Inside208

House Proposal Provides Direct Resources to Address Municipal Pension Debt

Posted on February 24, 2022 by Dene Westbrook

Today House Appropriation Committee voted in support of House Bill 5054 creating a grant program and the opportunity for local units of government to access direct resources to address municipal pension debt.

Under this legislation sponsored by House Appropriations Chair Thomas Albert, $1.15B in state general fund resources will be utilized to provide direct assistance to municipalities to help pay down municipal pension debt. There will be two parts to the grant program, $900M will be utilized to get all pensions that are less than 60% funded up to 60% funded, and $250M will be provided to pensions that are 60% funded or greater.

As a condition of accepting the grant, a recipient will be required to do the following.
For those that are under 60% funded:

  • The local unit will make in full all actuarially determined contributions. The discounted rate and the assumed rate of return for the qualified retirement system shall be capped at current levels. The discounted rate and assumed rate of return may be approved for adjustment to a lower level.
  • The qualified retirement system shall adopt the most recent mortality tables recommended by the Society of Actuaries.
  • Prohibition on contractual pension benefit enhancements for 10 years after accepting the grant or the local unit must repay the full value of the grant. After 10 years no benefit increases will be acceptable unless a community is at least 80% funded and then the value of any increase must be funded at 100%, or the local unit must repay the full value of the grant.
  • Grant recipients are still required to follow their PA 202 Corrective Action Plan measures for 5 additional years
  • Corrective Action Plan monitoring from the state’s Municipal Stability Board will continue for 5 years
  • Grant recipients must utilize the uniform standards published by the Treasurer annually under PA 202
  • In the event a local unit does not pay the locally amortized contribution, or any actuarially determined contributions are not made by the local unit, a revenue sharing intercept by the Department of Treasury is allowed.
  • Grants are capped at $100M

For pensions funded at 60% or greater:

  • Retiree healthcare, if offered, shall be prefunded
  • The local unit will make in full all actuarially determined contributions.
  • The discounted rate and the assumed rate of return for the qualified retirement system shall be capped at current levels. The discounted rate and assumed rate of return may be approved for adjustment to a lower level.
  • The qualified retirement system shall adopt the most recent mortality tables recommended by the Society of Actuaries.
  • Grant recipients are still required to follow their PA 202 Corrective Action Plan measures for 5 additional years
  • Corrective Action Plan monitoring from the state’s Municipal Stability Board will continue for 5 years
  • Grant recipients must utilize the uniform standards published by the Treasurer annually under PA 202
  • In the event a local unit does not pay the locally amortized contribution, or any actuarially determined contributions are not made by the local unit, a revenue sharing intercept by the Department of Treasury is allowed.
  • Grants are capped at 5% of the funds available ($250M)

Although there are still details that need to be worked through and many steps need to be taken before this bill is before the Governor for signature, we strongly believe this is a significant step forward and a direct reflection of our efforts over the years highlighting the need to address our municipal finance system.

Click here to read the statement issued by the League is response to the to House Appropriations Committee voting in support of this legislation.

For a copy of the H-1 substitute to House Bill 5054 please click the following link. HB 5054 H-1

We look forward to working with Representative Albert and others to help assure passage of this important legislation.

John LaMacchia is the League’s director of state & federal affairs. He can be reached at jlamacchia@mml.org or 517-908-0303.

Locations
Headquarters
1675 Green Road,
Ann Arbor MI 48105
 
Capitol Office
208 N. Capitol Ave.,
1st Floor Lansing, MI 48933
©2022 Michigan Municipal League LLC. All rights reserved