY
HB 5298's Trojan Horse Provisions Will Eventually Gut
Police/Fire Retirement Benefits, Not Protect Them
*** DRAFT ***

HB 5298 Imposes Unfunded Mandate that Locals Pre-Fund Retiree Health With Nor-
mal Cost Contribution (from 0% to 100% in Just a 4 Year Period):

HB 5298 mandates much higher payments be made to pre-fund the normal cost (NC); proba-
bly about 50% higher than now, to be paid into retiree health care funds. Currently, there are
no legal requirements to pre-fund healthcare, and since the GASB accounting rule that required
these costs to be put on the books is only 10 years old, many locals haven't yet been able to in-
crease funding levels very high.

HB 5298 sould require all locals to start paying 20% of the NC in 2019, increasing to 100% over
the next 5 years. Where will fiscally strapped localities find the money to pay for this State un-
funded mandate? Locals & unions will will have to negotiate some combination of cuts in
manpower, wages, or benefits (or get increased revenues).

HB 5298 Trojan Horse Provision Gives MI Treasurer the Power to Set Stricter Local
Actuarial Assumptions (Unnecessarily Stricter Standards Will Result In Dramatic In-
creases in Local Govt. and/or Employee Contributions):

HB 5298 grants the power to the MI Treasurer to require local retirement funds to adopt real-
istic actuarial assumptions (effectively taking over all the local pension systems; so much for
local control!). Stricter requirements would create (on paper) much higher liabilities and re-
quire much higher contributions into both pension and/or OEPB funds. This provision is the
WMPF's Trojan Horse5 in this bill.

For example, say the MI Treasurer decides the rate of return for a pension and/or retiree health
fund should be set at 5%. If the plan now assumes 7%, instantly, on paper, that fund now has
increased liability of 33%. So, the required contributions (normal cost& ARC) will go way up
to start paying off the new liability. So, the MI Treasurer setting so-called realistic assump-
tions will blow up liabilities and mandate huge increases in required pension & health fund
contributions.
5Pre-funding retiree income and retiree health care using realistic assump-
tions like medical inflation on health care and realistic investment income
rates on pensions. http://www.grbj.com/articles/89456-reserving-space-on-the-capi-
tol-lawn-lets-hope-it-is-for-pension-reform December 1, 2017 By John Kennedy,
chairman of the West Michigan Policy Forum.

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HB 5298 Analysis

If contributions become unaffordable, many locals will essentially be forced into DC plans.
Localities could close their DB retiree health plans and replace them with inferior DC health
savings plans (less cost-efficient, much less secure). So, future retirees would be screwed.

But, I believe that's exactly what the Republican Leadership (and their political donors) intend.
(Perhaps this is what Speaker Meekhof referred to when he said, They can continue to offer a
defined benefit if they wish). I believe they want to effectively blow up the DB plans and
force police & firefighters into insecure DC plans. But, politically, they can keep their hands
clean an mouth platitudes that they just want to keep promises & protect pensions.

Finally, I doubt these DC savings plans will have enough money to provide insurance for police
& firefighters who need health coverage for the 10-15 year gap until they can get onto Medi-
care, especially for those with pre-existing conditions (I had chemo for a firefighting cancer
when I was only 36 years old).

HB 5298 Pre-Funding Mandate & Trojan Horse Provision Will Eventually Result in
Nearly ALL Locals Hitting Underfunded Status and Coming Under Review by the FSB
Who Will Suggest Corrective Options And Approve a Corrective Action Plan

Where will fiscally strapped localities find the money to pay for the State's unfunded mandates
that they ppre-fund retiree health care and pay increased contributions (resulting from so-
called realistic assumptions required by the MI Treasurer?). After paying for these
mandates , the funds are not in underfunded status, locals will have to negotiate with unions
some combination of cuts in manpower, wages, or benefits (or get increased revenues).

Senate Speaker Arlan Meekhof has claimed6 that fewer than 30 out of about 900 local govern-
ment benefit plans statewide are likely in need of corrective action and that those that are
doing well are encouraged to continue as they are.

However, the MI Treasurer setting realistic assumptions could easily inflate the actuarial re-
quired contribution (ARC) of the health and/or pension fund so that it exceeds the 10% of Gen-
eral Operatiing Fund (GOF) trigger. In addtion, over time, the required plan funding level will
increase up to 80% (the next drop in the stock market will push most funds below this level).

So, eventually, ALL locals, not just a few, will fall into unfunded status and fall into the gentle
embrace of the Financial Stability Board (FSB). The FSB would suggest corrective options,
which stress benefit cuts or increased conributions/premiums) and approve the local's correc-
tive action plan. When deciding upon a corrective action plan, HB 5298 mandates that the
FSB team will approve a plan based on the best financial interests of the local unit. So, the FSB
plan will probably require workers to bear the brunt of the increased contribution costs by re-
ducing wages or retirement benefits.

6
https://www.gongwer.com/programming/news.cfm?Article_ID=562320101

12
HB 5298 Analysis

If Locals Don't Settle Contract (or FSB Disapproves Plan), a FMT (I.e Emergency Man-
ager) Will Rectify Retirement Plans While Preserving Fiscal Stability (i.e. Cuts to
Retirement Benefits & Wages)

If the local government & unions can't settle on a contract (or if the locality refuses to negotiate
in good faith)7 then they will come under the control of a Financial Management Team (FMT).
This FMT would be given Emergency Manager powers to require locals to fully fund their plans
(or to eliminate liabilites by forcing locals into DC funds).

HB 5299 mandates the FMT rectify the underfunded status while preserving the fiscal stabil-
ity and the capacity of the local government to provide essential services. In other words, to
meet increased retirement funding requirements, the FMT will force police & firefighters to in-
crease their fund contributions (decreasing take home wages) and/or reduce retirement bene-
fits.

When faced with the stick of the FMT (perhaps an even worse plan imposed upon them by an
Emergency Manager), many Unions will screw themselves, and negotiate an unpalatable con-
tract with their local. Regardless, workers & retirees, will bear most of the burden of paying for
the unnecessarily high retirement funding resulting from State mandates from on high.

Calling this bill the protecting local government retirement and benefits act is a sick
joke! How, exactly, is this good for anyone? (except Wall Street & the politicians paid
off by their patrons).

So, HB 5298 will ultimately result in deep cuts to the compensation & retirement benefits of
both active & retired police and firefighters. Some will work into their 60's if they can't afford
to retire because of a low pension or retiree health benefit. Recruiting quality police & fire-
fighters will become more difficult as their wages & retirement benefits are slashed. In the fu-
ture, why would anyone want to work these hazardous professions in Michigan, with lower pay
& benefits, if they could work elsewhere?

How, exactly, would this dismal situation be good for anyone? (except Wall Street who can skim
more fees & the politicians paid off by their patrons). Police, firefighters & retirees will get
screwed out of their wages and retirement benefits. More police & firefighters will be laid off.

7
Note: Some localities will refuse to negotiate a contract with unions in good faith. Why? Well, they
could keep their hands clean of cutting police & fire benefits by letting the Emergency Manager do their
dirty work for them. HB 5299 (p.10) specifies that Emergency Managers will act to protect city budgets
& services; nothing Is written about protecting retirement benefits or wages! (so police & firefighters
probably won't have the option of choosing more lay-offs over making benefit cuts).

13
HB 5298 Analysis
Morale will drop even more. Quality police and firefighters will become harder to recruit. Lo-
calities will have to cut other services.

And, If the artifically inflated required contributions into DB health & pension plans becomes
unaffordable , many localities & unions would be effectively forced to close their DB plans and
switch (incurring transition costs) from DB to less DC plans (with lower benefits and little retire-
ment security).

And, folks like the DeVos family & WMPF want to restructure police & fire compensation be-
cause they think we're paid too much. But, politically, the beauty of their scheme is that the Re-
publican leadership doesn't have to get their hands dirty by directly mandating cuts to police
and fire (Instead they can mouth platitudes like ensuring promises are kept). In reality,
they'll have thrown an actuarial hand grenade that will eventually blow up pension systems.

And for what? Supposedly, to ensure retirement benefits are fully funded to protect promises
to retirees. However, in reality, fully funding pensions is a misguided goal 8. HB 5298 will re-
sult in an unnecessarily high required contributions, much higher than actually needed to en-
sure retirement benefits will be paid out.

I could understand making concessions to deal with a real crisis. But, facing severe cuts to re-
tirement benefits and/or wages for a fake crisis is total B.S. And, in reality, the fact we're facing
these severe cuts to pay for past MI corporate tax cuts is maddening! (or because Libertarian
ideologues or political donors want to git er done).

Calling HB 5298, the protecting local government retirement and benefits act, is a sick joke!
Just Orwellian double-talk that actually means the opposite! Instead, of protecting police &
fire retirement benefits, this bill has been crafted with Trojan Horse provisions that will even-
tually gut retirement benefits & wages for police, firefighters, and other public employees.

14
HB 5298 Analysis

11-28-17 Note: I don't have the time today to actually write an Executive Summary. Instead, I
would suggest you take a look at the Table of Contents headings, at my response to Gov. Syn-
der's editorial, and the following section which is an incomplete draft summary. I may try to
finish it tonight as a separate document.
...
Today, most MI local governments face the problem of limited revenue today (largely due to
the State stealing their revenue sharing) not some overblown risk of bankruptcy in the future.
But, instead of helping, the Republican reform proposal will impose a large unfunded State
mandate that locals pre-fund retiree health obligations. And, the bill imposes a one-size-
fits-all mandate forcing all new hires into insecure & inefficient Health Savings Accounts in-
stead of retiree health care (with transition costs). Where are fiscally strapped local govern-
ment supposed to get the money to pay for all these funfunded mandates?

Well, in addition, the Republican proposal will give a state-controlled board the power to tear
up union contracts & bypass police/fire binding arbitration. Basically, this bureaucratic State-
run Emergency Manager board will make whatever cuts (or impose one-size-fits-allplans)
they want on the backs of police, firefighter, and other local employees pension & retiree
health care benefits.

Instead of cutting police & fire retirement benefits (to free up money to fill local budget holes
and to pay for State Republican past corporate tax cuts), shouldn't the Republicans look for
ways to shore up local finances? Perhaps make sensible changes to the Headlee Amendment
or Proposal A so the property tax system works in a sensible manner, that is fairer to all tax-
payer's and ensures more adequate revenue?

They should, but State Republicans won't even consider helping out locals with revenues, since
their big-money donors (like the DeVos family) won't allow such heresy. And, other Republi-
cans have drunken the Kool-aid peddled by right-wing think-tanks that privatized savings
plans are somehow superior to old-age insurance pension & retiree health care plans.
...

Although Public Pensions are In Better Shape Than You Think, An Illusionary Un-
funded Retiree Obligations Crisis Used As Excuse to Cut Retirement Benefits:

The crisis of unfunded local government pension & health care obligations is largely
overblown. Sure, the numbers are large, but they reflect future payments spread out over 30
or more. In addition, retiree health obligations are inflated because of the actuarial
assumption that high medical inflation will continue far into the future (at that rate medical will
consume the entire economy in a few decades; eventually costs will be controlled).
This crisis was created on paper by GASB's 2008 new rule 2008 that future medical costs had
to put on the accounting books. It's important to note these obligation are not debt; there is
no legal obligation to pay, nor interest to pay out.

Health costs are being funded now, they are just not pre-funded. Prefunding would make
sense for a brand new system. But with a mature system today , local government would have

15
HB 5298 Analysis
to pay out twice as much as today to fully pre-fund! Where is that sort of money going to
come from?

This crisis is being used as an excuse to cut public employee's pension and health care
retirement benefits. There's a lot of propaganda out there by Koch & DeVos funded think-
tanks pushing this agenda (and to be cynical, Wall Street loves the extra fees they can skim
from all those public funds going into private accounts).
...
If you want to learn more, I'd suggest taking a look at Tom Sguoro's report, Funding Public
Pensions, referenced by Ryan Cooper in his Public Pensions are in better shape than You
Think.

House Republican Bill Imposes Large Unfunded Mandates on Fiscally-Stressed Local


Governments & Will Slash Pension & Retirement Benefits of Police & Firefighters:

Next week, Snyder and the Republican legislature plan to quickly ram through a bill which will
lead to large cuts to police, firefighter, and other local public employee's pension & retiree
health care benefits.

A myth vs. reality' talking-points sheet distributed among House Republicans falsely claims the
proposal was built around the task force consensus. That's B.S. None of the key provisions in
the proposal (normal cost, outlawing DB plans, giving the MI Treasury the power to set plan
standards, or giving the MSB emergnency manager powers to disregard union contracts &
512 arbitration) was the consensus of the majority of the task force (instead it reflects the mi-
nority view, presumably the Republican legislators, MI Treasurer, MML etc).
The Republican bill will impose a large unfunded State mandate that local governments start to
pre-fund a retiree health fund, outlaw Defined Benefit (DB) pension & retiree care plans, and
establish a State-run board with emergency manager powers to tear up union contracts and
impose heavy-handed one-size-fits-all solutions onto local units & unons.
New hires would be forced into Defined Contribution (DC) plans. Closing DB plans doesn't
lower costs now (unless benefits are cut) and incur transition costs. More important, DC pen-
sions are inherently less cost-efficient and don't provide retirement security (especially for po-
lice & firefighters who don't have Social Security as a safety net).

Furthermore, I doubt these DC health savings accounts will have enough money for police and
firefighters who need health coverage for the 10-15 year gap until they can get on Medicare. In
the future, do we really want a bunch of geriatric police and firefighters hanging around be-
cause they can't afford to retire?

Besides, there's is no need to impose a heavy-handed one-size-fits-all solution from Lansing


upon all the varied local governments and unions across Michigan. Especially since 2008, local
unions and governments across Michigan have already been negotiating concessions and re-

16
HB 5298 Analysis
ductions in health and medical benefits. I strongly believe local units and unions should be able
to negotiate the plans that work best for their local circumstances & history.

Local Governments Face a Revenue Problem (Largely Created by State), Not a Benefits
Problem. But, State Refuses to Consider Policy Changes to Aid Locals:

Local governments across Michigan have suffered from a lack of revenue from several factors:
rising medical costs, rising pension contributions, poor economy, the State slashing revenue
sharing, 2008 property tax revenue crash (that can't recover because of stupid provisions in the
Headlee amendment & Proposal A), etc.

It's worth noting that Gov. Synder's editorial (DN 11-27-17) failed to mention the role his rev-
enue sharing cuts have played. In his 2014 piece The Great Revenue Sharing Heist, MML CEO
Tony Minghine explained how state revenue sharing cuts created most, if not all, of the finan-
cial emergencies at the local level:

Statutory revenue sharing has been unilaterally taken by the state to solve its budget issues.
Its a fact the state is trumpeting its sound fiscal management and admonishing local govern-
ments for not being as efficient. What the state fails to mention is that it balanced its own bud-
get [so it could give huge tax cuts to corporations & LLCs] on the backs of local communities.
This would be like me taking your money to pay my bills, and then telling you that you need to
be more responsible with your house-hold budget.

State leaders excused themselves from making tough choices, instead using local money to pay
their bills. In the process, they have created most, if not all, of the financial emergencies at the
local level. local communities couldnt take money from others and push those tough deci-
sions down to someone else. [unless the proposed State-run board can impose those decisions
onto police/fire].
...
The rapid growth of medical costs nation-wide has stressed local budgets today. The root prob-
lem facing locals are not lavish unfunded retiree medical promises that will be paid in the fu-
ture, but local revenues that have been lagging far behind high medical inflation today. The
cost of medical care does needs to be brought under control, but that's a national problem
(that everyone faces).

Similarly, contributions to pension plans have outpaced revenue since 2008 (not because of
booming benefits, but because many took a pension payment holiday for years (or decades),
investment returns have been below average since 2008, wage increases have been low, lots of
police & fire have been laid off and no longer contribute, and inflation has been lower than av-
erage). Funding levels flucuate because of these factors. Just because a plan isn't so-called
fully funded doesn't mean that it's not viable.. . .

Today's local governments face the problems of limited revenue today, not some overblown
hypothetical bankruptcy risk possibly far in the future. But, instead of helpingout locals, the
Republican proposal would impose a large unfunded State pre-funding mandate upon local

17
HB 5298 Analysis
government. In reality, the only way the proposal will cut expenses is by allowing locals (or a
State-run board) to impose large benefit cuts.

Instead of cutting police, fire, and other public employees retirement benefits (to free up
money to fill local budget holes and pay for past State tax cuts), shouldn't the Republicans look
for ways to shore up local finances? Make sensible changes to the Headlee Amendment or Pro-
posal A so the property tax system works in a sensible manner, that is fair to all taxpayer's and
ensures more adequate revenue to locals?

They should, but the Republicans won't even consider helping out locals with their revenues,
since their big-money donors (like the De Vos family and the Koch brothers) won't allow such
heresy. And, some Republicans have drunken the Kool-aid peddled by right-wing think-
tanks that DC savings plans are somehow superior to DB plans. And, Wall Street (sponsors of
both Democrats & Republicans) can skim more fees if they can get their paws on all that public
money locked up in public DB funds.
...

So, what good does this Republican retirement reform proposal , do for local government
workers, retirees, and local unit's finances? They face problems of limited revenue today, not
some overblown bankrupcty risk possibly far in the future.

Even if it made sense to pre-fund, just where are local governments supposed to find the
money to pay for it? Since many locals are still under financial stress (from a variety of factors,
even 10 years after the recovery from the 2008 crash) this money will have to come three
sources: increased tax revenue, service cuts, or cuts in wages & benefits (but helping local
units with revenues are off the table in Lansing). So, local units will have to make some combi-
nation of cuts to services, cuts to worker compensation, and cuts to retiree benefits.

And for what? Going from PAYGO to pre-funding health care doesn't make financial sense since
it means today's taxpayers, already paying large costs, would pay more today to subsidize lower
payments in the future (especially if this pre-funding is started at the same time the DB retiree
plan is closed to new hires; why start funding a system at the same time you're closing it?).
...
A myth vs. reality sheet distributed among House Republicans said the proposal was built
around the task force consensus. That's B.S. None of the above proposals (normal cost, out-
lawing DB plans, giving the MI Treasury the power to set plan standards, or giving the MSB
emergnency manager powers to disregard union contracts & 512 arbitration) was the consen-
sus of the majority of the task force (instead it reflects the minority view, presumably the Re-
publican legislators, MI Treasurer, MML etc).
Dave Hiller and Mark Docherty [Police & Firefighter Union MI Presidents], told Gongwer the
Legislature should pass a proposal actually based on the recommendations of the Responsible
Retirement Reform for Local Government Task Force report released earlier this year [July
2017]. The task force's report also agreed on a five-phase system The task force agreed on
more transparency and reporting and some minimum funding requirements [normal cost for
new hires].

18
HB 5298 Analysis

[But,] Mr. Docherty said the current proposal goes "well beyond" the task force. "We want
our benefits funded, of course, but there is a reasonable way to do it." He said he is not happy
with everything in the task force report, but it was the product of many months of work with
many stakeholders, not just unions, and it should be implemented. Mr. Hiller said the task
force plan should at least be implemented to first to see if it works before another proposal is
pursued.
...
I agree. I don't see the need to impose a heavy-handed one-size-fits-all solution from Lansing
upon all the varied local governments and unions across Michigan. Especially since 2008, local
unions and governments across Michigan have already been negotiating concessions and re-
ductions in health and medical benefits. Meanwhile, I hope the MI legislators come up with a
bill that truly reflects the consensus of the Retirement Task Force.

19
HB 5298 Analysis

PART I:

STATE REPUBLICANS INTRODUCE LEGIS-


LATION TO REFORM LOCAL RETIRE-
MENT BENEFITS

Sept. 2016 Business Leaders Warn of Looming Crisis


of Unfinded Liabilities

Dec. 2016 Republican House Speaker Introduce Bills to


Reform Local Government Retiree Health Benefits

Nov. 2017 Here We Go Again, House Republicans Will


Introduce Bills to Reform Both Local Government Pen-
sion & Retiree Health Benefits

20
HB 5298 Analysis

Sept. 2016 Business Leaders Warn of Loom-


ing Crisis of Unfinded Liabilities:

West Michigan Policy Forum's (WMPF) Top Priority is Addressing Looming


Crisis of Unfunded Retirement and Healthcare Liabilities

Doug Devos Sends a Message to Elected Officials to Restructure Gov-


ernment Employees Pension and Health Benefits

21
HB 5298 Analysis
Sept 2016 West Michigan Policy Forum's (WMPF) Top Priority Ad-
dress Looming Crisis of Unfunded Retirement & Health Liabilities
The 2016 West Michigan Policy Forum (WMPF) was held on Monday, September 26 at the
Amway Grand Plaza Hotel and the JW Marriott in downtown Grand Rapids.
The top priority chosen by over 400 business leaders attending this years forum was address-
ing the looming crisis of unfunded retirement and healthcare costs We will hold lawmakers
accountable for making bold decisions to reinvent Michigan and challenge state government to
operate with the same vigor as the private sector. 9

WHY THIS, WHY NOW? The West Michigan Policy Forum addresses the looming problem of Un-
funded Liabilities Recognizing that doing nothing will result in hardship and broken promises
for hard-working teachers and government employees the WMPF is encouraging our legislators
to address this critical issue.

The problems from underfunding are far worse than weve been told. Bad assumptions and un-
realistic promises are strangling the budgets of our schools and local governments, piling bur-
dens on the backs of our kids and grandkids in debt, risking the future The promises were
made but these benefits have not been funded; therefore [?], employees are at risk of not re-
ceiving the benefit. Massive tax increases and drastic cuts to services are coming or promises
of benefits will be broken, UNLESS changes are made now.

Does the WMPF advocate taking away the pensions teachers, firefighters, police officers and
other government employees have earned? No, we dont. Just the opposite. We believe if un-
addressed the promises made to these hard working employees will be broken because they
arent funded. So, were calling for action now to keep the retirement promises of current re-
tirees and employees currently earning retirement benefits.

Why should we act fast? Shouldnt we take our time? These alarming problems only get worse
with time. Solutions are needed sooner rather than later to protect workers, taxpayers and the
future of our kids.

What do we need to do? Protect the pensions people have earned (see Detroit where a failure
to act meant that retirees lost part of their pension) The promise of retiree healthcare should
be kept, but delivered via todays changed healthcare market Align public sector benefits to
more closely match those of taxpayers 10

9
http://www.wmpolicyforum.com/ [accessed 12-04-16]

10
http://www.wmpolicyforum.com/media-room/ and
http://www.wmpolicyforum.com/wp-content/uploads/2016/09/2016-WMPF-PWC-Presentation.pdf
http://www.heraldonline.com/news/article118667623.html

22
HB 5298 Analysis
Sept. 2016 Doug Devos Sends a Message to Elected Officials to
Restructure Government Employees Pension and Health Benefits

Giving substance to rumors of a push during the next lame duck session, Amway President
Doug DeVos announced to attendees at the West Michigan Policy Forum [9-26-16] that ending
public employees pension benefits is the No. 1 public policy priority. 11

The 2016 West Michigan Policy Forum (WMPF) was held on Monday, September 26 at the
Amway Grand Plaza Hotel and the JW Marriott in downtown Grand Rapids.

Doug DeVos announced that attendees at the West Michigan Policy Forum ranked restructuring
government employees pension and other retirement benefits as the No. 1 priority in Michigan
policy.

we take these (votes) very seriously; we move them forward with all of our might, DeVos
said. Groups will likely lobby GOP lawmakers to make pension reforms for local governments
happen. What this does, is it sends a message to all of our elected officials. It helps clarify
the issues.

The DeVos family is a major donor to Michigan and national and Republican causes. 12

Note: the claims of the WMPF & DeVos of a looming crisis of unfunded liabilities is
overblown. I discuss those issues later is a few sections in detail

11
https://meamatters.com/2016/09/29/devos-to-legislature-time-to-end-school-pensions/

http://www.epi.org/publication/the-teacher-pay-gap-is-wider-than-ever-teachers-pay-
12

continues-to-fall-further-behind-pay-of-comparable-workers/
23
HB 5298 Analysis

Dec. 2016 Republican House Speaker


Introduce Bills to Reform Local
Government Retiree Health Benefits

Republican House Speaker Introduces Lame Duck Session Bills


Cutting Retiree Health Care Benefits for Police, Firefighters, and
Other Local Public Employees

Republican House Speaker Warns of Problem of Looming Fiscal


Calamity

24
HB 5298 Analysis

Dec. 2016 Republican House Speaker Introduces Lame Duck


Session Bills to Cut Retiree Health Care Benefits for Police, Fire-
fighters, and Other Local Public Employees
Giving substance to rumors of a push during the next lame duck session, Amway Presi-
dent Doug DeVos announced to attendees at the West Michigan Policy Forum [9-26-16]
that ending public employees pension benefits is the No. 1 public policy priority. 13
...
Rumors of health care changes for municipal retirees swirled into the realm of legisla-
tion on Wednesday [11-30-16] with the introduction of House Bills 6074 through
6086.14

The 13-bill package, introduced Wednesday [11-30-16] with little more than two weeks
left in the lame-duck legislative session, would require local government retirees [and
existing employees] to pay [a minimum] 20 percent of their health care costs
The legislation would eliminate retiree health benefits for new hires beginning in May
2017.

Instead, local governments could choose to contribute an amount capped at 2 percent


of an employees base pay to a tax-deferred HSA.15 [Why 2% Is that really enough?]
In addition, HB 6077 makes retiree health care a prohibited subject of bargaining under
the Public Employment Relations Act.

And one bill in the package -- HB 6076 -- only affects police and fire. It opens up Public
Act 312 of 1969 it prohibits an arbitration panel from issuing an order or opinion
encompassing retiree health care benefits.16

According to a study from the Center for Local Government Finance & Policy at Michi-
gan State University found that in 2014, Michigan cities, villages and townships had $7
billion in unfunded health care benefit liabilities. 17

13
https://meamatters.com/2016/09/29/devos-to-legislature-time-to-end-school-pensions/
14
http://www.mlive.com/news/index.ssf/2016/11/michigan_municipal_retirees_co.html
15
http://www.detroitnews.com/story/news/local/michigan/2016/12/01/retirement-
benefits/94740940/
16
http://www.mlive.com/news/index.ssf/2016/12/police_fire_in_unique_position.html

17
Note: Same amount that State of MI cut from revenue sharing to local government over the
past decade.

25
HB 5298 Analysis

Dec. 2016 Republican House Speaker Warns of Unfunded Lia-


bilities Posing Problem of Looming Fiscal Calamity
A lead sponsor of the plan is outgoing House Speaker Kevin Cotter, which signals it will
be a priority in the final two [lame duck] weeks of the two-year term. He pointed to
Detroit's bankruptcy, which resulted in retirement benefits being cut, as a reason to act
now.

"While it will require some additional employee contribution, this is a step forward to-
ward protecting in this case (health) benefits "If we allow it to go unaddressed for
a longer period of time, we're going to have that situation again where we have munici-
palities in bankruptcy. It is seriously that pressing. ... Let's do something proactively
now to save the programs."18

[Chair Chatfield] and Cotter both argued that by solving the problem of unfunded liabili-
ties they were ensuring retirees had some benefits in the long-term, rather than seeing
them eliminated through municipal bankruptcies. "In my opinion this is about trying to
save a more significant portion of the benefits that have been promised," Cotter said. 19
Local governments across Michigan have promised retiree health care benefits they can-
not afford, House Speaker Kevin Cotter said Thursday, warning that collective unfunded
liabilities of $11 billion could drive more Michigan cities toward bankruptcy. The cur-
rent system is not sustainable Unless we address this mounting problem, many local
governments will go bankrupt, retirees will be harmed, and services critical to our resi-
dents will be impaired.20

"This is not about what benefits we would like people to have. It's about recognizing a
very real problem and fixing that problem before it spirals out of control," Cotter said. 21
The problem, as [Speaker] Cotter outlined it, was a looming fiscal calamity. 22

[Sponsor Rep. Earl] Poleski said. The most expensive time for retiree health care,
Poleski said, is the time between when an employee retires and when they're eligible
for Medicare at 65. "Frankly folks are going to have to work, to some extent, until
they are Medicare eligible 23 Note: Really? Do we want police and firefighters work-
ing until they are 65 years old?
18
http://www.heraldonline.com/news/article118667623.html
19
http://www.mlive.com/news/index.ssf/2016/12/no_immediate_committee_vote_pl.html
20
http://www.detroitnews.com/story/news/local/michigan/2016/12/01/retirement-
benefits/94740940/
21
http://www.freep.com/story/news/politics/2016/12/01/house-panel-confronts-unsustainable-
retiree-health-plans/94724836/
22
http://www.mlive.com/news/index.ssf/2016/12/no_immediate_committee_vote_pl.html
23
http://www.mlive.com/news/index.ssf/2016/11/michigan_municipal_retirees_co.html

26
HB 5298 Analysis

Nov. 2017 Here We Go Again, House Re-


publicans Will Introduce Bills to Reform
Both Local Government Pension & Retiree
Health Benefits

Gov. Synder: To Protect Our Future, We Must Pay Past Debts

Rep. Thomas Albert Will Introduce Local Pension & Retiree Health
Reform Bill

West Michigan Policy Forum Urges the Legislature to Act to Pro-


tect the Pensions

My Initial Response to 11-14-17 Republican Proposal Outline

House Republicans Falsely Claim Their Bill is Built Upon the Retire-
ment Reform Task Force's Consensus Recommendations (Their
Proposal Reflects Only Minority View, Not Majority)

27
HB 5298 Analysis

Gov. Synder: To Protect Our Future, We Must Pay Past Debts

On November 27, 2017, Gov. Rick Snyder published his editorial, Snyder: To protect our
future, we must pay past debts, in the Detroit News. You can read his entire text at
http://www.detroitnews.com/story/opinion/2017/11/27/snyder-protect-state-
future/108067564/

Below are excerpts from his editorial, along with several responses to his claims:

...
... there is a problem facing some of our local governments that threatens to crowd
out crucial services and jeopardize retiree benefits: mounting, unfunded liabilities
or in simple terms, long-term debts [!] this number is growing faster and taking
up a larger percentage of whats available in their budgets. acting on these growing
liabilities now is the responsible thing to do. ... before it becomes a full-blown crisis.

Debts? Gov. Synder's talking about our obligations to provide earned pension and
health care benefits to present & future police, firefighter, & other local public retirees.
And, it's important to note that retiree health care obligations are NOT debt; there is no
legal obligation to pre-fund them, nor interest to pay on them.

This so-called unfunded local retirement obligations crisis is largely overblown. It's
an accounting crisis created on paper by GASB's 2008 rule that required retiree
medical obligations had to put on the accounting books (to learn more, take a look at
Ryan Cooper's 2-27-17 The Week article, Public Pensions Are In better Shape than
You Think).

Sure, the numbers are large, but they reflect future payments spread out over 30 or
more years. In addition, retiree health obligations appear yuge! because of actuarial
assumptions that high medical inflation will continue far into the future (at that rate
medical will consume the entire economy in a few decades!; eventually medical costs
will be controlled).

Similarly, contributions to pension plans have outpaced revenue since 2008 (not be-
cause of booming benefits, but because many localities took a pension payment holi-
day for years (or two decades in GR!), investment returns have been below average
since 2008, wage increases have been low, lots of police & fire have been laid off and no
longer contribute, and inflation has been lower than average). Pension funding levels
flucuate because of these factors. Just because a plan isn't so-called fully funded
doesn't mean that it's not viable. Most benefits are paid out from today's contributions
from local government & employees.

28
HB 5298 Analysis

Unforeseen expenses such as rising health insurance costs have been a stressor for
other post-employment benefits (OPEB) systems, which have been increasing at a
much higher rate than general inflation over a long period of time.

The rapid growth of medical costs nation-wide has stressed local budgets today. The
root problem facing locals are not lavish unfunded retiree medical promises that will
be paid in the future, but local revenues that have lagged far behind high medical infla-
tion today. The cost of medical care is a national problem (that everyone faces).

Sure, the unfunded numbers look large (they are large), but they reflect future (possi-
ble) payments spread out over 30 or more years. In addition, retiree health obligations
appear huge because of actuarial assumption that high medical inflation will continue
far into the future (at that rate medical will consume the entire economy in a few
decades!). Eventually medical costs will be controlled).

Its a systemic problem for the nation as a whole one rooted in unwise [?]
government practices such as the pay-as-you-go system that has been the norm for
decades [!] ...

For Pension funds, PAYGO has NOT been the norm for decades for public pension
funds. Today, virtually all plans in MI have been making their ARC payments to fully
fund benefits earned today.

However, it's true that PAYGO for retiree health obligations was the norm for decades.
But, as previously noted, GASB only required these obligation to appear on the
accounting books just 10 years ago. Many locals have started to prefund, but given
their stressed finances, the process of building up fund reserves will take time.

Prefunding would make the most sense for a brand new system. But with a mature
system today, local government would have to pay out twice as much as today to fully
pre-fund! Where is that sort of money going to come from? Without help from the
State for local revenue, this money will come from cut services, wages, and/or retiree
benefits of police, fire, and other public employees.

So what happens if we do nothing? Well, Chicago ranked worst among the nations
15 largest cities. only made 52 percent of its annual legally required pension contri-
bution numbers paint a dark picture of what can happen in Michigan

Why are we talking about Chicago? MI local pension were fully-funded in 2000, and are
still funded at about 70%. Most local pensions are in far better shape than Chicago.
Can't he find a better example here in Michigan?

29
HB 5298 Analysis

Michigan has jurisdictions particularly older cities that have seen population
declines or stunted growth, which means there are more retirees than active people
working. Regardless of how we got here, acting on these growing liabilities now is
the responsible thing to do....

Local governments across Michigan have suffered from a lack of revenue from several
factors: rising medical costs, rising pension contributions [not benefits), poor economy,
the State slashing revenue sharing, 2008 property tax revenue crash, and property tax
laws that prevent them from rising faster than inflation). etc.

Regardless of how we got there... It's worth noting that Gov. Synder failed to mention
that his revenue sharing cuts have put many MI cities under fiscal stress: In his 2014
piece The Great Revenue Sharing Heist, MML's Tony Minghine explained how revenue
sharing cuts created most, if not all, of the financial emergencies at the local level:

Statutory revenue sharing has been unilaterally taken by the state to solve its budget
issues. Its a fact the state is trumpeting its sound fiscal management and admonish-
ing local governments for not being as efficient. What the state fails to mention is that
it balanced its own budget [so it could give huge tax cuts to corporations & LLCs] on the
backs of local communities. This would be like me taking your money to pay my bills, and
then telling you that you need to be more responsible with your house-hold budget.
State leaders excused themselves from making tough choices, instead using local
money to pay their bills. In the process, they have created most, if not all, of the financial
emergencies at the local level. local communities couldnt take money from others
and push those tough decisions down to someone else. [unless State-run board can im-
pose those decisions as proposed in the bill]

Today's local governments face the problems of limited revenue today, not some
overblown hypothetical bankruptcy risk possibly far in the future. But, instead of
helping, the Republican forth-coming local retiree benefit proposal would impose a
large unfunded State retiree health pre-funding mandate upon local government. In re-
ality, the only way the proposal will actually cut local expenses is by allowing locals (or a
State-run board) to impose large retirement benefit cuts.

Instead of cutting police, fire, and other public employees retirement benefits (to free
up money to fill local budget holes and pay for past State tax cuts), shouldn't the Repub-
licans look for ways to shore up local finances? Make sensible changes to the Headlee
Amendment or Proposal A so the property tax system works in a sensible manner, that
is fair to taxpayer's and ensures more adequate revenue?

They should, but State Republicans won't even consider helping out local revenues,
since their big-money donors (like the De Vos family and the Koch brothers) won't allow
such heresy. And, some Republicans have drunken the Kool-aid peddled by right-wing
think-tanks that DC savings plans are somehow superior to DB plans.

30
HB 5298 Analysis

... acting now is the responsible thing to do. ... Thats why I established a
[Retirement Reform] task force Together, legislators, state and local government
officials, and employee representatives found consensus [?] on key reforms that called
for greater reporting and transparency, the development of a fiscal stress system, and
new funding requirements necessary for long-term stability.

Gov. Synder makes a false claim that the task force found consensus on key reforms
(perhaps he unwisely relied on a House Republican myth vs. reality' talking-points
sheet).

Although the framework of the Republican proposal follows the task force report,
NONE of the proposal's most important provisions & requirements were reached by
consensus (e.g. pre-fund normal cost of retiree health care, outlawing DB retiree health
plans, giving the MI Treasury the power to set plan standards, or giving a State-run
emergency manager board powers to disregard union contracts & 512 arbitration).
Instead, these provisions reflect only the minority view (presumably the Republican leg-
islators, MI Treasurer, MML, etc.) and not the majority opinion of the task force's mem-
bers.

MI Firefighter Union President Mark Docherty (and task force member) said the current
proposal goes "well beyond" the task force. He said he is not happy with everything
in the task force report, but it was the product of many months of work with many
stakeholders, not just unions, and it should be implemented.
Sounds good to me. Why not give the actual consensus task force recommendations a
try?

Its a complex issue with no one-size-fits-all solution retirees who have worked
years for local governments deserve to know their retirement benefits will be there
when they need them.

No one-size-fits-all solution? The Republican proposal will impose a large unfunded


State mandate that local governments start to pre-fund a retiree health fund, outlaw
Defined Benefit (DB) retiree health care plans, and establish a State-run board given
emergency manager powers to tear up union contracts & disregard police/fire arbitra-
tion, and impose heavy-handed one-size-fits-all solutions onto local workers.

New hires would be forced into Defined Contribution (DC) health plans. Closing DB
plans doesn't lower costs now (unless benefits are cut) and incur transition costs. More
important, DC savings plans are inherently less cost-efficient and don't provide retire-
ment security since they put all risks onto the workers.

Furthermore, I doubt these DC health savings accounts will have actually enough money
for police and firefighters who need health coverage for the 10-15 year gap until they

31
HB 5298 Analysis

can get onto Medicare. In the future, do we really want a bunch of geriatric police and
firefighters hanging around until 65 years old because they can't afford to retire?

Besides, there's is no need to impose a heavy-handed one-size-fits-all solution from


Lansing upon all the varied local governments and unions across Michigan. Especially
since 2008, local unions and governments across Michigan have already been negotiat-
ing concessions and reductions in health and medical benefits. I strongly believe local
units and unions should be able to negotiate the plans that work best for their local cir-
cumstances & history.
...

This so-called retirement benefit funding crisis is being used as an excuse to cut public
employee's pension and health care retirement benefits. There's a lot of propaganda
out there by Koch & DeVos funded think-tanks pushing this agenda (and to be cynical,
Wall Street loves the extra fees they can skim from all those public funds going into
private accounts).

32
HB 5298 Analysis

West Michigan Policy Forum Urges Legislature to Act


to Protect Pensions

At issue is the fact an overwhelming majority of Michigan communities havent fully


funded the promises they have made to their hardworking police, fire and other
municipal employees unfunded promises that have put their employee retirements at
risk.
We must make changes so current and future workers and retirees are protected in
every Michigan community. we owe it to them to keep the promises we have made.
. work together to ensure financial stability for our communities and safeguard the
effective delivery of local government services.
For many Michigan cities, roughly 20 cents on every dollar will go to fund past promises
to employees no longer working for taxpayers [police & fire retirees; should they just
die?]. This already is impacting what we can and should use to invest in police, fire,
etc. [huh?]
The West Michigan Policy Forum urges the legislature to act before the end of the year
and pass legislation that includes guidelines designed to protect the pensions people
have earned. We need the legislature to outline solutions that include the following
requirements:
Transparency on numbers so we understand the liability in each community.
Pre-funding retiree income and retiree health care using realistic assumptions
like medical inflation on health care and realistic investment income rates on
pensions. [refers to MI Treasurer given power to set standards]
Ensure communities move to defined-contribution plans if their benefits are
underfunded.
Guidelines that address how the state will contain and resolve insolvent
communities.
Protections so these changes cannot be gamed or ignored in the future [cant re-
open closed DB plans]
The goal should be to have this fixed by year-end. The issue can no longer be pushed
down the road to burden our children and grandchildren.24

24
http://www.grbj.com/articles/89456-reserving-space-on-the-capitol-lawn-lets-hope-it-is-
for-pension-reform December 1, 2017 by John Kennedy, chairman of the West Michigan Policy
Forum.

33
HB 5298 Analysis

Nov. 2017- Rep. Thomas Albert Will Introduce Local Pension &
Retiree Health Reform Bill

It's "common knowledge," said Rep. James LOWER (R-Cedar Lake) that he and Rep.
Thomas ALBERT (R-Lowell) plan to introduce legislation to reform municipal pension
and other post-employment benefit (OPEB) as soon as they return from Thanksgiving
break. Lower won't say much about the coming bill

HOUSE REPUBLICAN OUTLINE25: The outline distributed among House Republicans last
week [1st week of November] would implement five phases with the first phase
consisting of requirements for all municipalities.

Those would include reporting, prefunding retiree health care normal cost obligations
and no defined benefit plans for new hires after July 1, 2018. The treasurer would also
be required to set standards for actuarial assumptions and valuation methods for
pension and retiree health care systems.

The proposal would also put in place a system to determine the underfunded status of
local governments. As currently outlined, pensions would be considered underfunded if
funded at less than 60 percent with 10 percent of General Fund revenue on the actuarial
required contribution. Other post-employment benefits would be considered
underfunded at a ratio less than of 30 percent and more than 10 percent of General
Fund on the actuarial contribution.

Under the proposal as written, the Department of Treasury could issue a waiver of
underfunded status for municipalities trending in the right direction or already working
on a corrective plan. For those that are underfunded, a three-member board would also
be created with technical experts appointed by the governor, speaker and Senate
majority leader to advise local governments as they come up with corrective plans.

The final phase, for local units of government that do not put in place a corrective plan
or fail to follow it, would add two more members to the board - one picked by the local
government management and the other by the local union or retirees - would develop
and approve a plan.

...

25 11-14-17 Gongwer article, Framework Set On Municipal Retiree Health Care Plan

https://www.gongwer.com/programming/news.cfm?Article_ID=562230101

34
HB 5298 Analysis

And already, a coalition of police and fire unions and associations are preparing to react.
A "Protect Our Protectors" rally has been scheduled for the steps of the Capitol building
Wednesday, Nov. 29, said Mark DOCHERTY, president of the Michigan Professional
Fire Fighters Union.

The concern is the legislation will take away benefits for retired municipal firefighters
and police officers in cities and local governments that are not properly pre-funding [!]
their retiree health care systems or underfunding [!] their pensions.

The issue is expected to ... be a replay of the debate last year that lead to the formation
of Gov. Rick [SYNDER]'s Responsible Retirement Reform Task Force 26

26http://www.heraldonline.com/news/article118667623.html Pension, OPEB Reform To


Dominate Discussion In House After Break

35
HB 5298 Analysis

My Initial Response to Republican Proposal Outline

Note: Adapted from 11-15-17 Gongwer article, Framework Set On Municipal Retiree Health
Care Plan. Written 11-15-17; updated ;11-22-17

The following State unfunded mandates will be imposed upon all local
units:

Standard reporting requirements. ... The treasurer would be required to set


standards for actuarial assumptions and valuation methods for pension and retiree
health care systems:
The provision that The [MI] treasurer would be required to set standards for actuarial
assumptions and valuation methods for pension and retiree health care systems was
not even discussed by the Retirement Reform task force.
Giving the power to the MI Treasurer to set plan standards gives them the power, with a
stroke of a pin, to instantly create new liability (on paper). For example, if the MI
Treasurer decides to lower the discount rate from 7.5% to 5%? This will increase overall
liability considerably. For example, a $100 million future liability will see that liability
balloon to well over $150 million (on paper).
If discount rates were lowered by the MI Treasurer, that would push nearly all pension &
retiree funds into crisis. Local units would be forced to cut services and/or benefits to
get money to pre-fund these new liabilities.

Prefunding retiree health care normal cost obligations:


Until the new 2008 GASB standards, for decades cities used Pay-As-You-Go to fund
retiree health care. Pre-funding means paying extra money to go into a retiree health
care fund (funding the ARC would double the cost, funding the normal cost would
probably cost up to about 50% more).
(Theres no legal requirement to pre-fund, its just an artificial GASB accounting crisis,
and the whole OEPB crisis is overblown, but thats another story). 27
So where does the money come from to pre-fund? Since local finances are tight, it will
come from local units cutting services, wages, and/or benefits of both workers &
retirees (while Wall Street skims more fees and the stock market bubble blow up bigger).

27
, http://theweek.com/articles/682082/public-pensions-are-bet-
ter-shape-than-think
36
HB 5298 Analysis

No defined benefit [pension & retiree health] plans for new hires after July 1, 2018:

Outlawing defined benefit (DB) means all new pensions will be defined contribution
(DC) savings plans. DB pensions are old-age insurance. In contrast, DC pensions are
just savings plans. Theyre much less secure since they put all risk onto individual
members. Stock market crashes, too bad. Investment earnings suck, too bad. Even if
the city makes the same contribution, half the retirees will outlive their savings. Why
are they better at providing for retirement security?
Further, even if local units continue to make the same normal contribution into the new
DC funds, the retiree will probably only end up with about of the retirement benefit
they would have got with a DB plan28. Not a very efficient way to spend cash by local
units or employees.
Even worse, unlike other city employees, most firefighters dont have Social Security.
...
Similar to DC pensions, DC health savings accounts are insecure savings plans that shift
all health insurance risk onto firefighters. Medical costs go up faster than investments,
pay more out of pocket. If youre lucky and in good health, you might have some cash
left over. But, retire and then have some serious health issues until you can get on
Medicare, youll be bankrupt. Or, if you have pre-existing health issues while working,
you might work as long as possible to stay on insurance (might not be able to afford to
buy insurance.
...
Closing the DB plans and switching to DC doesn't financially benefit local units (unless
they start contributing less, cutting future retiree pensions). There are transition costs
resulting from new members not contributing to the DB pension, so local units must
increase contributions into the old DB fund, while they must start making contributions
into the new DC funds.
Since local unit's finances are already tight, moving from DB to DC plans will result in
even more cuts in today's level of service, and/or wages benefits.

28
Still a Better Bang for the Buck http://www.nirsonline.org/index.php?option=con-
tent&task=view&id=871
37
HB 5298 Analysis

The proposal would also put in place a system to determine the


underfunded status of local governments:
As currently outlined, pensions would be considered underfunded if funded at
less than 60 percent with [more than] 10 percent of General Fund revenue on
the actuarial required contribution.
Other post-employment benefits would be considered underfunded at a ratio
less than of 30 percent and more than 10 percent of General Fund on the
actuarial contribution.
Under the proposal as written, the Department of Treasury could issue a waiver of
underfunded status for municipalities trending in the right direction or already working
on a corrective plan.
Under the above criteria, today at least 30% of MI pensions would be considered
underfunded right now. And, about 80% of retiree health care plans would be
considered underfunded (not just the worst off will come under the supervision of the
State-controlled MSB). [12-03-17 Correction: about 15% right now, didnt notice the
and; thought of as or]
But, as noted above, if the MI Treasurer lowers plan discount rates significantly, nearly
ALL units will be pushed into crisis (at least on paper) or by the unfunded status
trigger levels rising to 80%.

For those that are underfunded, a three-member [Municipal Stability


Board (MSB)] board would also be created with technical experts
appointed by the governor, speaker and Senate majority leader to advise
local governments as they come up with corrective plans.
So MI local units & local unions can F*** (reform or de-form) themselves with
corrective plans (with the lubrication advice supplied by the MSB board), or they
face the the big stick hanging over their heads the dreaded final phase.

The final phase, for local units of government that do not put in place a
corrective plan or fail to follow it, would add two more members to the
board - one picked by the local government management and the other by
the local union or retirees - would develop and approve a plan.
Lets do the math. This board will have 3 members appointed by the MI Republican
leadership. The 4th member would represent the city. Our local would get one member.
Guess who wins a 4:1 (or 3:2, at best) vote? The MSB have the power to approve a
plan which would void Union contracts and bypass police & fire 312 arbitration.
Basically, this board would be like an Emergency City Manager who could make
whatever changes they wanted to retiree health care and pensions.

38
HB 5298 Analysis

Why Not Implement the Retirement Task Force Recommendations?


What good does the Republican retirement proposal do for local government workers,
retirees, and local unit's finances? They face problems of limited revenue today, not
some overblown bankrupcty risk possibly far in the future.

The rapid growth of medical costs nation-wide has stressed local budgets today. The
root problem facing locals are not lavish unfunded retiree medical promises that will
be paid in the future, but local revenues that have been lagging far behind high medical
inflation today.

Similarly, local units required contributions outpace revenue (not because of booming
benefits, but because investment returns have been below average since 2008, wage
increases have been low, and inflation has been lower than average).

But, instead of easing the financial pressures on locals, the proposed plan will increase
financial stress upon local budgets! It imposes a large unfunded State mandate that
requires local governments to start prefunding a new retiree health care fund for
both current and new hires (imposing up to about a 50% increase in local retiree health
care spending today).

The transition costs to move from DB pension to DC funds will require more funding.
And for what? So local police, firefighters, and other public employees will have a much
less secure retirement? (without savings to local units, unless they cut pensions).

Even if it made sense to pre-fund, just where are local governments supposed to find the
money to pay for it? Since many locals are still under financial stress (from a variety of
factors, even 10 years after the recovery from the 2008 crash) this money will have to
come three sources: increased tax revenue, service cuts, or cuts in wages & benefits
(but helping local units with revenues are off the table in Lansing).

So, local units will have to make some combination of cuts to services, cuts to worker
compensation, and cuts to retiree benefits.

And for what? Going from PAYGO to pre-funding health care doesn't make financial
sense since it means today's taxpayers, already paying large costs, would pay more today
to subsidize lower payments in the future (especially if this pre-funding is started at the
same time the DB retiree plan is closed to new hires; why start funding a system at the
same time you're closing it?).

...

39
HB 5298 Analysis

A myth vs. reality sheet distributed among House Republicans said the proposal was
built around the task force consensus. That's B.S. None of the above proposals
(normal cost, outlawing DB plans, giving the MI Treasury the power to set plan
standards, or giving the MSB emergnency manager powers to disregard union
contracts & 512 arbitration) was the consensus of the majority of the task force (instead
it reflects the minority view, presumably the Republican legislators, MI Treasurer, MML
etc).

Dave Hiller and Mark Docherty [Police & Firefighter Union MI Presidents], told
Gongwer the Legislature should pass a proposal actually based on the recommendations
of the Responsible Retirement Reform for Local Government Task Force report
released earlier this year [July 2017]. The task force's report also agreed on a five-phase
system The task force agreed on more transparency and reporting and some minimum
funding requirements [normal cost for new hires].
[But,] Mr. Docherty said the current proposal goes "well beyond" the task force. "We
want our benefits funded, of course, but there is a reasonable way to do it." He said he
is not happy with everything in the task force report, but it was the product of many
months of work with many stakeholders, not just unions, and it should be
implemented.
Mr. Hiller said the task force plan should at least be implemented to first to see if it
works before another proposal is pursued.

...
I agree. I don't see the need to impose a heavy-handed one-size-fits-all solution from
Lansing upon all the varied local governments and unions across Michigan. Especially
since 2008, local unions and governments across Michigan have already been
negotiating concessions and reductions in health and medical benefits.
Meanwhile, I hope the MI legislators come up with a bill that truly reflects the consensus
of the Retirement Task Force.

40
HB 5298 Analysis

House Republicans Falsely Claim Their Bill is Built Upon the Re-
tirement Reform Task Force's Consensus Recommendations
(Their Proposal Reflects Only Minority View, Not Majority)
The [Responsible Retirement Reform] task force recommendations suggested a five-
stage stress system for pensions and OPEB. The first stage included increased reporting
and transparency. Secondly, it recommended criteria be set to determine when plans are
under financial stress it would be reviewed by Treasury to determine if further action
is needed. A new Municipal Stability Board would ... assist local communities develop
their corrective action plan. The timeline for correction action would be implemented on
a case-by-case basis.

Asked if his plan would follow the recommendations of the task force, he [Rep. James
Lower] responded, "absolutely" ... and [claimed the] legislation was "built around" it.

[But, MI Firefighter Union President Mark Docherty said,] "I've been working with Rep.
Lower for the past two months on his legislation, I know exactly what he is proposing
and I know, without a doubt, that he goes well beyond the task force
recommendations

"We want to see reform. We are not opposed to reform. We just want to see what the
task force did all that work for," Docherty explained. "There were 20 people on it; only
five were labor union. All the rest were municipal leaders, financial experts, professors,
lawyers, so it is not like the task force was dominated by labor and this is our dream bill.
I don't like everything in it, but it is a compromise plan and now they want to go well
beyond that."

Democrats are planning to introduce an alternative pension/OPEB reform plan


[Docherty] said he expects the alternative bill will stick more closely to the task force
recommendations. "What the task force basically wanted to see was that the
communities were making forward progress if they have a community that is
digging its hole deeper, we looked at a municipal board made up of experts, actuaries
and people very knowledgeable in municipal finance who could give recommendations
to a community as to what to do to right their course so they start paying it down. That's
what the task force basically decided."29

29https://mirsnews.com/welcome.php Pension, OPEB Reform To Dominate Discussion In


House After Break

41
HB 5298 Analysis

[MI Police Union President] Mr. Hiller said the task force plan should at least be
implemented to first to see if it works before another proposal is pursued. 30

...
Note: Rep. Lower is full of B.S. ! A Republican Myth vs. Reality talking points sheet
also said their proposal is based upon task force consensus. However, in reality, ALL the
important provisions are based only upon the minority view, not the majority of the
members, and certainly NOT consensus.

It's true the Retirement Reform Task Force reached consensus on the broad outline of a
five-stage pension & OPEB stress test system for addressing pension and retiree health
care liabilities. However, ALL of the most important proposal provisions did NOT meet
majority approval, much less were agreed upon by consensus.

No Consensus on Giving the MI Treasurer the Power to Set Fund Standards:


The proposal that The [MI] treasurer would be required to set standards for actuarial
assumptions and valuation methods for pension and retiree health care systemswas
not even discussed by the task force. Instead, the task force came to a consensus
for reporting purposes only, all local units should recalculate its plans funded ratios us-
ing a range of assumptions set annually by Treasury

Giving the power to the MI Treasurer to set these plan standards gives them the power,
with a stroke of a pin, to instantly create new liability (on paper) and push nearly all
pension & retiree funds into crisis. Local units would be forced to cut services and/or
benefits.

For example, what if the MI Treasurer decides to lower the discount rate from 7.5% to
5%? This will increase overall liability considerably. A $100 million future liability will
see that liability balloon to well over $150 million (on paper).

No Consensus on State Unfunded Mandate to Pre-Fund Normal Cost into Retiree


Fund:
The task force agreed local units should meet a minimum requirement to pay OPEB
normal costs for new hires. However, the minority proposal to require payment of

30
Gongwer 11-14-17 article Framework Set On Municipal Retiree Health Care Plan)
42
HB 5298 Analysis

normal costs for ALL active employees ... did not receive consensus. since others felt
that local units could not afford this).
This provision would impose a State unfunded mandate that would require local units to
pay up to about 50% of their current retiree health payments into a retiree health fund.
Since locals are already under financial stress, they will have to cut services or benefits.

No Consensus on One-Size-Fits-all Prohibition of Defined Benefit Plans:

The task force did NOT achieve consensus on one-size-fits-all plan design require-
ments:
A majority of Task Force members were opposed to the establishment of plan design
requirements for all local governments, believing that the local unit, through the collec-
tive bargaining process, should have the flexibility to agree upon what works best within
their communities plan design-related [items] could be considered during the devel-
opment of the Corrective Action Plan, but was clear that none of these items were re-
quired.

However, the proposed legislation greatly exceeds consensus, and disregards the major-
ity view of the task force. Instead, the proposal reflects the task force minority view by
mandating the following one-size-fits-all funding & plan design requirements be im-
posed upon all local units:

Payment of normal costs for all active employees (including new hires)
Close defined benefit pension plan and offer defined contribution plan to new
hires
For new hires, require participation in a defined contribution health care plan
Instead, the proposed requirements to outlaw DB plans reflect only the view of the mi-
nority of the task force (presumably the Republican legislators, MI Treasurers, and the
MML).

No Consensus on Giving MSB Power to Impose Changes to Pension & Retiree Funds:

There was no consensus on the powers of the Municipal Stability Board (MSB). A major-
ity of the Task Force members opposed giving the MSB the ability to implement limited
plan design changes, as this would interfere with the collective bargaining process.
A majority of the Task Force members felt that the MSBs role should be limited to
making recommendations and providing technical support.

43
HB 5298 Analysis

The Task Force agreed that the MSB Board could develop a list of best practices and/or
strategies that would assist local communities in developing their Corrective Action
Plan. It is understood that best practices guidelines are developed in an ever-changing
world and should not be seen as stagnant legislatively adopted guidelines which tend to
become quickly outdated.

It's true the task force did not come to a consensus on how this final stage would work
[and] there was not consensus on which specific powers the MSB should have. The
task force discussed several options: provide recommendations & assistance, recom-
mend emergency manager review, require mediation/arbitration, or give the MSB the
power to implement changes.

However, a majority of the Task Force members opposed giving the MSB the ability to
implement limited plan design changes, as this would interfere with the collective bar-
gaining process. A majority of the Task Force members felt that the MSBs role
should be limited to making recommendations and providing technical support.

But, instead this proposal disregards the task force majority opinion, and reflects only
the minority view who thought the MSB should be able to unilaterally impose changes
if the local unit was unable to successfully implement a corrective action plan.

So, the board will be given the power to approve a plan which would void Union con-
tracts and bypass 312 arbitration. Basically, this State-run board would be like an
Emergency Manager who could make whatever changes they wanted to retiree health
care and pensions. Basically, the MSB would effectively be a State-run emergency man-
ager for local pensions & retiree health benefits.
...
So, an analysis of the Retirement Reform Task Force report shows it's false to claim the
Republican proposal reflects task force consensus. Instead, it only reflects the minor-
ity opinion of the task force members (i.e. Republican legislators, MI Treasurers, and
MML?).

44
HB 5298 Analysis

Protecting Local Government Retirement and


Benefits Act" (HB 5298 5313)

HB 5298 Protecting (!) Local Government Retirement and Benefits Act"

HB 5299 Financial Management Team (i.e. Emergency Manager) For


Locals
...

Bill Imposes One-Size-Fits-All Large Unfunded Mandate onto Fiscally


Stressed Local Govt. to Unnecessarily Pre-Fund Retiree Health Benefits

Bill Gives MI Treasurer Power to Set Standards for Actuarial Assumptions


& Valuation Methods (Would Inflate Liabilities (On Paper) & Push Many
More Retirement Funds into Crisis)

Bill Gives State-Controlled Board Emergency Manager Powers to Impose


Cuts to Local Govt. Worker's & Retiree's Pension & Health Care Benefits
(i.e. Tear up Union Contracts & Bypass Police/Fire Arbitration)

Gov. Synder & Speaker Meekhof Claim Only Few Funds Across the State
Need Corrective Action & Those Doing Well Not Impacted and Can Con-
tinue As They Are (But, Eventually Many More Funds Will Come Under
State Control & Face Threat of Takeover by Emergency Manager)

45
HB 5298 Analysis

HB 5298 Protecting (!) Local Government


Retirement and Benefits Act"
MI Treasurer Sets Actuarial Standards That Determine
Pension & Retiree Health Fund Required Contributions
for ALL MI Local Retirement Plans (Unnecessarily
Stricter Standards Will Result In Dramatic Increases
in Local Govt. and/or Employee Contributions, and Re-
sult in Large Cuts to Retirement Benefits)

State Imposes Unfunded Mandate that Locals Pre-Fund


Retiree Health Normal Cost (from 0% to 100% in Just
a 4 Year Period)

MI Treasurer Declares City/Village/TWP/County Under-


funded Status If Retiree Health Unfunded Obligations <
30% AND Retiree Health ARC > 10% GOF (Other Local
Units Underfunded if Unfunded Health < 30%)

MI Treasurer Declares City/Village/TWP/County Under-


funded Status If Pension Unfunded Obligations < 30%
AND Pension ARC > 10% GOF(Other Local Units Under-
funded if Unfunded Pension < 30%)
If No Waiver is Issued by MI Treasurer, Governor &
House/Senate Speakers Appoint 3 Members To Local Govt.
Retirement Stability Board to Oversee Locals in Un-
funded Status

State Board Approves or Rejects Local Corrective Ac-


tion Plan to Reduce Expenses or Improve Funding
Levels to Permanently Correct Underfunded Status in
All Future Years

Corrective Action Plan Corrective Options Focus on


Increased Employee Contributions & Cuts to Benefits
While Reducing Local Govt. Retiree Health Contribu-
tions (Closing DB Health Plan, Cap Costs, 20% Em-
ployee/Retiree Premiums)

MI Treasurer Declares Financial Emergency If No Lo-


cal Agreement Reached Between Local & Union(or Stabil-
ity Board Doesnt Approve)and Imposes Plan(Voiding Po-
lice & Firefighter Contracts & 312 Arbitration)

46
HB 5298 Analysis

HOUSE BILL No. 5298


November 30, 2017, Introduced by Reps. Albert, Leutheuser, Howell, Glenn and Lower
and referred to the Committee on Michigan Competitiveness.

(Excerpted from https://www.legislature.mi.gov/documents/2017


2018/billintroduced/House/pdf/2017-HIB-5298.pdf)

p.1 This act shall be known and may be cited as the "pro-
tecting local government retirement and benefits act"

Really!? This Act Ought to Be Called Something Like: The


Protecting (Corporate Tax Cuts) Local Government Fiscal
Stability, Credit Rating,& Financial Solvency By Gutting
Police/Fire Compensation & Retirement Benefits Act

p.3 That it is necessary to serve the interests of this


state and protect the credit of its local units of govern-
ment

p.1 Sec. 2. The legislature finds and declares all of the


following:

p.2 Nothing in this act or other laws of this state man-


date or otherwise require a local unit of government
to create a retirement system or to provide retirement
pension benefits or retirement health benefits is an
optional activity or service
p.2 The necessary costs of a retirement system of the
local unit of government or a retirement pension bene-
fit or a retirement health benefit is an activity or
service of the local unit of government and not of
this state.
p.2 That unfunded obligations relating to retirement
systems, retirement pension benefits, and retirement
health benefits can adversely affect the ability of
local units of government to provide governmental ser-
vices can adversely affect the financial solvency of
the local unit of government.
p.3 That it is necessary to serve the interests of this
state and protect the credit of its local units of
government by authorizing assistance to local units of
government in managing their contractual obligations
in a financially sustainable manner.

47
HB 5298 Analysis

SUMMMARY OF ACT 5298

MI Treasurer Sets Actuarial Standards That Determine


Pension & Retiree Health Fund Required Contributions
for ALL MI Local Retirement Plans (Unnecessarily
Stricter Standards Will Result In Dramatic Increases
in Local Govt. and/or Employee Contributions, and Re-
sult in Large Cuts to Retirement Benefits)

State Imposes Unfunded Mandate that Locals Pre-Fund


Retiree Health Normal Cost (from 0% to 100% in Just
a 4 Year Period)

MI Treasurer Declares City/Village/TWP/County Under-


funded Status If Retiree Health Unfunded Obligations
< 30% AND Retiree Health ARC > 10% GOF (Other Local
Units Underfunded if Unfunded Health < 30%)

MI Treasurer Declares City/Village/TWP/County Under-


funded Status If Pension Unfunded Obligations < 30%
AND Pension ARC > 10% GOF(Other Local Units Under-
funded if Unfunded Pension < 30%)

If No Waiver is Issued by MI Treasurer, Governor &


House/Senate Speakers Appoint 3 Members To Local Govt.
Retirement Stability Board to Oversee Locals in Un-
funded Status

State Board Approves or Rejects Local Corrective Ac-


tion Plan to Reduce Expenses or Improve Funding
Levels to Permanently Correct Underfunded Status in
All Future Years

Corrective Action Plan Corrective Options Focus on


Increased Employee Contributions & Cuts to Benefits
While Reducing Local Govt. Retiree Health Contribu-
tions (Closing DB Health Plan, Cap Costs, 20% Em-
ployee/Retiree Premiums)

MI Treasurer Declares Financial Emergency If No Lo-


cal Agreement Reached Between Local & Union(or Stabil-
ity Board Doesnt Approve)And Imposes Plan (Voiding
Police & Firefighter Contracts & 312 Arbitration)

48
HB 5298 Analysis

Definitions
p.3 "Annual required contribution" [ARC]means the sum of
the normal cost payment and the annual amortization
payment for past service costs to fund the unfunded
actuarial accrued liability

p.5 "Normal cost" means the annual service cost of retire-


ment health benefits as they are earned during active
employment of employees of the local unit of govern-
ment in the applicable fiscal year, using an individ-
ual entry-age normal and level percent of pay actuar-
ial cost method.
. . .

p.7 "Underfunded local unit of government" means a local


unit of government that is in underfunded status.

p.7 "Underfunded status" means that the state treasurer


has determined that the local unit of government is
underfunded under the review provided in section 5 and
the local unit of government does not have a waiver
under sections 6 and 8
. . .

p.3 "Corrective action plan" means a plan that details the


actions to be taken by a local unit of government to
address and resolve the underfunded status of that lo-
cal unit of government.

p.4 "General fund operating expenditures" means the sum of


all governmental activity fund revenues of a local
unit of government. General fund operating expendi-
tures do not include any fund of the local unit of
government that the state treasurer determines is a
proprietary, fiduciary, enterprise, or other re-
stricted fund
Note: General Fund expenditures or revenues?

p.15 As used in this section, "summary retiree health care


report" means a report that includes all of the fol-
lowing (f) The assumed rate of return of the retire-
ment system.(g) The actual rate of return of the re-
tirement system for the previous 1-year period, the
previous 5-year period, and the previous 10-year pe-
riod.
49
HB 5298 Analysis

MI Treasurer Sets Actuarial Standards That Deter-


mine Pension & Retiree Health Fund Required Contri-
butions for ALL MI Local Retirement Plans
(Unnecessarily Stricter Standards Will Result In Dramatic
Increases in Local Govt. and/or Employee Contributions, and
Result in Large Cuts to Retirement Benefits)

p.18 Sec. 5. (1) The state treasurer shall establish


standards for local units of government for actuarial
assumptions and other methods of valuation of retire-
ment systems that include, but are not limited to,
standard ranges for investment returns, salary in-
crease rates, amortization of unfunded liabilities,
mortality updates, discount rates, and health care in-
flation.

Note: This is the WMPF's Trojan Horse in this bill:

Pre-funding retiree income and retiree health care


using realistic assumptions like medical inflation on
health care and realistic investment income rates on
pensions.31

For example, if the Treasurer decides the standard dis-


count rate should be 5%, and the plan now assumes 7%, in-
stantly that fund has 33% more liablity. So, the required
contributions(normal cost& ARC) will go way up.

Setting so-called realistic assumptions will blow up lia-


bilities and mandate huge increases in required pension &
normal cost health care contributions. If contributions
are large enough, many locals will essentially be forced
into DC plans, as the DB become unafforadable.

Even worst, if the Treasurer inflates the ARC high enough


to exceed the 10% GOF trigger, then eventually ALL locals,
not just a few, will trigger unfunded status and fall un-
der review of the state board or the thumb of the emergency
manager team.

31
http://www.grbj.com/articles/89456-reserving-space-on-the-capi-
tol-lawn-lets-hope-it-is-for-pension-reform December 1, 2017 | By John Kennedy, chairman
of the West Michigan Policy Forum.

50
HB 5298 Analysis

Both of those teams are mandated to only consider the best financial interests of the
local unit and to preserve financial stability and capacity to provide essential ser-
vices. In other words, to meet increased funding levels, police & firefighters will have
to increase their fund contributions (decreasing take home wages), or reduce retire-
ment benefits.

. . .

p.17 the local unit of government shall not use or apply a


rolling amortization method, an open amortization
method, or other adjustable amortization method for an
unfunded actuarial accrued liability of retirement
pension benefits An amortization period may not
be extended

51
HB 5298 Analysis

State Imposes Unfunded Mandate that Locals Pre-Fund


Retiree Health Normal Cost
(from 0% to 100% in Just a 4 Year Period)

p.7 Sec. 4. (1) Beginning July 1, 2018, if a local unit of


government has opted or opts to offer a retirement
health benefit, all of the following apply to the lo-
cal unit of government:

p.9 For a fiscal year of the local unit of government be-


ginning after June 30, 2019 and before July 1, 2020,
at least 20% of the normal cost must be funded during
that fiscal year.

after June 30, 2020 at least 40% of the normal


cost

after June 30, 2021 at least 60% of the normal


cost

after June 30, 2022 at least 80% of the normal


cost

after June 30, 2023,at least 100% of the normal cost


If normal cost funding requirement will cause an


undue hardship by diverting significant resources
away from the provision of existing essential services
may request a temporary waiver board may only grant
1 waiver not to exceed 5 years,

p.11 An irrevocable trust is authorized and created by this


act for each retirement system. The normal cost
funding under subsection (1(d) and any other pre-
funding of retirement health benefits system must be
deposited into the irrevocable trust.

52
HB 5298 Analysis

MI Treasurer Declares City/Village/TWP/County Un-


derfunded Status If Retiree Health Unfunded Obli-
gations < 30% AND Retiree Health ARC > 10% GOF
(Other Local Units Underfunded if Unfunded Health < 30%)

p.18 (4) The state treasurer shall determine that a local


unit of government is in underfunded status if any of
the following apply:
Note: any referring to retiree health OR pension plan.
So, either plan hitting trigger would open up both plans to
changes.
. . .

a) The actuarial accrued liability of a retirement


health system of the local unit of government is less
than adequately funded

AND, if the local unit of government is a city, vil-


lage, township, or county,

the annual required contribution for all of the re-


tirement health systems of the local unit of govern-
ment is greater than 10% of the local unit of govern-
ment's annual general fund operating expenditures
[revenues? see Definitions)

p.19 As used in this subdivision, "adequately funded"[for


retiree health care] means the following amounts for
the following fiscal years: [from 30% to 80% funded
over 30 years]

after June 30, 2016 at least 30% funded.

after June 30, 2023 at least 35% funded.

after June 30, 2028 at least 40% funded.

after June 30, 2033 at least 45% funded.

after June 30, 2038 at least 50% funded.

After June 30, 2048 at least 80% funded.

Note: Trigger for underfunded status goes up from 30% to


80% over 30 years; about 1% per year.
53
HB 5298 Analysis

MI Treasurer Declares City/Village/TWP/County Un-


derfunded Status If Pension Unfunded
Obligations < 30% AND Pension ARC > 10% GOF
(Other Local Units Underfunded if Unfunded Pension < 30%)

p.18 (4) The state treasurer shall determine that a local


unit of government is in underfunded status if any of
the following apply:

Note:any referring to retiree health OR pension plan. So, ei-


ther plan hitting trigger would open up both plans to
changes.
. . .

p.20 (b) The actuarial accrued liability of a retirement


pension system of the local unit of government is less
than adequately funded, according to the most recent
annual report,

AND, if the local unit of government is a city, vil-


lage, township, or county,

the annual required contribution for all of the re-


tirement pension systems of the local unit of govern-
ment is greater than 10% of the local unit of govern-
ment's annual general fund operating expenditures

As used in this subdivision, "adequately funded" [for


pensions] means the following amounts for the follow-
ing fiscal years:[from 60% to 80% over next 20 years]

after June 30, 2016 at least 60% funded.

after June 30, 2023 at least 65% funded.

after June 30, 2028 at least 70% funded.

after June 30, 2033 at least 75% funded.

after June 30, 2038, at least 80% funded.

Note: Trigger for underfunded status goes up from 60% to


80% over 30 years; about 2/3% per year.

54
HB 5298 Analysis

Note: Discuss how triggers in RTF report and in


Rockefeller report. Hardly insolvent!

55
HB 5298 Analysis

If No Waiver is Issued by MI Treasurer,


Governor & House/Senate Speakers Appoint 3 Members
To Local Govt. Retirement Stability Board to Over-
see Locals in Unfunded Status

p.21 The state treasurer shall issue a waiver of the deter-


mination of underfunded status for a local unit of govern-
ment if the state treasurer determines that the underfunded
status is adequately being addressed by that local unit of
government

p.22 The state treasurer shall rescind his or her waiver


if the state treasurer determines underfunded local unit
of government violates this act in a manner that substan-
tially impairs that underfunded local unit of government's
ability to pay principal of and interest on municipal secu-
rities or other debt when due and payable or its ability to
adhere to a balanced budget.
. . .
p.23 Sec. 7. (1) The local government retirement stability
board is created The board consists of all of the
following members:

(a) One resident of this state with knowledge, skill,


or experience in accounting, actuarial science, re-
tirement systems,retirement health benefits, or gov-
ernment finance appointed by the governor.

(b) One resident of this state appointed by the gov-


ernor from a list of 3 or more nominees submitted by
the speaker
Of the house.

(c) One resident of this state appointed by the gover-


nor from a list of 3 or more nominees submitted by the
senate majority leader.

Note: No Union member required to be on this board


. . .

p.23 A writing prepared, owned, used, in the possession of,


or retained by the board in the performance of an of-
ficial function is exempt from disclosure by the board
under the freedom of information act

56
HB 5298 Analysis

State Board Approves or Rejects Local Corrective


Action Plan to Reduce Expenses or Improve Fund-
ing Levels to Permanently Correct Underfunded
Status in All Future Years

p.21 (d) [If]The local unit of government demonstrates to


the state treasurer does not have adequate financial
resources to make its annual required contributions
for retirement pension benefits or retirement health
benefits, and the governing body of the local unit of
government requests to have underfunded status for
purposes of this act.

p.27 A corrective action plan may include the corrective


options for correcting underfunded status as set forth
in subsection (8) [see next page]and any[!]additional
solutions [so, no real limits to actions]to assist
with reducing annual expenses or improving funding
levels related to its underfunded status to maintain
and preserve [!?] retirement pension benefits and re-
tirement health benefits. [arent these objectives
mostly contradictory?]

p.28 the local unit of government has 180 days to im-


plement the corrective action plan or otherwise nego-
tiate with active employees and retirants to achieve
the necessary cost reductions and funding improvements
to permanently correct its underfunded status in all
future years.

p.27 The corrective action plan must be negotiated with ac-


tive employees and retirants. The governing body of
the local unit of government shall approve the correc-
tive action plan before submission to the board. The
board shall approve or reject a corrective action plan.

p.26 Sec. 9. The board may review and vote on the approval
of corrective action plans for a local unit of govern-
ment that has been determined to be in underfunded
status based on what the board determines is in the
best financial interests of the local unit of govern-
ment.

Note: Board doesnt consider the best interests of police, fire-


fighters, and other local employees.

57
HB 5298 Analysis

Corrective Action Plan Corrective Options Focus


on Increased Employee Contributions & Cuts to
Benefits While Reducing Local Govt. Retiree
Health Contributions (Closing DB Health Plan,
Cap Costs, 20% Employee/Retiree Premiums)

p.27 A corrective action plan may include the corrective


options for correcting underfunded status as set forth
in subsection (8)and any[!]additional solutions to as-
sist with reducing annual expenses or improving fund-
ing levels related to its underfunded status to main-
tain and preserve [!?] retirement pension benefits and
retirement health benefits.

Note: Any additional solutions? So, no firm limits on solu-


tions.

Preserve retirement benefits? How do you do tha by re-


ducing annual expenses? Same with improving funding lev-
els since that can also be done by cutting benefits (or
increasing contributions/premiums). Arent these objec-
tives contradictory?
. . .

p.28 (8) A corrective action plan of corrective options for


the local unit of government to address and perma-
nently resolve [referring to closing DB plans, and
forcing new hires into DC plans?] its underfunded sta-
tus The corrective options as described in this sec-
tion may include 1 or more of the following:
. . .

(a) Requiring additional employer contributions for


retirement pension benefits or retirement health bene-
fits.

p.30 (e) Limiting the annual amount the local unit of gov-
ernment may pay toward the cost of providing retire-
ment health may include 1 or more of the following:

(i) Implementing a maximum payment permitted for each


coverage category of retirement health benefits
based on the change in the medical care component of
the United States Consumer Price Index

58
HB 5298 Analysis

(ii) Requiring the local unit of government to pay no


more than 80% of the total annual cost for all retire-
ment health
(iii) Implementing a cap on the total amount the local
unit of government may pay for the cost of providing
retirement health benefits.
. . .
(b) Requiring additional employee contributions for
any future retirement pension benefits to be accrued,
or for any applicable retirement health benefits.
(c) Requiring adjustment of debt structure, altering
of eligibility, calculation of benefits, copays, drug
prescription coverage, or other modification of provi-
sions of an applicable retirement system. [i.e. reduce
benefits]
. . .
p.17 The local unit of government shall not reopen a de-
fined benefit retirement system to provide any new
retirement pension benefits after . has been closed
to new hires.
Note: Insider talk: Protections so these changes cannot be gamed
or ignored in the future.32
. . .
p.31 Requiring the local unit of government to require each
individual included in a beneficiary unit to enroll in
Medicare part A and part B
(h) Requiring the local unit of government to not sub-
sidize retirement health insurance benefits for any
employee who was first employed by the local unit of
government after a specified date in the future.[i.e.
close DB retiree health for new hires]
P.7 (a) The local unit of government shall not reopen a
defined benefit retirement system or reoffer any other
defined benefit plan to provide any new retirement
health benefits after has been closed to new hires.
Note: Insider talk: Protections so these changes cannot be gamed
or ignored in the future.33

32
http://www.grbj.com/articles/89456-reserving-space-on-the-capitol-lawn-lets-hope-it-is -
for-pension-reform December 1, 2017 | By John Kennedy, chairman of the West Michigan
Policy Forum.

59
HB 5298 Analysis

. . .

p.29 Submitting to the electors of the local unit of gov-


ernment a ballot question authorized on the imposition
of a new millage

p.30 (f) The levy of a property tax required to meet an ap-


propriation made by the local unit of government au-
thorized under the fire fighters and police officers
retirement act

33
http://www.grbj.com/articles/89456-reserving-space-on-the-capitol-lawn-lets-hope -it-is-
for-pension-reform December 1, 2017 | By John Kennedy, chairman of the West Michigan
Policy Forum.
http://www.grbj.com/articles/89456-reserving-space-on-the-capitol-lawn-lets-hope-it-is-
for-pension-reform December 1, 2017 | By John Kennedy, chairman of the West Michigan
Policy Forum.

60
HB 5298 Analysis

MI Treasurer Declares Financial Emergency If No


Local Agreement Reached Between Local & Union
(or Stability Board Doesnt Approve)
(See HB 5299 Notes for Details of Emergency Manager Team)

p.32 Sec. 11. (1) If any of the following events occur, the
state treasurer shall declare that a financial emer-
gency exists within the local unit of government for
the purposes of PA 436 [Emergency Manager Act]

{a) The local unit of government cannot reach agree-


ment on the formation of a proposed corrective action
plan

(b) The board does not approve the corrective action


plan that is proposed by the local unit of government.

. . .

Union Contract Provisions Voided That Conflict with


Act
p.33 Sec. 13. A contract or agreement, or a provision of a
contract or agreement, entered into, modified, ex-
tended, or renewed after the effective date of this
act that conflicts with the requirements or restric-
tions of this act is void.

Unfunded Mandates are Not Responsibility of State


p.33 Sec. 16. An obligation of a local unit of government
that relates to retirement pension benefits or retire-
ment health benefits is not an obligation of this
state. This act does not authorize the lending of the
credit of this state [no State bonding?]

p.2 (c) The necessary costs of a retirement system of


the local unit of government or a retirement pension
benefit or a retirement health benefit is an activ-
ity or service of the local unit of government and not
of this state.
61
HB 5298 Analysis

HB 5299 Financial Management Team (i.e.


Emergency Manager) For Local Retirement Plans
November 30, 2017, Introduced by Reps. Lower, Leutheuser, Albert and Crawford
and referred to the Committee on Michigan Competitiveness.
(Excerpted from https://www.legislature.mi.gov/documents/2017
2018/billintroduced/House/pdf/2017-HIB-5298.pdf

A bill to amend 2012 PA 436 [i.e. Emergency Manager Act]


by amending the title and section 2 (MCL 141.1542), section
2 as amended by 2015 PA 110, and by adding sections 9a and
9b.

p.2 TO PROVIDE FOR THE APPOINTMENT AND TO PRESCRIBE THE POW-


ERS AND DUTIES OF A FINANCIAL MANAGEMENT TEAM FOR A LO-
CAL UNIT OF GOVERNMENT; to provide for the modification or termination
of contracts under certain circumstances;
...
MI Treasurer Declares Financial Emergency & Governor Appoints
Financial Management Team to Address Unfunded Status
p.7 SEC. 9A. (1) IF THE STATE TREASURER DECLARES THAT A FINAN-
CIAL EMERGENCY EXISTS WITHIN A MUNICIPAL GOVERNMENT A
FINANCIAL MANAGEMENT TEAM MUST BE CREATED IN THE DE-
PARTMENT OF TREASURY AS THE EMERGENCY MANAGER FOR THAT
MUNICIPAL GOVERNMENT TO ADDRESS THEUNDERFUNDED STATUS
OF THE MUNICIPAL GOVERNMENT
p.7 THE GOVERNOR SHALL APPOINT 3 MEMBERS FOR THE FINANCIAL
MANAGEMENT TEAM. THE FINANCIAL MANAGEMENT TEAM MUST
INCLUDE ALL OF THE FOLLOWING:

(A) AN INDIVIDUAL WITH A MINIMUM OF 5 YEARS' EXPERIENCE AND


24
DEMONSTRABLE EXPERTISE IN FINANCIAL MATTERS.
(B) AN INDIVIDUAL WITH A MINIMUM OF 5 YEARS' EXPERIENCE 26
WORKING IN LOCAL UNITS OF GOVERNMENT.
p.8 (C) AN INDIVIDUAL WHO HAS BEEN A RESIDENT OF THE MUNICIPAL
GOVERNMENT FOR AT LEAST 5 YEARS THE MUNICIPAL GOVERN-
MENT MAY SUBMIT A LIST OF NOT LESS THAN 3 RESIDENTS OF THE
MUNICIPAL GOVERNMENT AS A RECOMMENDATION FOR THE AP-
POINTMENT UNDER THIS SUBDIVISION.
Note: No Union member required to be on this board

62
HB 5298 Analysis

p.9 A WRITING PREPARED, OWNED, USED, IN THE POSSESSION OF, OR


RETAINED BY A FINANCIAL MANAGEMENT TEAM IN THE PERFOR-
MANCE OF AN OFFICIAL FUNCTION IS NOT SUBJECT TO THE FREE-
DOM OF INFORMATION ACT

Financial Management Team Has Emergency Manager Powers to


Rectify Underfunded Status to Preserve Fiscal Stability
& Capacity to Provide Essential Services of Municipal Government
(No Mention of Protecting Local Govt. Retirement Benefits!)

p.10 A FINANCIAL MANAGEMENT TEAM IS GRANTED BROAD POWERS TO


RECTIFY THE UNDERFUNDED STATUS OF A MUNICIPAL GOVERN-
MENT WHILE PRESERVING THE FISCAL STABILITY OF THE MUNICI-
PAL GOVERNMENT AND ITS CAPACITY TO PROVIDE OR CAUSE TO BE
PROVIDED NECESSARY GOVERNMENTAL SERVICES ESSENTIAL TO
THE PUBLIC HEALTH, SAFETY, AND WELFARE. NOTWITHSTANDING
ANY CHARTER PROVISION OR ORDINANCE TO THE CONTRARY.
Note: The Emergency Manager Team is NOT given the task of balancing the goals of
fiscal stability & service provision with protecting local government retirement
benefits. So, they will probably rectify by cutting benefits and/or requiring
additional employee & retiree contributions to meet the unnecessary goal of fully
funded retirement plans.
...

p.10 A FINANCIAL MANAGEMENT TEAM MAY TAKE 1 OR MORE OF THE


FOLLOWING ADDITIONAL ACTIONS WITH RESPECT TO THE MUNICI-
PAL GOVERNMENT FOR WHICH IT WAS CREATED TO RECTIFY THE
UNDERFUNDED STATUS OF THE MUNICIPAL GOVERNMENT RE-
QUIRE THE MUNICIPAL GOVERNMENT TO TAKE MEASURES TO COR-
RECT THE UNDERFUNDED STATUS, INCLUDING, BUT NOT LIMITED
TO, CORRECTIVE OPTIONS DESCRIBED IN SECTION 10 OF THE PRO-
TECTING LOCAL GOVERNMENT RETIREMENT AND BENEFITS ACT.

p.11 REQUIRE THE MUNICIPAL GOVERNMENT TO AMEND, REVISE, AP-


PROVE, OR DISAPPROVE ITS PROPOSED BUDGET REQUIRE THE
MUNICIPAL GOVERNMENT TO SELL ASSETS REQUIRE THE MU-
NICIPAL GOVERNMENT TO TAKE ANY OTHER ACTION ... NECESSARY
TO ADDRESS THE UNDERFUNDED STATUS OF THE MUNICIPAL GOV-
ERNMENT.
...

63
HB 5298 Analysis

p.14 A FINANCIAL MANAGEMENT TEAM CONTINUES IN THE CAPACITY


OF A FINANCIAL MANAGEMENT TEAM FOR A MUNICIPAL GOVERN-
MENT UNTIL ALL OF THE FOLLOWING OCCUR:

(A) THE FINANCIAL MANAGEMENT TEAM DETERMINES THAT THE


MUNICIPAL GOVERNMENT IS NO LONGER IN UNDERFUNDED STATUS
IN A SUSTAINABLE FASHION [referring to closing DB plans] BASED UPON
THE STANDARDS DETAILED IN SECTION 5(4)(A) AND (B) OF THE PRO-
TECTING LOCAL GOVERNMENT RETIREMENT AND BENEFITS ACT

(B) THE STATE TREASURER CONCURS IN THE DETERMINATION OF


THE FINANCIAL MANAGEMENTTEAM UNDER SUBDIVISION (A).

64
HB 5298 Analysis

Republican Bill Imposes One-Size-Fits-All Large Unfunded


Mandate onto Fiscally Stressed Local Government to Unneces-
sarily Pre-Fund Retiree Health Care to Avoid Crisis
Prefunding retiree health care normal cost obligations:
The task force agreed lthat ocal units should meet a minimum requirement to pay
OPEB normal costs for new hires. However, the minority proposal to require payment
of normal costs for ALL active employees ... did not receive consensus. since others
felt that local units could not afford this).
...
Until the new accounting GASB standards came out in 2008, for decades, cities used
Pay-As-You-Go to fund retiree health care. Pre-funding means paying extra money
to go into a retiree health care fund (funding the ARC would double the cost, funding
the normal cost would probably cost up to about 50% more).

Theres no legal requirement to pre-fund, its just an artificial GASB accounting crisis,
and the whole OEPB crisis is overblown, but thats another story. 34

So where will the money come from to pre-fund? Since local finances are tight, it will
come from local units cutting services, wages, and/or benefits of both workers &
retirees (while Wall Street skims more fees and the stock market bubble blow up
bigger).

Note: How much would this mandate cost local government? Yesterday, Nov. 27 Th,
during his coffee hour, Rep. Thomas Albert couldn't give me an answer! (paying ARC
would double costs, pre-funding normal costs maybe about a 50% increase). Nor
would he answer the questions of how fiscally stressed cities are going to pay for his
mandate. Shouldn't he know the answers to such questions before proposing his
legislation?
"Some communities are aggressively paying it [pre-funding retiree health care obliga-
tions] down because they have the money. Some have to pay it down at a slower rate,
but it depends on the community. That's why no one plan fits," he [Docherty] said. 35

...

34, http://theweek.com/articles/682082/public-pensions-are-better-shape-than-think

35 https://mirsnews.com/welcome.php Pension, OPEB Reform To Dominate Discussion


In House After Break

65
HB 5298 Analysis

Proposal to Pre-Fund Retiree Health Costs Will Impose Large Current Costs on Locals:

For decades, local government used the Pay-As-You Go method (PAYGO) to provide
health insurance. That is, they paid out medical expenses as they came due each year.
But, in 2008, new Governmental Accounting Standards Board (GASB) 36 standards went
into effect that required locals to account for future medical obligations on their books.

GASB has been used by right-wing think tanks to argue this unfunded debt posed a
looming crisis. But, it's important to note these obligations are NOT debt. Unlike DB
pensions, there is no legal requirement to pre-fund medical retiree costs and there is no
interest to pay. This so-called crisis is largely illusionary (from projecting high medical
inflation into the future, and discounting those costs back to the present).

The rapid growth of medical costs nation-wide has stressed local budgets today. The
root problem facing locals are not lavish unfunded retiree medical promises that will
be paid in the future, but local revenues that have been lagging far behind high medical
inflation today.

But, instead of easing the financial pressures on locals, the proposed plan will greatly in-
crease financial stress upon local budgets! It imposes a large unfunded State mandate
that requires local governments to start prefunding a new retiree health care fund for
both current and new hires (imposing up to about a 50% [?] increase in local retiree
health care spending today).

It's important to note pre-funding won't provide more health care for retirees. Instead,
this money will just flow into the stock market (helping to blow up that bubble a bit
more, and enrich the coffers of Wall Street fund managers who can skim increased mu-
tual fund fees). Instead of easting local's financial burden, this proposal will greatly in-
crease it.

Pre-Funding Retiree Health Care Doesn't Make Financial Sense:

Right-wing think tanks argue these GASB medical retiree promises must be pre-
funded to ensure benefits will be there in the future and so future taxpayers won't pay
for promise made today. They argue that without funding to back up obligations, re-
tirees might lose it all in bankruptcy without reserves set aside. Their arguments are
mostly B.S.37

The Risk of Local Bankruptcy is Overblown:

36
http://www.cbpp.org/research/accounting-for-the-cost-of-retiree-health-and-other-benefits-gasb-45
37
http://theweek.com/articles/682082/public-pensions-are-better-shape-than-think

66
HB 5298 Analysis

The goal of fully funding benefits in the private sector makes sense; Fully Funded
means there's enough to pay off obligations if a company went bankrupt tomorrow.
Plenty of corporations have left their workers with reduced benefits after their plans
were left underfunded (or looted by corporate raiders).

But, the risk of locals going into bankruptcy is overblown because of DB plans (many
other factors are putting financial stress on locals). But, local governments won't disap-
pear even if the went bankrupt; the revenues and tax base would still exist to pay most
retiree obligations (Even in the worst case, like Detroit, there was enough revenues to
pay much of the retiree obligations (my Dad retired from Detroit and he still gets $***
to pay for supplemental health insurance; in Grand Rapids, we have got nothing after
age 65 for decades).

So, the great expense of pre-funding retiree obligations now, to insure against the re-
mote risk of bankruptcy would be largely a waste of taxpayer's revenues.

Pre-Funding a Mature Retiree System Doesn't Make Financial Sense Now:

If locals were starting a brand-new medical retirement plan, pre-funding would make
sense. Paying the normal cost would result in taxpayer contributions staying the same
over decades (instead of future taxpayer's paying more than those in the past) and in-
vested funds would grow and subsidize the plan.

However, today, local's PAYGO plans are mature, they have been around for decades.
Today's taxpayer's are now paying more than those in the past and probably more than
future taxpayer's (since the ratio of retirees-to-workers will eventually drop, medical in-
flation will eventually be brought under control, and benefits will be cut).

But, under the proposed State mandate (locals pre-fund the retiree normal cost for
new hires AND current employees), locals would be faced with large increase in costs
now. As funds built up, future taxpayers would reap the benefit of investments subsidiz-
ing the fund. But, how does that make sense? Yesterday's taxpayers paid less, today's
would pay even more, and future taxpayer's would pay less!

Without Local Revenue Reform, Locals Will Have to Cut Services & Benefits to Pre-
Fund:

Even if it made financial sense to pre-fund, just where are local governments supposed
to find the money to pay for the State's proposed large unfunded mandate (pre-funding
retiree health ARC would require twice the current PAYGO rate; paying the Normal

67
HB 5298 Analysis

Cost as proposed would up to about 50% [?] of current retiree medical costs) to start
pre-funding retiree health care?

Since many locals are still under financial stress (even 10 years after the recovery from
the 2008 crash) this money will have to come three sources: increased tax revenue, ser-
vice cuts, or cuts in wages & benefits.

Local revenues probably aren't going up anytime soon. Local revenues were hit hard by
the loss of State revenue sharing to pay for MI tax cuts (little chance of them being re-
stored under the present regime!). Property tax revenues were hit hard by the 2008
real estate crash, and although property values have recovered, property taxes have
lagged behind because of Proposal A, the Headlee amendment, and restrictions on lo-
cals raising their own taxes.

The second option, are cuts to local services. Locals could lay-off more police, firefight-
ers, etc. to pay for this unfunded mandate. Well, they've already done that (e.g. even in
prospering Grand Rapids, firefighters have lost 1/3 of their staffing). The fat is gone;
further cuts will be to muscle (perhaps the public will just get used to police & fire do-
ing even less, with less).

The final option, is to make further cut police & firefighter wages and benefits. Retiree
medical benefits are not protected, unlike their pensions (but back-door cuts to re-
tiree pensions could be made by making them pay more in health insurance premiums
and cutting their medical coverage so they have to pay a lot more out-of-pocket).

But, current police & firefighters could also have their future pensions & retiree health
care benefits cut (see next section) by forcing them into DC health savings accounts
and/or DC retirement savings plans.
...

So, this provision proposes to impose an unfunded mandate to pre-fund retiree medi-
cal costs. It will greatly increase the financial burden on local governments (up to about
50% increase in retiree health payments to pre-fund), who will have to make some
combination of cuts to services, cuts to worker compensation, and cuts to retiree bene-
fits.

And for what? There will be little benefit from these cuts. Going from PAYGO to pre-
funding doesn't make financial sense since it means today's taxpayers, already paying
large costs, would hpay more today to pre-fund to subsidize lower payments in the fu-
ture (especially if this pre-funding is started at the same time the DB retiree plan is
closed to new hires; why start funding a system at the same time you're closing it?)

68
HB 5298 Analysis

Bill Gives MI Treasurer Power to Set Standards for Actuarial As-


sumptions & Valuation Methods That Could Inflate Liabilities
(On Paper) & Push Many More Retirement Funds into Crisis

Standard reporting requirements. ... The treasurer would be required to set


standards for actuarial assumptions and valuation methods for pension and retiree
health care systems:

The provision that The [MI] treasurer would be required to set standards for actuarial
assumptions and valuation methods for pension and retiree health care systems was
not even discussed by the Retirement Reform task force. Instead, the task force came
to a consensus for reporting purposes only, all local units should recalculate its plans
funded ratios using a range of assumptions set annually by Treasury

Giving the power to the MI Treasurer to set plan standards gives them the power, with a
stroke of a pin, to instantly create new liability (on paper). For example, if the MI
Treasurer decides to lower the discount rate from 7.5% to 5%? This will increase overall
liability considerably. For example, a $100 million future liability will see that liability
balloon to well over $150 million (on paper).

If discount rates were lowered by the MI Treasurer, that would push nearly all pension
& retiree funds into crisis. Local units would be forced to cut services and/or benefits
to get money to pre-fund these new liabilities.
...

MI Treasurer Sets Actuarial Standards That Deter-


mine Pension & Retiree Health Fund Required Contri-
butions for ALL MI Local Retirement Plans
(Unnecessarily Stricter Standards Will Result In Dramatic
Increases in Local Govt. and/or Employee Contributions, and
Result in Large Cuts to Retirement Benefits)

p.18 Sec. 5. (1) The state treasurer shall establish


standards for local units of government for actuarial
assumptions and other methods of valuation of retire-
ment systems that include, but are not limited to,
standard ranges for investment returns, salary in-
crease rates, amortization of unfunded liabilities,
mortality updates, discount rates, and health care in-
flation.

Note: Heres the insider talk: Pre-funding retiree in-


come and retiree health care using realistic assumptions
69
HB 5298 Analysis

like medical inflation on health care and realistic invest-


ment income rates on pensions.38

Setting so-called realistic assumptions will blow up lia-


bilities and mandate huge increases in required pension &
health care contributions, and inflate the ARC so many more
than 15% of localities will hit the triggers for unfunded
status and all under review of the state board or emer-
gency manager team.
. . .

SECTION ON SETTING CRITERIA

38
http://www.grbj.com/articles/89456-reserving-space-on-the-capitol- lawn-lets-hope-it-is-
for-pension-reform December 1, 2017 | By John Kennedy, chairman of the West Michigan
Policy Forum.

70
HB 5298 Analysis

Republican Bill Gives State-Controlled Board Emergency Man-


ager Powers to Impose Cuts to Local Workers & Retiree's Pen-
sion & Health Care Benefits (i.e. Tear up Union Contracts & By-
pass Police/Fire Arbitration)

The final phase, for local units of government that do not put in place a corrective plan
or fail to follow it, would add two more members to the board - one picked by the lo-
cal government management and the other by the local union or retirees - would de-
velop and approve [unilaterally impose] a plan:

There was NO consensus on the powers of the Municipal Stability Board (MSB). A ma-
jority of the Task Force members opposed giving the MSB the ability to implement lim-
ited plan design changes, as this would interfere with the collective bargaining process.
A majority of the Task Force members felt that the MSBs role should be limited to
making recommendations and providing technical support.

But, instead this proposal disregards the task force majority opinion, and reflects only
the minority view who thought the MSB should be able to unilaterally impose changes
if the local unit was unable to successfully implement a corrective action plan.
...
Under the proposed criteria, today at least 30% of MI pensions would be considered un-
derfunded right now. And, about 80% of retiree health care plans would be considered
underfunded (not just the worst off will come under the supervision of the State-
controlled MSB). Furthermore, as noted above, if the MI Treasurer lowers plan discount
rates or changes other assumptions, many more units will be pushed into crisis (at
least on paper).
So MI local units & local unions can F*** (reform or de-form) themselves with cor-
rective plans (with the lubrication advice supplied by the MSB board), or they face
the the big stick hanging over their heads the dreaded final phase.
Lets do the math. This board will have 3 members appointed by the MI Republican
leadership. The 4th member would represent the city. Our local would get one mem-
ber. Guess who wins a 4:1 (or 3:2, at best) vote?
The MSB have the power to approve a plan which would void Union contracts and by-
pass police & fire 312 arbitration. Basically, this board would be like an Emergency
City Manager who could make whatever changes they wanted to retiree health care
and pensions.

...

71
HB 5298 Analysis

[MI Firefighter Union President] Docherty said the [Rep.] Lower/Albert bill would go
further [than the consensus of the Retirement Reform Task Force]. "Now what Lower
wants to do is go beyond that and allow a state-appointed [controlled] municipal board,
if they cannot get the community to make the changes they want, to allow that board to
come in and impose those changes, just like an emergency manager," Docherty said.
If they are truly financially distressed, Docherty said, there is already the financial
manager law in place that provides four different tools to make the changes need to
address the financial hardship.39

Firefighters ... will now be denied an opportunity whatsoever to secure their health in
retirement," Michigan Professional Fire Fighters Union President Mark Docherty told
the House Local Government Committee .... 40

This mandate by the State [HB 6076-77] would effectively prevent FFs negotiating
for their health security in retirement.

[Docherty continued,] There is no reason for the state to come in and impose their will
on local governments that are dealing with this issue. If you pass this bill, firefighters
will lose their retirement health care, which will leave them with little choice but to stay
working41Police and fire personnel tend to retire earlier than somebody who works a
desk job If they're not yet 65, they don't qualify for Medicare and could face expen-
sive health care premiums. Rep. Jeremy Moss, D-Southfield, said police and fire jobs
were physically demanding. "It would concern me if you had a fleet of cops or fire-
fighters in their 60s or 70s..." 42
Note: Without collective bargaining or Act 312 bargaining rights, local government
managers would have to power to re-write union contracts and simply impose ANY cuts
they wish upon retire health care. So much for Rep. Chatfields claim of trying to ensure
that they have the promises that were made.

39 https://mirsnews.com/welcome.php Pension, OPEB Reform To Dominate Discussion In


House After Break

40
http://www.mlive.com/news/index.ssf/2016/12/police_fire_in_unique_position.html
41
http://house.mi.gov/sessiondocs/2015-2016/testimony/Committee341-12-1-2016.pdf
42
http://www.mlive.com/news/index.ssf/2016/12/police_fire_in_unique_position.html

72
HB 5298 Analysis

Speaker Meekhof Claims Only Few Funds Across the State Need
Corrective Action & Those Doing Well Not Impacted & Can
Continue As They Are (But, Eventually Many More Funds Will
Come Under State Control & Face Threat of Takeover by
Emergency Manager

CORRECTION: I wrote the following section based upon the proposal before the bills
came out on-line and based on the terminology Meekhof used in his public statements.
Last night, while going through the bills in detail, I realized HB 5298 defines
municipalities as "underfunded" as a pension (or retiree health) plan underfunded at a
level of 60% (30% health) AND required contribution >10% of general fund. Using that
criteria, Meekhof is technically correct that about 15% of municipalities would come
under review TODAY. Although, for units OTHER than municipalities, I was correct.

However, in reality, much more than 15% will eventually come under review since the
required funding standards get tighter over time (or the stock market tanks and funding
levels drop). More important, the bill gives the MI Treasurer the power to set actuarial
assumptions for plans (i.e. he determines the required contributions). So, by the stroke
of a pen, he could easily push many more than 15% of plans into "unfunded" status (e.g.
drop fund ROR from 7% to 5% would increase liabilities by about 33%), but I haven't yet
had the chance to look at this in detail yet.

I apologize for not catching my mistake I always try to do my homework and get my facts
right, and I don't knowingly put out incorrect information.

I will extensively revise the following section later today to correct it.

...

Senate Speaker Arlan Meekhof has claimed43 that fewer than 30 [3%] out of about 900
local government benefit plans statewide are in poor shape and likely in need of
corrective action and that those that are doing well are encouraged to continue as
they are.\

***** Add more quotes here

...
43
https://www.gongwer.com/programming/news.cfm?Article_ID=562320101

73
HB 5298 Analysis

The least secure funds those where pensions fall below 60% funded and retiree
health care funds are less than 40% funded could have those funds taken over by a
three-person, state-appointed board The vast majority of communities in Michigan
roughly 85% said Senate Majority Leader Arlan Meekhof wouldnt need to take any
corrective action. The folks who are managing their finances well, theyre not going to
be impacted, he said. They can continue to do what theyre doing. But about 30 funds
[3%] across the state would fall below acceptable levels and require state
intervention.44

Speaker Meekhofs claim may be technically true today, but it is misleading.

Speaker Meekof's claim that most locals could continue as they are since only a 30
funds across the state [3%; 30/900)] are underfunded is incorrect. In reality, about
30% of pension systems & about 80% of OPEB systems would actually be considered
underfunded under the bill's criteria.

So, instead of just a few bad apples coming under MSB review, MOST MI communities
would trigger a review by the MSB, and face the threat of having a State-run board use
emergency manager powers to impose a one-size-fits-all pension and/or OPEB plan
upon them.

...

On Wednesday, Nov. 29th, I spoke with Senator Brandenburg. He mentioned he had


been told that only about 20 or so local governments would probably face the threat of
a proposed Municipal Stability Board (MSB) imposing a plan. I told him I thought that
number seemed awfully low, but we didn't have the time to further discuss that point.

Late that night, I read a Gongwer news article, Public Safety Officers Rally At Capitol
Over Benefit Changes (https://www.gongwer.com/programming/news.cfm?
article_ID=5623201).

Mr. Meekhof said a small number of communities have plans that are
underfunded, probably only a couple dozen out of hundreds of total municipal
plans [24 out of 591; really only 4%?]. "A lot of folks are doing really well," Mr.
Meekhof said, adding those that are doing well are encouraged to continue as they are.

Obviously, House Speaker Meekhof had told Senator Brandenburg (and other members
of the Republican Senate Caucus) that only a few cities would come under the
emergency manager board.
...
44
https://www.freep.com/story/news/2017/11/30/shoring-up-struggling-municipal-retirement-
benefits-goal-republican-bills/911035001/

74
HB 5298 Analysis

However, for MI local pension systems, a couple of dozen (4%) is a much lower number
than those found in both the Retirement Task Force (RTF) Report
(http://www.michigan.gov/documents/snyder/R3_Task_Force_Report_579101_7.pdf),
and in Rep. Thomas Albert's October 25th presentation to the House Local Government
Committee (http://house.mi.gov/sessiondocs/2017-2018/testimony/Committee432-10-
25-2017.pdf) :

The RTF report criteria (p.27) considered a pension system to be underfunded


at a level of 60%, and this trigger would capture roughly 29% (151 of 519) of
municipalities.

The Republican bill used the same criteria (60%) to evaluate pension systems.
Albert's presentation showed that 44% of Total (not just municipalities) pension
plans (400 out of 900; would fall below 70% funding (a higher trigger than in the
RTF report, so probably also about 30% below 60% funding).

So, if Speaker Meekof was referring to just pension systems, he claimed only 4% would
be considered underfunded, yet both the RTF and Rep. Albert say about 30% would
fall under review by the MSB, and perhaps have a plan imposed upon them.

Further, for MI local OEPB systems, a couple of dozen (4%) is a MUCH lower number
than those given by both the RTF Report and Rep. Albert:

The RTF report criteria (p.28) considered an OPEB system to be underfunded at


40%, and this trigger would capture roughly 81% (81 of 100) of municipalities.

The final Republican proposal also set a trigger of 40%, Albert's presentation said
it would still capture about 79% (389 out of 491 plans).

So, if Speaker Meekof was referring only to OEPB systems, he claimed only 4% of
localities would be considered underfunded, yet both the RTF and Rep. Albert say
about 80% would fall under review by the MSB, and face the threat of having the MSB
impose a plan upon them.
...

To summarize, Speaker Meekof's claim that only a couple dozen (4%) of 591
municipalities would be underfunded is incorrect, since about 30% of pension systems
& about 70% of OPEB systems would actually be considered underfunded under the
bill.

Instead of just a few bad apples coming under MSB review, MOST MI communities
would trigger a review by the MSB, and face the threat of having a State-run board use
emergency manager powers to impose a pension and/or OPEB plan upon them.

75
HB 5298 Analysis

And, as discussed in a previous section, its important to note these high numbers could
be MUCH higher if the forthcoming bill gives the MI Treasurer the power to set
standards for actuarial assumptions and valuation methods (e.g. lowering the discount
rate from 7% to 5% would increase obligations by about 33%, and many more plans
would instantly become underfunded, at least on paper).

76
HB 5298 Analysis

Financial Stability Board Corrective Action Plan Options


Reduce Retirement Expenses or Increase Funding Levels

Corrective Action Plan Options Focus on Increased Employee


Contributions & Cuts to Benefits, While Reducing Local Govt. Retiree
Health Contributions (Closing DB Health Plan, Cap Costs, 20%
Employee/Retiree Premiums)

Bill Imposes One-Size-Fits-All Unfunded Mandate Outlawing Defined


Benefit Retiree Health Care, and Replaces them with Less Secure & Less Ef-
ficient Defined Contribution Savings Plans [11-27-17: In draft proposal;
probably not in final bill]

Bill Imposes One-Size-Fits-All Mandate Outlawing Defined Benefit Pen-


sion and Replaces them with Less Secure & Less Efficient Defined Contri-
bution Savings Plans [11-27-17: In draft proposal; probably not in final bill]

77
HB 5298 Analysis

Corrective Action Plan Options Focus


on Increased Employee Contributions
& Cuts to Benefits, While Reducing
Local Govt. Retiree Health
Contributions (Closing DB Health
Plan, Cap Costs, 20%
Employee/Retiree Premiums)

p.27 A corrective action plan may include the corrective


options for correcting underfunded status as set forth in
subsection (8)and any[!]additional solutions to assist with
reducing annual expenses or improving funding levels re-
lated to its underfunded status to maintain and preserve
[!?] retirement pension benefits and retirement health ben-
efits.

Note: Any additional solutions? So, no firm limits on solu-


tions.

Preserve retirement benefits? How do you do that by reducing annual ex-


penses? Same with improving funding levels since that can also be done by
cutting benefits (or increasing contributions/premiums). Arent these objectives
contradictory?
...

p.28 (8) A corrective action plan of corrective options for


the local unit of government to address and permanently re-
solve [refer to close DB plans, move to DC plans?] its un-
derfunded status The corrective options as described in
this section may include 1 or more of the following:
...

(a) Requiring additional employer contributions for


retirement pension benefits or retirement health
benefits.

p.30 (e) Limiting the annual amount the local unit of government may pay to-
ward the cost of providing retirement health may include 1 or more of the fol-
lowing:

(i) Implementing a maximum payment permitted for each


coverage category of retirement health benefits
based on the change in the medical care component of
78
HB 5298 Analysis

the United States Consumer Price Index


(ii) Requiring the local unit of government to pay no
more than 80% of the total annual cost for all
retirement health

(iii) Implementing a cap on the total amount the local


unit of government may pay for the cost of providing
retirement health benefits.
. . .

(b) Requiring additional employee contributions for


any future retirement pension benefits to be accrued,
or for any applicable retirement health benefits.

(c) Requiring adjustment of debt structure, altering


of eligibility, calculation of benefits, copays, drug
prescription coverage, or other modification of
provisions of an applicable retirement system. [i.e.
reduce benefits]
. . .

p.31 Requiring the local unit of government to require each individual included
in a beneficiary unit to enroll in Medicare part A and part B

(h) Requiring the local unit of government to not


subsidize retirement health insurance benefits for any
employee who was first employed by the local unit of
government after a specified date in the future.[i.e.
close DB retiree health for new hires]

P.7 (a) The local unit of government shall not reopen a


defined benefit retirement system or reoffer any other de-
fined benefit plan to provide any new retirement health
benefits after has been closed to new hires.
...

p.17 The local unit of government shall not reopen a


defined benefit retirement system to provide any new
retirement pension benefits after . has been closed
to new hires.

. . .

p.29 Submitting to the electors of the local unit of


government a ballot question authorized on the
imposition of a new millage

79
HB 5298 Analysis

p.30 (f) The levy of a property tax required to meet an appropriation made by
the local unit of government authorized under the fire fighters and police officers
retirement act

Note: Several of these corrective actions are found in


Appendix A of the Task Force Report and at the WMPF:

Ensure communities move to defined-contribution


plans if their benefits are underfunded.
Protections so these changes cannot be gamed or
ignored in the future. [no re-open DB plans]

80
HB 5298 Analysis

Proposal Imposes One-Size-Fits-All Mandate Outlawing De-


fined Benefit Retiree Health Care, and Replaces Them with Less
Secure & Less Efficient Defined Contribution Savings Plans
Note: NOT in bill; in 11-14-17 draft proposal

No defined benefit plans for new hires after July 1, 2018:

The task force did NOT achieve consensus on one-size-fits-all plan design require-
ments: A majority of Task Force members were opposed to the establishment of plan
design requirements for all local governments, believing that the local unit, through the
collective bargaining process, should have the flexibility to agree upon what works best
within their communities plan design-related [items] could be considered during
the development of the Corrective Action Plan, but was clear that none of these items
were required.
...
Outlawing defined benefit (DB) means all new retiree health benefits will be defined
contribution (DC) savings plans. DC health savings accounts {HSA) are insecure savings
plans that shift all health insurance risk onto firefighters. Stock market crashes, too
bad. Investment earnings suck, too bad. Medical costs go up faster than investments,
pay more out of pocket. If youre lucky and in good health, you might have some cash
left over. But, retire and then have some serious health issues until you can get on
Medicare, youll be bankrupt. Or, if you have pre-existing health issues while working,
you might work as long as possible to stay on insurance (might not be able to afford to
buy insurance.

Closing the DB plan and switching to DC doesn't financially benefit local units (unless
they start contributing less, cutting future retiree benefits). In addition, there are transi-
tion costs resulting from new members not contributing to the DB pension, so local
units must increase contributions into the old DB fund, while At the SAME time they
must start making contributions into the new DC funds.

Since local unit's finances are already tight, moving from DB to DC plans will result in
even more cuts in today's level of service, and/or wages benefits.
...

Closing DB Retiree Medical & Putting Rookies Into DC Funds Will Burden Local Fi-
nances, Reduce both Current & Future Retiree Medical Security:

The City of Grand Rapids is held up as a model of benefits reform. DC health savings ac-
counts (HSA) are what the newer Grand Rapids firefighters have to bridge the insurance
gap from 55 to 65. Currently, new hires contribute $1,000 & the city contributes
$1,750 per year into an HSA account (without inflation adjustment). I doubt this sum

81
HB 5298 Analysis

(even after investment returns ) will be enough to buy adequate insurance 30 years
from now or to meet costs out-of-pocket.

Unlike DB retiree health care, DC plans are not insurance plans that spread the risk of
medical costs over generations. Instead, theyre merely savings plans that shift all the
health risk onto individuals. If youre lucky and in good health, youll have some cash
left over. But, retire, and then have some serious health issues until you can get on
Medicare, youll be bankrupt. Or, if you have pre-existing health issues while working
and can't afford to buy insurance, you might work as long as possible.

Even IF locals continue to make the same contributions into a Defined Contribution (DC)
savings plan, future retirees will probably end up with lower & insecure benefits since
ALL risk is thrust on the individuals (unlike DB plans which are an actual old-age insur-
ance plan which spread out risk). But, most rookies won't realize they've been screwed
until they turn 55 and find out they can't afford to retire. We'll end up with police &
firefighters working into their 60's!

82
HB 5298 Analysis

Bill Imposes One-Size-Fits-All Pensions, and Replace Them


with Less Secure & Less Efficient Defined Contribution Savings
Plans45
Note: NOT in bill; in 11-14-17 draft proposal

No defined benefit plans for new hires after July 1, 2018:


The task force did NOT achieve consensus on one-size-fits-all plan design require-
ments: A majority of Task Force members were opposed to the establishment of plan
design requirements for all local governments, believing that the local unit, through the
collective bargaining process, should have the flexibility to agree upon what works best
within their communities plan design-related [items] could be considered during
the development of the Corrective Action Plan, but was clear that none of these items
were required.
...
Outlawing defined benefit (DB) pensions means all new pensions will be defined con-
tribution (DC) savings plans. DB pensions are old-age insurance that spreads out risk
over time and generations.

In comparision, DC pensions are not pensions; they are just savings plans since they
place ALL risk onto individual members. Stock market crashes, too bad. Investment
earnings suck, too bad. Even if the locals make the same contribution, half the retirees
will outlive their savings. Even worse, unlike other city employees, most police & fire-
fighters dont have Social Security to fall back onto as a safety net. How are they better
at providing for retirement security?

Many future retirees will end up with lower & insecure benefits compared to DB plans.
But, most rookies won't realize they've been screwed until they turn 50-55 and find out
they can't afford to retire. We will end up with geriatric police & firefighters working
into their 60's! That situation will be bad for everybody.
...
Furthermore, DC plans are a terribly inefficient way to provide retirement security com-
pared to DB plans. Even IF local units continue to make the same normal contribution
into the new DC funds, the retiree will probably only end up with about of the retire-
ment benefit they would have got with a DB plan46.

Why? Investment returns are less (more fees are paid to Wall Stree and the investment
horizon is shorter as retirees age). Fully insuring against old-age costs about twice as
much as a DB plans since half of the retirees will live past the average age life ex-

45
11-27-17 Rep. Albert says this provision will NOT be in his bill.
46
Still a Better Bang for the Buck http://www.nirsonline.org/index.php?option=con-
tent&task=view&id=871
83
HB 5298 Analysis

pectancy. About half of the DC funds are wasted (funds of retirees dying young will go
to their heirs, not to fund their retirement).
...
Further, closing the DB pension and switching to DC savings plans doesn't financially
benefit local units (unless they contribute less, cutting future retiree pensions). Closing a
DB pension system will weaken it (ironically, making it less funded). Once a DB plan is
closed, new hires (and the local) will no longer make contributions to the system) so the
locals will have to contribute more.

And, as the pension draws down it's funds, it's investment subsidy will drop as invest-
ment returns decrease (shorter investment horizon, less funds).

And, at the same time that contributions to the closed DB fund will go up, no new mem-
bers contribute to the DB pension, while locals must start making contributions into the
new DC funds.

Since local unit's finances are already tight, the transition costs moving from DB to DC
plans will result in even more cuts in today's level of service, and/or wages & benefits.

84
HB 5298 Analysis

PART II:

FUNDING PUBLIC PENSIONS


IS FULL PENSION FUNDING
A MISGUIDED GOAL?

Local Governments Face a Revenue Problem (Largely Created


by State), Not a Benefits Problem. But, State Refuses to Con-
sider Policy Changes to Aid Locals

Funding Pensions -- Is Full Pension Funding a Misguided


Goal?

Why Are Republicans Pushing Unnecessary Reforms that Will


Harm Local Government Budgets & Cut Retirement Benefits of
Police & Firefighters

85
HB 5298 Analysis

Local Governments Face a Revenue Prob-


lem (Largely Created by State), Not a Bene-
fits Problem. But, State Refuses to Con-
sider Policy Changes to Aid Locals

Lower Benefit Funding Levels Are Symptoms, Root Problem are


Fiscally Stressed Local Governments with Low Revenues & Fail-
ure of MI State Policy (e.g. revenue sharing cuts, caps on prop-
erty taxes)

The State of Michigan's Great Revenue Sharing Heist Created


Most of the Financial Emergencies at the Local Level

Synder & MI Treasurer Khouri Plan to Slash Pensions & Retiree


Health Benefits to Fill Local Government Budget Holes Left by
State Revenue Cuts (Used to Pay for Big-Money Donor & Corpo-
rate Tax Cuts)

86
HB 5298 Analysis

Funding Levels Are Symptoms, Root Problem are Fiscally


Stressed Local Governments with Low Revenues & Failure of MI
State Policy (e.g. revenue sharing cuts, caps on property taxes)
A recent [Sept. 2017] Michigan State University report 47 states a combination of
spending cuts to balance budgets in recent years following the last economic downturn
have resulted in balanced budgets for local governments, but have led to inadequate
levels of funding for public services.48

Note: The MML presented a chart49 showing that MI was the ONLY state that had a
LOSS of revenue of from 2002-2012 (other states averaged about a 50% increase).
Clearly, MI local governments fundamentally have a revenue problem, not a retiree
health care spending problem.

First, the Great Recession of 2008-09 crushed property values in Michigan. ... taxable
property value [TV] of cities fell 18.1 percent. Since 2012, the TV of cities has in-
creased only 0.3 percent despite the economic recovery. The main reason for this slow
recovery is the [State] constitutional cap on TV, which limits the increase to 5 percent or
the rate of inflation, whichever is less. Second, the state government cut revenue-shar-
ing payments to cities by 14.6 percent from 2008 to 2015. Twenty-three cities experi-
enced cuts of 20 percent or more. Third, Michigan places more revenue-raising restric-
tions on cities than almost any other state.

In 2000, many local governments had fully funded pension systems. Currently, the un-
funded liability is estimated at 74 percent for cities, villages and townships, and 84 per-
cent for counties In very few cases is this the result of mismanagement. Two reces-
sions since 2000 have resulted in very weak market returns, and sharp declines in prop-
erty taxes, coupled with deep cuts in revenue sharing have limited a local governments
ability to make required pension payments.

47
http://msue.anr.msu.edu/resources/service_solvency_an_analysis_of_the_ability_of_michigan
_cities_to_provide_a

48
Gongwer, 11-15-17, Report: Some Cities Viability To Provide Services At Risk
https://www.gongwer.com/programming/news.cfm?Article_ID=562240104
49
http://house.mi.gov/sessiondocs/2015-2016/testimony/Committee341-12-2-2016-2.pdf

87
HB 5298 Analysis

Michigan has more cities under state supervision than any other state, and many of our
cities are suffering from fiscal stress. ... General fund expenditures of Michigan cities
were reduced from 2008 to 2015. This allowed most cities to balance their budgets, but
a number of cities cut expenditures to the point of service insolvency, placing the viabil-
ity of the city in jeopardy. When the next recession hits, many Michigan cities could
be in danger of Chapter 9 bankruptcy or could be added to the service insolvency list.

Several [State] policy changes could provide long-term fiscal stability for our cities, in-
cluding increased revenue, a change to the revenue-sharing formula to guarantee cities
a minimum TV per capita, elimination of the Headlee millage rollback provision and
state bonding to retire the unfunded pension liability of local governments. 50

Note: The MSU report didn't mention slashing police and firefighter retirement benefits
to fill the budget holes of local government! (and to pay for corporate tax cuts taken
fromrevenue sharing)

...
The true answer for distressed communities is revenue, [MI Firefighter Union President
Mark] Docherty said." All they [State of MI] have done is cut revenue sharing. They have
not brought it back to where it was," he said. "We don't have the money in the
communities and they [State Republicans] won't talk about revenue. They refuse to talk
about it. That's truly how you fix these communities. You can lay off every employee in
the City of Flint -- every one, not even pay them benefits -- get rid of every single one
and you are still not going to pay your debt down."51

50
http://msue.anr.msu.edu/resources/service_solvency_an_analysis_of_the_abil
ity_of_michigan_cities_to_provide_a

51 https://mirsnews.com/welcome.php Pension, OPEB Reform To Dominate Discussion In


House After Break

88
HB 5298 Analysis

The State of Michigan's Great Revenue Sharing Heist Created


Most of the Financial Emergencies at the Local Level

[Rep. Moss] ... [during 2016 Local Govt. Committee hearing] criticized the new proposal
as a cuts-only approach. He suggested there are more creative options to drive rev-
enue toward local governments facing looming health care costs. 52 Moss said he sees a
link between the $11 billion in unfunded retiree health care benefits and what he said is
$7 billion in state cuts to municipal revenue sharing over the last several years. 53
The true answer for distressed communities is revenue, Docherty said." All they [State
of MI] have done is cut revenue sharing. They have not brought it back to where it was,"
he said. "We don't have the money in the communities and they [State Republicans]
won't talk about revenue. They refuse to talk about it. That's truly how you fix these
communities...54

Note: In his 2014 piece The Great Revenue Sharing Heist 55, the Michigan Municipal League
(MML) CEO Tony Minghine explained how cuts in state revenue sharing 56 created most, if not
all, of the financial emergencies at the local level:

There are a record number of local governments that find themselves in the midst of a
financial crisis. The state has managed to pinch over $6 billion in revenue sharing
from local government over the last several years. From 2003-2013 statutory rev-
enue sharing declined from over $900 million annually to around $250 million. Statu-
tory revenue sharing has been unilaterally taken by the state to solve its budget is-
sues. Its a fact the state is trumpeting its sound fiscal management and admonishing
local governments for not being as efficient. What the state fails to mention is that it
balanced its own budget [so it could give huge tax cuts to corporations & LLCs] on the
backs of local communities. This would be like me taking your money to pay my bills, and
then telling you that you need to be more responsible with your house-hold budget.
State leaders excused themselves from making tough choices, instead using local
money to pay their bills. In the process, they have created most, if not all, of the financial
emergencies at the local level. local communities couldnt take money from others
and push those tough decisions down to someone else. [unless State-run board can im-
pose those decisions as proposed in the bill]
52
http://www.detroitnews.com/story/news/local/michigan/2016/12/01/retirement-
benefits/94740940/
53
http://www.freep.com/story/news/politics/2016/12/01/house-panel-confronts-unsustainable-
retiree-health-plans/94724836/

54 https://mirsnews.com/welcome.php Pension, OPEB Reform To Dominate Discussion In


House AfterBreak

55
http://www.mml.org/pdf/advocacy/mml-revenue-sharing-heist-2014.pdf
56
http://www.mml.org/advocacy/2014-revenue-sharing-factsheet.html

89
HB 5298 Analysis

DO Synder & MI Treasurer Khouri Plan to Slash Pensions & Re-


tiree Health Benefits to Fill Local Government Budget Holes Left
by State Revenue Cuts? (Used to Pay for Big-Money Donor &
Corporate Tax Cuts)
The Snyder administration took office in 2011, shortly after the economic crisis that offi-
cially lasted from late 2007 to June 2009. put in place fiscal and tax reforms, including
replacing the Michigan Business Tax with a flat 6 percent corporate income tax ... (This
year, he would sign into law a few new incentives.).

Michigan faces budget pressure down the road that is expected to squeeze its general
fund in the next few years Economists forecast slower state revenue growth in the
next few years.

Snyder has set nearly $900 million aside in Michigans rainy-day fund through 2018.
The states rainy-day fund has a balance equal to about 9.8 percent of general fund rev-
enue Moodys actually recommends Michigan have 13.9 percent ... in reserves to
withstand a moderate recession without disruption.

[Robert Kleine, a former state treasurer under Granholm and a principal of Great Lakes
Economic Consulting] noted that the state had $1.2 billion in its rainy-day fund in 2000,
but the relatively mild 2001 downturn quickly churned through it. Probably, $1
billion is not enough given an average recession...

Kleine said the state has also created tight budget conditions by diverting general fund
dollars to roads, business tax cuts and credits . I dont think (the states budget
is) that well-prepared, given all the money thats been allocated for other purposes and
given the spending needs that we have in the state,
...

Vulnerable as well [to further State cuts]: state money for cities and townships, known
as revenue sharing. The states share of statutory revenue sharing ... remains below
where it was a decade ago. That is a problem for local governments because state law
limits how fast property values can rise , meaning local governments lose more revenue
from property taxes during a downturn than it can recover in a good year

Combine that with Lansings decision to divert $600 million from the general fund for
road repairs by 2021 and phase out a personal property tax on manufacturing
equipment [along with previous 2011 tax cuts for the wealthy & corporations], and the
state is going to be not in a great position to help local units of government should a
downturn come, [Craig Thiel, research director for the nonpartisan Citizens Research
Council of Michigan] told Bridge.

90
HB 5298 Analysis

Snyder has taken steps to address unfunded pension and health care costs for
government retirees He also convened a task force to look for ways to tackle billions
of dollars in local government debt accrued from underfunded pensions and retiree
health care benefits.

State Treasurer Nick Khouri, a Snyder appointee, said he wants state and local leaders
to address the municipal revenue problem along with ballooning retirement benefits
[NO, benefits are going down, contributions are going up] funding and the efficiency of
local services [even MORE service cuts to police & fire!] while the economy is still
strong.

...
Without Local Revenue Reform, Locals Will Have to Cut Services & Benefits to Pre-
Fund:

Even if it made financial sense to pre-fund retiree health obligations, just where are lo-
cal governments supposed to find the money to pay for the State's proposed large un-
funded mandate (pre-funding retiree health ARC would require twice the current
PAYGO rate; paying the Normal Cost as proposed would up to about 50% [?] of cur-
rent retiree medical costs) to start pre-funding retiree health care?

Since many locals are still under financial stress (even 10 years after the recovery from
the 2008 crash) this money will have to come three sources: increased tax revenue, ser-
vice cuts, or cuts in wages & benefits.

Local revenues probably aren't going up anytime soon. Local revenues were hit hard by
the loss of State revenue sharing to pay for MI tax cuts (little chance of them being re-
stored under the present regime!). Property tax revenues were hit hard by the 2008
real estate crash, and although property values have recovered, property taxes have
lagged behind because of Proposal A, the Headlee amendment, and restrictions on lo-
cals raising their own taxes.

The second option, are cuts to local services. Locals could lay-off more police, firefight-
ers, etc. to pay for this unfunded mandate. Well, they've already done that (e.g. even in
prospering Grand Rapids, firefighters have lost 1/3 of their staffing). The fat is gone;
further cuts will be to muscle (perhaps the public will just get used to police & fire do-
ing even less, with less).

The final option, is to make further cut police & firefighter wages and benefits. Retiree
medical benefits are not protected, unlike their pensions (but back-door cuts to re-
tiree pensions could be made by making them pay more in health insurance premiums
and cutting their medical coverage so they have to pay a lot more out-of-pocket). But,

91
HB 5298 Analysis

current police & firefighters could also have their future pensions & retiree health care
benefits cut (see next section)
...

So, this bill proposes to impose an unfunded mandate to pre-fund retiree medical
costs. It will greatly increase the financial burden on local governments (up to about
50% [?] increase in retiree health payments to pre-fund), who will have to make some
combination of cuts to services, cuts to worker compensation, and cuts to retiree bene-
fits.

And for what? There will be little benefit from these cuts. Going from PAYGO to pre-
funding doesn't make financial sense since it means today's taxpayers, already paying
large costs, would hpay more today to pre-fund to subsidize lower payments in the fu-
ture (especially if this pre-funding is started at the same time the DB retiree plan is
closed to new hires; why start funding a system at the same time you're closing it?)
...

[Rep. Curtis Hertel, Jr wrote:] Over the past 15 years, weve seen communities all over
Michigan dramatically reduce the number of police officers and fire fighters on our
streets But according to the DeVos family, the pension funds [& retiree health care]
for those police officers, fire fighters, and teachers are at the center of Michigans finan-
cial woes -- and must be eliminated.

The math doesnt add up. But maybe thats exactly what they want. At the same
time that the majority of Michiganders are doing more and getting less, the DeVoses are
paying less [LLC & corporate taxes reduced] and getting more.

Theyre trying to use public employee pensions as a scapegoat By pointing their fin-
gers at our first responders and teachers, theyre trying to make everyone forget that
theyre helping to bankrupt our cities.

Over the last decade, the State of Michigan has underfunded local governments
through revenue sharing cuts to the tune of $6.2 billion, all while corporations pay far
less in taxes.This is simply not sustainable. This Legislature cannot continue to blame
our public servants while they starve our local governments at the direction of big-
money donors.57

57

http://www.freep.com/story/opinion/contributors/2016/11/29/gop-donors-michigan-
pensions/94628596/

92
HB 5298 Analysis

Funding Public Pensions: Is Full Pension


Funding a Misguided Goal?

The Great GASB

Republican Leadership & MI Treasurer Claims Unfunded Re-


tirement Obligations Pose Looming Fiscal Calamity

Public Pensions are In Better Shape Than You Think


...
Is the Pension & OPEB Funding Crisis Just an Illusion?

Is Full Pension Funding a Misguided Goal?

Common Solutions That Seldom Solve Anything: Closing a


Plan & Fixed Amortization Schedule
...
Republican Claims Local Retiree Benefits Are At Risk from Bank-
ruptcies From Unfunded Retiree Obligations is Overblown

Don't Fear the Reaper -- Bankruptcy May Be Better Option to


Protect Benefits Vs. State-Controlled Board With Emergency
Manager Powers to Unilaterally Impose Cuts to Pension &
Health Care Benefits

93
HB 5298 Analysis

The Great GASB


The Governmental Accounting Standards Board or GASB is an not-for-profit organiza-
tion that establishes and improves standards of financial accounting and reporting for
U.S. state and local governments. its standards are not federal laws or rules. New
[2008] rules issued by the Governmental Accounting Standards Board (GASB) that
change the way states account for the future cost of health and other non-pension ben-
efits for retirees will force states to make some hard choices.

For the first time, state and local governments ... must show the liability for those bene-
fits that have already been accrued for past and current employees. The new require-
ments apply only to the way these costs are accounted for not to how they are paid.
However, this rule will likely result in pressure to pre-pay more of these costs

If a state chooses to pre-fund these costs, the combination of funding requirements for
current employees, the transition costs and maintaining payments for current retirees
are likely to require significant cutbacks in important services... if the cost projections
prove to be overstated, a state could make cuts to future benefits or to their budgets
that could later prove unnecessary. If, on the other hand, a state chooses not to pre-
fund, this invites future pressure from bond raters.

Some of the disadvantages to pre-funding that are common to all types of pre-funding
include:

During the transition period, when a state is both paying for benefits for current
retirees ... building up the trust fund, the funding requirements will be greatly in-
creased compared to the pay-as-you-go system most states use now. ... could be
triple or more current annual costs. ... require tax increases or significant reduc-
tions in services.

may overreact and cut benefits when it is not really necessary. Estimates of
the funds needed to pre-fund are the product of many variables If the cost
projections prove to be overstated, a state could make cuts to future benefits
that could later prove unnecessary.

While the numbers involved seem large, there is no need for state and local govern-
ments to overreact and make hurried decisions. [CA] State Comptroller John Chaing
said, This obligation was not a crisis 30 years ago, it was not a crisis yesterday and it is
not a crisis today. And, if we work toward a plan to pay this obligation in a reasoned
manner, it will not be a crisis 30 years from now. State and local governments have
time to proceed cautiously and they would be wise to do so. Bond rating agencies have

94
HB 5298 Analysis

indicated that they do not expect these liabilities to be eliminated overnight and will be
satisfied with a plan for the future.58

Eric Scorsone, senior deputy state treasurer for finance ... Unlike with pensions, which
have been at least partially pre-funded for decades, most local governments did not ac-
count for their health liabilities until 2008 under changed [GASB] accounting standards,
he said.

Eric Scorsone testified that attempts to fund post-retirement health care are already
consuming $480 million a year from local government budgets, but that's only a little
more than half of the $800 million a year that should [?] be paid to meet [pre-funding
ARC] obligations.59

While some have well-funded retiree health care programs, most do not, said Eric Scor-
sone Cities, townships and villages face a combined $8 billion in unfunded retiree
health care liabilities Counties have a combined $3 billion in unfunded health care lia-
bilities.
...
[Michigan Professional Fire Fighters Union President Mark]Docherty [2017 interview]
noted that the Governmental Accounting Standards Board (GASB) did not even require
communities to report OPEB liabilities until 10 years ago. Today, GASB calls for them to
report liabilities but still does not require pre-funding. 60

Mark Docherty wrote [Dec 2016:] In the past, almost all local governments just paid
their medical claims as they came in this is allowed as there is NO requirement these
benefits are prefunded like pensions. This was done to encourage prefunding but
it will take time. There is no reason for the state to come in and impose their will on
local governments that are dealing with this issue. If you pass this bill, firefighters will
lose their retirement health care, which will leave them with little choice but to stay
working61

58
http://www.cbpp.org/research/accounting-for-the-cost-of-retiree-health-and-other-benefits-gasb-45
59
http://www.freep.com/story/news/politics/2016/12/01/house-panel-confronts-unsustainable-retiree-health-
plans/94724836/

60 Pension, OPEB Reform To Dominate Discussion In House After Break

61

95
HB 5298 Analysis

Response: GASB standards do NOT require local governments to pre-fund retiree health
care; their obligations are NOT debt. For a mature retiree system, the transition cost
to switch to a pre-funding system would more than double their required payment! Ex-
actly where are locals supposed to find that sort of money laying around?
During the his Dec 2016 testimony, Scorsone failed to mention that state revenue shar-
ing cuts during the past decade stole $7 billion from local governments, which is much of
the unfunded health liability, even though this was discussed in previous MSU studies 62
which he co-authored!). Perhaps because hes now (if not before) working for the State
of MI?

62http://house.mi.gov/sessiondocs/2015-2016/testimony/Committee341-12-1-2016.pdf

96
HB 5298 Analysis

Republican Leadership & MI Treasurer Claim Unfunded Retire-


ment Obligations Pose Looming Fiscal Calamity to Michigan

Local governments across Michigan have promised retiree health care benefits they
cannot afford, House Speaker Kevin Cotter said [Dec. 2016], warning that collective
unfunded liabilities of $11 billion could drive more Michigan cities toward bankruptcy.

The current system is not sustainable Unless we address this mounting problem,
many local governments will go bankrupt, retirees will be harmed, and services critical
to our residents will be impaired.63

...
[On Ocober 25, 2017, Rep. Thomas] Albert recently unveiled the result of his own
research ... and found that 44 percent [of MI OPEB plan]are zero percent funded.
Sixty percent are less than 10 percent funded. Pensions, by comparison, are relatively
well funded, on average at the 73 percent funded mark ... 64

63
http://www.detroitnews.com/story/news/local/michigan/2016/12/01/retirement-
benefits/94740940/

64 https://mirsnews.com/welcome.php Pension, OPEB Reform To Dominate Discussion


In House After Break

97
HB 5298 Analysis

Public Pensions Are In Better Shape Than You Think


The beleaguered condition of state and local pension plans The explanation usually
goes something like this: Irresponsible politicians and greedy public employee unions
created over-generous benefit schemes, leading to pension plans which aren't "ful-
ly-funded" and eventual fiscal crisis. That in turn necessitates benefit cuts, contribution
hikes, or perhaps even abolishment of the pension scheme.

But a fascinating new paper from Tom Sgouros at UC Berkeley's Haas Institute makes a
compelling argument that the crisis in public pensions is to a large degree the result of
terrible accounting practices. He argues that the typical debate around public pen-
sions revolves around accounting rules which were designed for the private sector
both overstate some dangers faced by public pensions and understate others.

["Fully-funded"] means that a pension plan has piled up enough assets to pay 100 per-
cent of its existing obligations if the underlying business vanishes tomorrow. This ap-
proach makes reasonably good sense for a private company, because it really might go
out of business and be liquidated at any moment [But GASB] has applied this same
logic to public pension funds as well This makes far less sense for governments, be-
cause they are virtually never liquidated.

When people see "unfunded liability," they tend to assume that this is a direct hole in
the pension funding scheme that will require some combination of benefit cuts or more
funding. Governments across the nation have twisted themselves into knots trying to
meet the 100-percent benchmark. This ties into a second objection: How misleading
the calculation for future pension liabilities is. But this single number makes no dis-
tinction between liabilities that are due tomorrow, and those that are due gradually
over, say, decades.

a public pension is a method by which retirees are supported by current workers and
financial returns, and one of its great strengths is its long time horizon and large pool of
mutual supporters. It gives great leeway to muddle through problems

I have skipped past several more technical objections from Sgouros (whose paper is re-
ally worth reading). But the fundamental point here is fairly simple. Accounting conven-
tions are supposed to help people think clearly about their financial health. But in the
case of public pensions, they have warned of partly imaginary danger, pushing govern-
ments to stockpile vast asset hoards that are much larger than is necessary, and created
a goal which is itself rather dangerous. The next time you see someone complaining
about a pension funding shortfall, check the details carefully. 65

from Ryan Cooper Public Pensions Are in Better Shape than You Think (The Week)
65
http://theweek.com/articles/682082/public-pensions-are-better-shape-than-think

98
HB 5298 Analysis

Is the Pension & OPEB Funding Crisis Just an Illusion?

Across the country, critics calling pension systems unaffordable, unnecessarily


extravagant, and blaming them for municipal bankruptcies in cities like Detroit Across
the US, the total debt owed by state and local pension funds is an alarming number ...
But where do these numbers come from and do they really mean what they appear to
say? Is further austerity required, or is the crisis just an illusion?
[GASB] rules are meant to report, not dictate, funding of pensions. But, they are
presented with the misleading language, for example, under-funded or fully-funded.
Pension reformers, public agencies, and the press readily use this language to create a
narrative of out of control costs ballooning in the future. This creates the imperative to
austeritycutting pension benefitsor even bankruptcy. This opens the opportunity
for reformers and consultants to create tremendous public hardship through austerity
measuresmany of which attack pension systems. This mistakenly applies private
sector logic to the public domain.
However, a pension fund should not be considered in crisis because it does not
currently have funds today to pay a debt in the distant future. A debt to an employee
who will not retire for another 30 years cannot count as a current shortfall even if it is
cause for concern. ... There is an important distinction between a sustainable pension
and a fully funded pension. The GASB rules thus produce a sense of crisis where none is
required.

...
At the same time that the GASB rules exaggerate the sense of crisis, they also fail to
provide a useful guide to corrective action. ... moving employees to savings plans, and
closing a plan entirely may all seem like reasonable actions under these rules. These
policies increase risk, as we have seen in city after city, and making a city more likely to
experience a crisis.66
The rate of health care inflation isat present greater than the rate of inflation for
pretty much everything else. To make OPEB liability calculations, actuaries typically
project the current rate of health care cost inflation forward 50 years or more.
Projecting even a small percentage growth forward over half a century produces a
tremendous sum, and the resulting liabilities are indeed enormous.

However, the current rate of health care inflation is not sustainable over the next 50
years by any component of society, not just pension plans. ... Fifty years from now, if
66
http://haasinstitute.berkeley.edu/sites/default/files/pensionaccountingmemo_-_final.pdf

99
HB 5298 Analysis

health-care inflation is not lowered significantly, all fifty states will have been
bankrupted by Medicaid costs. As the rest of the economy withers, health care costs
will grow until they are much more than a quarter of GDP.

The issue is hardly the cost of funding these benefits. The issue is the escalating cost of
health care for retirees and everyone else ... The GASB rules in practice are akin to
planning for an asteroid collision with earth by putting away enough money to pay the
electric bill when it happens.67

67
http://haasinstitute.berkeley.edu/sites/default/files/funding_public_pensions_-_publish.pdf

100
HB 5298 Analysis

Is Full Pension Funding a Misguided Goal?


Beginning in 1994 ... the GASB rule changes about public pensions were made to mimic
rules in the private sector. However, when applied in the public sector the rule changes
make pensions more expensive than necessary.

Consider the issue of full funding. A fully-funded pension system can, at least in theory,
pay off all its current debts with no further contributions from the sponsoring employer.
This is vital in the private sector because at any time, a private corporation can go out of
business, be liquidated and disappear. A pension system in the private sector must be
fully-funded in order for the promise of the pension to mean anything at all.
By contrast, a government will not disappear in the same way. It may have suffered a
bankruptcymaybe two or threebut bankruptcy is not liquidation. Insurance against
the citys disappearance is therefore a waste of money.

...
The drive to full funding cannot be justified actuarially ... many, if not most, defined-
benefit pension systems can operate forever at far less than full funding. ... If the
unfunded liability does not change one year to the next, the fund can operate
indefinitely with that same unfunded liability.

A pension fund must pay 100 percent of its debts. But it need not pay them a moment
before they are actually due, and since a pension plan is constantly receiving new
contributions, the fund itself need not be the only source of payments. As a result, even
if all the debts are paid, at any one time, the fund itself may be at some level well below
100 percent funding.
kicking the can down the road is only a problem if there comes a point at which one
can kick that can no further. under the right conditions, a pension system can pay
benefits indefinitely at funding levels much lower than full funding. ... Obviously a sys-
tem must be managed so as not to create a liquidity crisis, but this need not be done
through 100 percent funding, as thousands of technically underfunded pension systems
demonstrate each year.

...
So long as there is another source of income, the ratio between the fund and the
present value of the debt has little to do with how much of that debt is ultimately
repaid. An active pension system has three sources of income: (1) the contributions
from the employer, (2) from the employees, and (3) from the returns on investment.
Consider again the Illinois pension plans unfunded liability again the Illinois pension
plans unfunded liability of $111 billion in 2015. This is a vast sum of money [But.] this
debt took decades to accumulate and it will be paid out over the next 50 years. Over
101
HB 5298 Analysis

that time period this supposedly colossal debt in reality constitutes about 2.5 percent
of the state budget so this is roughly 10 percent of the payroll costs over that time
period. another way to look at this debt is that it is 0.17 percent of the states gross
product over the term during which it will be paid, a much less frightening number.
These are not spurious comparisons; the states economy and the revenue it receives
are precisely the resources the state will use to pay this debt. the GASB rules do not
acknowledge as an asset the strength of the local economy and the ability of its
taxpayers to pay in the future but the rules are narrowly drawn so that only qualifying
funds kept in trust are counted as a strength.

...
GASB rules do a good job of answering, How much money will this plan need to pay off
its debts if it is closed tomorrow? But most plans are not going to be closed tomorrow,
so this is usually not very useful information.

Full funding is a valuable goal, but so is reducing poverty, keeping roads paved,
educating children, fighting crime, and so on. Few government goals can be considered
to trump all others, and diversion of taxes into pension savings is a choice not to fund
something else.

Ultimately the best argument against the current rules is that following these rules is
not necessary to keep the checks from bouncing. Full funding of any pension system
requires spending more money than necessary to meet the governments obligations. Is
that not the very definition of waste?
The remaining question is whether our nation will drive thousands of municipalities into
bankruptcy, deprive millions of public employees of pension benefits they have earned,
and discredit one of the great financial advances of the last centuryall in order to
preserve this waste. To date, the answer is not comforting. 68

68
http://haasinstitute.berkeley.edu/sites/default/files/pensionaccountingmemo_-_final.pdf

102
HB 5298 Analysis

Common Solutions That Seldom Solve Anything: Closing a


Plan & Fixed Amortization Schedule
Closing a plan: Riskier than you might think:

Many political leaders, faced with an apparently colossal pension debt have concluded
that closing their governments pension system is the only feasible alternative. The
obvious problem with such a strategy is that it is not an answer to the question of
funding the debt. That is, closing the plan because the debt is too large does not excuse
a government from paying that debt, even if it does keep the debt from growing further.
Closing a pension plan has important risks ... masked by the accounting rules. The first is
simply that one of the real strengths of a pension system ... is the flow of money into
the system from its members and their employers ... usually a comparable size to the
investment returns or larger. The consistency of this contribution makes it at least as
important in providing security to the system as investment earnings, if not more so.
Removing this source of strength leaves a pension plan to rely on the financial markets
alone, not a well-known source of security.

One of the advantages of managing investments in perpetuity is that managers are


permitted to take the long view in everything. A system without that long horizon has
a serious disadvantage when it comes to the array of investments open to it. As a
pension plan winds down, more and more of its fund must be kept in relatively liquid
short-term investments. ...69

Fixed Amortization Schedule:

... a partially funded system will see correspondingly larger variation in the required
premiums from the same investment variations. ... one way to amplify the volatility of a
partially funded system is to amortize the unfunded liability on a fixed schedule. As the
fund progresses down the road to amortization, the effects of variation in investment
returns become ever more extreme. ... amortization schedules developed under these
rules tend to seem reasonable only at the outset. A few years in, after being exposed to
the vagaries of real-world investments, they usually call for utterly unmanageable
increases in amortization payments at the very end of the schedule, often just in the last
three or four years.

In other words, full funding is a worthy goal to prevent volatility in payments. But if, in
order to prevent a problem one has to endure itin an amplified formsensible people
might be led to question the therapy.70

69
http://haasinstitute.berkeley.edu/sites/default/files/funding_public_pensions_-_publish.pdf
70
http://haasinstitute.berkeley.edu/sites/default/files/funding_public_pensions_-_publish.pdf

103
HB 5298 Analysis

Republicans Claim MI Faces Wave of Local Government Bank-


ruptcies Caused by Unfunded Retiree Obligations is Over-
heated

Local governments across Michigan have promised retiree health care benefits they
cannot afford, House Speaker Kevin Cotter said Thursday, warning that collective
unfunded liabilities of $11 billion could drive more Michigan cities toward bankruptcy.

The current system is not sustainable Unless we address this mounting problem,
many local governments will go bankrupt, retirees will be harmed, and services critical
to our residents will be impaired.71 [Chair Chatfield] and Cotter both argued that by
solving the problem of unfunded liabilities they were ensuring retirees had some
benefits in the long-term, rather than seeing them eliminated through municipal
bankruptcies. "In my opinion this is about trying to save a more significant portion of
the benefits that have been promised," Cotter said.72

...

As state taxpayers, we already have made this mistake once in Detroit, where through
bankruptcy, employee pension and retiree health care needed to be cut by billions of dollars.
Some 90 percent of retiree health care benefits were slashed. These employees worked hard
and followed the rules, but because their benefits werent funded, they lost what they were
promised.73

...

Suggestions that the nation is facing a wave of pension-driven municipal bankruptcies


are overheated. We have not seen a major city bankruptcy since mid-2013, and it is not
clear that the few bona fide government financial crises that have occurred over the last
decade were primarily the result of pension underfunding. Flat or declining revenue
and a failure to maintain adequate general fund reserves better explain fiscal
emergencies

71
http://www.detroitnews.com/story/news/local/michigan/2016/12/01/retirement-
benefits/94740940/
72
http://www.mlive.com/news/index.ssf/2016/12/police_fire_in_unique_position.html
73
http://www.grbj.com/articles/89456-reserving-space-on-the-capitol-lawn-lets-hope-it-is-
for-pension-reform
December 1, 2017 by John Kennedy, chairman of the West Michigan Policy Forum.

104
HB 5298 Analysis

Pension obligations come due over an extended time frame and at highly predictable
rates, so it is hard to imagine them triggering an emergency without one or more other
factors coming into play ... progressives [such as Tom Squoros] may be right that the sky
isnt falling Public employee pensions are unlikely to trigger a tsunami of municipal
bankruptcies any time soon, but the need to fund these plans is placing pressure on
local government budgets ...74

...

All the recent incidents of municipal bankruptcies have been blamed, at least in part, on
pension obligations. Most famously, this was the case in Detroit, Michigan

And yet, is it really true? A close look at the Detroit bankruptcy shows that it really had
far more to do with the politics of Michigans suburbs and the Governor Rick Snyders
feelings about the city than it did with the mathematical reality of the city finances. The
narrative of runaway pension obligations sinking an ailing citys finances is simply not
supported by the facts, which had much more to do with a sudden loss of state support
and ill-advised interest-rate swaps.
Long-term debt due decades in the future cannot cause insolvency today even if it is a
sign of trouble to come. Insolvency is the result of being unable to pay current obliga-
tions; long-term debt is just a threat.

Cases of other cities used to illustrate the pension crisis provide equally misleading
stories contradicted by a closer look. Obviously, these cities were all stressed fiscally,
but how and why did it come to be that public employee pensions were argued to be
primary causes, when this was not the case? Part of the reason is that the pension funds
in these cities were known to be underfunded by the accounting standards used to
evaluate them
Unfortunately, the widely-used measures of are more complicated, less complete,
and less reliable than they are typically presented to be. they are commonly
misinterpreted. They ignore important sources of system strength and create perverse
incentives to system managers. They serve not only to exaggerate the problems facing
pension funds, but also provide a poor guide to addressing those problems. Certainly
the current funding situation of most pension plans could be improved and certainly
there exist pension systems that really are in danger of collapse. However, might there
be needless damage done by constantly predicting impending collapse for so many
others?75
74
http://www.thefiscaltimes.com/Columns/2017/02/20/How-Public-Employee-Pensions-Make-
Income-Inequality-Worse

75
http://haasinstitute.berkeley.edu/sites/default/files/funding_public_pensions_-_publish.pdf

105
HB 5298 Analysis

...

The Risk of Local Bankruptcy is Overblown:

The goal of fully funding benefits in the private sector makes sense; Fully Funded
means there's enough to pay off obligations if a company went bankrupt tomorrow.
Plenty of corporations have left their workers with reduced benefits after their plans
were left underfunded (or looted by corporate raiders).

But, the risk of locals going into bankruptcy is overblown because of DB plans (many
other factors are putting financial stress on locals). But, local governments won't disap-
pear even if the went bankrupt; the revenues and tax base would still exist to pay most
retiree obligations.

Note: Even in the worst case, like Detroit, there was enough revenues to pay much of
the retiree obligations (my Dad retired from Detroit and he still gets $*** to pay for
sumpplemental health insurance; in Grand Rapids, we have got nothing after age 65 for
decades).

So, the great expense of pre-funding retiree obligations now, to insure against the re-
mote risk of bankruptcy would be largely a waste of taxpayer's money.
...

The true answer for distressed communities is revenue, [MI Firefighters Union
President] Docherty said[Nov . 2017]." All they [State of MI] have done is cut revenue
sharing. They have not brought it back to where it was," he said. "We don't have the
money in the communities and they won't talk about revenue. They refuse to talk about
it. That's truly how you fix these communities. You can lay off every employee in the City
of Flint -- every one, not even pay them benefits -- get rid of every single one and you
are still not going to pay your debt down."76

76 https://mirsnews.com/welcome.php Pension, OPEB Reform To Dominate Discussion


In House After Break

106
HB 5298 Analysis

Bankruptcy May Be Better Option to Protect Benefits Vs. State-


Controlled Board With Emergency Manager Powers to Unilat-
erally Impose Cuts to Pension & Health Care Benefits

[Chair Chatfield] and Cotter both argued that by solving the problem of unfunded liabili-
ties they were ensuring retirees had some benefits in the long-term, rather than seeing
them eliminated through municipal bankruptcies. "In my opinion this is about trying to
save a more significant portion of the benefits that have been promised," Cotter said. 77
Note: Even in the worst case, like Detroit, there was enough revenues to pay much of
the retiree obligations (my Dad retired from Detroit and he still gets $*** to pay for
sumpplemental health insurance; in Grand Rapids, we have got nothing after age 65 for
decades). He lost 5% of his pension. That's all!

Alberts shows nearly all OPEB Detroit gone; but I think from talking to Dad that they
were just bonded out! But Albert implies that they lost it all.

If this bill passes, ALL MI local employees will be hit a lost worst than that!

Note: **** better than mine, take chances w judge vs state board! squorsLower
Benefit

Why Is Republican Leadership Pushing


77
http://www.mlive.com/news/index.ssf/2016/12/police_fire_in_unique_position.html

107
HB 5298 Analysis

Why Is Republican Leadership Pushing


Unnecessary Reforms that Will Harm
Local Government Budgets & Cut Retire-
ment Benefits of Police & Firefighters?

Synder & MI Treasurer Khouri Plan to Slash Pensions & Retiree


Health Benefits to Fill Local Government Budget Holes Left by
State Revenue Cuts (Used to Pay for Big-Money Donor & Corpo-
rate Tax Cuts)

Bean Counters Obsessed with Debt, Don't Realize Starting Pre-


Funding of Closed DB Retiree Health Fund Doesn't Make Much
Sense
...
On Sept. 26, 2016 Doug Devos Sends a Message to Elected Offi-
cials to Reform Public Retiree Health Care Benefits

Ideological-Driven Myth Pushed By Devos & Koch Funded Think


Tanks that Private DC Savings Plans Are Better than Public DB
Pension & Retiree Systems.

Wall Street Enriched by Closing DB Plans and Forcing Public


Workers Into DC Savings Plans Republicans

108
HB 5298 Analysis

Does Synder & MI Treasurer Khouri Plan to Slash Pensions & Re-
tiree Health Benefits to Fill Local Govt. Budget Holes Left by
State Revenue Cuts? (Used to Pay for Big-Money Donor & Corpo-
rate Tax Cuts)
The Snyder administration took office in 2011, shortly after the economic crisis that offi-
cially lasted from late 2007 to June 2009. put in place fiscal and tax reforms, including
replacing the Michigan Business Tax with a flat 6 percent corporate income tax ... (This
year, he would sign into law a few new incentives.).

[Robert Kleine, a former state treasurer under Granholm and a principal of Great Lakes
Economic Consulting] said the state has also created tight budget conditions by divert-
ing general fund dollars to roads, business tax cuts and credits . I dont think (the
states budget is) that well-prepared, given all the money thats been allocated for other
purposes and given the spending needs that we have in the state,

Vulnerable as well [to further State cuts]: state money for cities and townships, known
as revenue sharing. Combine that with Lansings decision to divert $600 million from
the general fund for road repairs by 2021 and phase out a personal property tax on
manufacturing equipment [along with previous 2011 tax cuts for the wealthy &
corporations], and the state is going to be not in a great position to help local units of
government should a downturn come, [Craig Thiel, research director for the
nonpartisan Citizens Research Council of Michigan] told Bridge.

Snyder has taken steps to address unfunded pension and health care costs for
government retirees He also convened a task force to look for ways to tackle billions
of dollars in local government debt accrued from underfunded pensions and retiree
health care benefits.

State Treasurer Nick Khouri, a Snyder appointee, said he wants state and local leaders
to address the municipal revenue problem along with ballooning retirement benefits
[NO, benefits are going down, contributions are going up] funding and the efficiency of
local services [even MORE service cuts to police & fire!] while the economy is still
strong.

...
[Rep. Curtis Hertel, Jr wrote:] Over the past 15 years, weve seen communities all over
Michigan dramatically reduce the number of police officers and fire fighters on our
streets But according to the DeVos family, the pension funds [& retiree health care]
for those police officers, fire fighters, and teachers are at the center of Michigans finan-
cial woes -- and must be eliminated.

109
HB 5298 Analysis

The math doesnt add up. But maybe thats exactly what they want. At the same
time that the majority of Michiganders are doing more and getting less, the DeVoses are
paying less [LLC & corporate taxes reduced] and getting more.

Theyre trying to use public employee pensions as a scapegoat By pointing their fin-
gers at our first responders and teachers, theyre trying to make everyone forget that
theyre helping to bankrupt our cities. Over the last decade, the State of Michigan has
underfunded local governments through revenue sharing cuts to the tune of $6.2 billion,
all while corporations pay far less in taxes.This is simply not sustainable. This Legisla-
ture cannot continue to blame our public servants while they starve our local govern-
ments at the direction of big-money donors.78

78

http://www.freep.com/story/opinion/contributors/2016/11/29/gop-donors-michigan-
pensions/94628596/

110
HB 5298 Analysis

Bean Counters Obsessed with Debt, Don't Realize Starting Pre-


Funding of Closed DB Retiree Health Fund Doesn't Make Much
Sense & Imposes Unnecessary Fiscal Hardship on Locals

111
HB 5298 Analysis

On Sept. 26, 2016 Doug Devos Sends a Message to Elected Offi-


cials to Reform Public Retiree Health Care Benefits
The 2016 West Michigan Policy Forum (WMPF) was held on Monday, September 26
[2016]... The top priority chosen by over 400 business leaders attending this years fo-
rum was addressing the looming crisis of unfunded retirement and healthcare costs

We will hold lawmakers accountable for making bold decisions to reinvent Michigan and
challenge state government to operate with the same vigor as the private sector. 79

The problems from underfunding are far worse than weve been told. Bad assumptions
and unrealistic promises are strangling the budgets of our schools and local govern-
ments, piling burdens on the backs of our kids and grandkids in debt, risking the future
The promises were made but these benefits have not been funded; therefore, em-
ployees are at risk of not receiving the benefit. Massive tax increases and drastic cuts
to services are coming or promises of benefits will be broken, UNLESS changes are made
now.

Does the WMPF advocate taking away the pensions teachers, firefighters, police officers
and other government employees have earned? No, we dont. Just the opposite. We
believe if unaddressed the promises made to these hard working employees will be bro-
ken because they arent funded. The promise of retiree healthcare should be kept,
but delivered via todays changed healthcare market [i.e. DC HSA plans]80

Doug DeVos said. Groups will likely lobby GOP lawmakers to make pension reforms
for local governments happen. What this does, is it sends a message to all of our
elected officials. It helps clarify the issues. The DeVos family is a major donor to Michi-
gan and national and Republican causes.81

79
http://www.wmpolicyforum.com/ [accessed 12-04-16]

80
http://www.wmpolicyforum.com/media-room/ and
http://www.wmpolicyforum.com/wp-content/uploads/2016/09/2016-WMPF-PWC-Presentation.pdf

81
http://www.epi.org/publication/the-teacher-pay-gap-is-wider-than-ever-teachers-pay-continues-
to-fall-further-behind-pay-of-comparable-workers/

112
HB 5298 Analysis

Ideological-Driven Myth Pushed By Devos & Koch Funded Think


Tanks that Private DC Savings Plans Are Better than Public DB
Pension & Retiree Systems

113
HB 5298 Analysis

Wall Street Enriched by Closing DB Plans and Forcing Public


Workers Into DC Savings Plans
Fiscal hawks like me are prone to exaggerate the pension funding crisis for a variety of
reasons and can sometimes omit necessary nuance from our arguments. But
critiques of pension funding may have pecuniary motives in some cases. For example, if
governments can be convinced to increase funding levels, that means pension systems
will have more money to allocate to mutual funds and other money managers. Since
these financial players normally quote their fees as a percentage of assets under
management, more pension funding leads to higher revenues.

If government agencies can be convinced to replace their defined benefit programs with
defined contribution plans, financial interests stand to make even more money.
Individually managed employer-sponsored retirement plans known as 401(k) plans in
the private sector generate substantial fees for the firms that manage them. plan
participants pay about 1.20 percent annually in overhead for shareholdings in a defined
contribution plan. This compares with an average management overhead for defined
benefits plans of only 0.43 percent. So moving employees from defined benefit to
defined contribution plans can provide a windfall to the financial industry. 82

82
http://www.thefiscaltimes.com/Columns/2017/02/20/How-Public-Employee-Pensions-Make-
Income-Inequality-Worse

114