Lansing — Firefighter and police officer unions celebrated a victory at the Michigan Capitol on Thursday as Republican legislators scaled back a local government retirement reform package critics feared could slash promised benefits for public workers.
The state House and Senate, after working through the night until early Thursday morning, approved identical packages that will require local governments to begin to address unfunded pension and health care liabilities.
But legislative leaders gutted tougher provisions that would have allowed state intervention to force benefit or budget changes, provisions they said were intended to prevent drastic cuts through bankruptcies.
The revised plan aligns with recommendations from a work group that had been appointed by GOP Gov. Rick Snyder but failed to find consensus on some issues. Snyder and legislative leaders had pursued a more aggressive plan but were not able to secure enough votes amid objections from public safety employee unions and uniform opposition from Democrats.
"We know we can agree on these revisions," said Senate Majority Arlan Meekhof, R-West Olive, after unanimous votes in the upper chamber around 3 a.m. Thursday.
Meekhof expressed some disappointment at not having oversight measures that Republicans had originally included in the package but said they made acceptable compromises with lawmakers who were not at first in support.
Senate Minority Leader Jim Ananich, D-Flint, said "promises that have been made have to be kept" and called the revised plan an improvement.
The scaled-back proposal requires local governments to pre-fund retiree health benefits for new hires and retiree premiums. It mandates more reporting to the state by 2018.
Plans short of funding 40 percent of future health care obligations and 60 percent of pensions would be subject to extra scrutiny by the Treasury Department and municipalities that don't receive a state waiver would be overseen by a three-member Michigan Stability Board made up of people appointed by the governor.
The board could reject plans put forth by local governments to fix their finances to fund retiree healthcare costs. Lawmakers could not agree on whether to allow the board to make changes to benefit plans or other actions for communities struggling to resolve financial problems.
Police officers and firefighters protested potential benefit cuts last week before the legislation was even introduced, and they were a regular presence in the Michigan Capitol this week as legislators considered changes.
While unions acknowledged long-term debt problems in some communities, they said many already have started working to fund health care benefits, which traditionally had not been required.
Mike Sauger, vice president of the Michigan Fraternal Order of Police, said unions could not change Republican leadership’s position but managed to convince enough GOP lawmakers to stop the original plan.
“I know that we changed the majority of the Representatives’ minds,” Sauger said. “There’s very few communities right now that need immediate intervention, and there’s already tools in place to deal with those … that’s the emergency manager law.”
The most destitute cities, such as Benton Harbor and Lincoln Park, have already had emergency managers and have seen benefit cuts in some cases, Sauger said.
“I think it was the public employers, the management groups, the unions and the legislators — we all were on the same page here in the end,” Sauger said. “It wasn’t a union vs. management or anything. It was everybody was working together. We want to protect the promises made … we want the same thing.”
The House approved identical bills in a series of 107-3 votes. One of the chambers will have to vote again next week to send the package to the governor’s office.
The two House Republicans who had sponsored the original proposal, Rep. James Lower and Rep. Thomas Albert, voted against the scaled-back version; neither made statements regarding their no-votes. Rep. Yousef Rabhi, D-Ann Arbor, also voted against the plan.
Lower said Republicans took out so many “non-controversial” provisions he could no longer support it.
“I’ll be honest, it was just kind of a letdown for me at that point,” Lower said. “I get that we didn’t have the votes, nobody’s disputing that. I just didn’t end up agreeing with the direction we took it in.”
The late-night vote-wrangling came this same week as separate House and Senate panels approved identical 16-bill packages that would have allowed the state to send three-member financial management teams into local communities and give them broad powers to address unfunded retirement obligations.
Dan Gilmartin, CEO executive director of the Michigan Municipal League, called the Thursday morning vote a “legislative retreat” and a “colossal missed opportunity” to head off a financial threat facing cities across the state. His group had opposed the legislation as introduced but was hoping to negotiate a stronger compromise.
Business for Leaders President and CEO Doug Rothwell called the revised package “an important first step” to preserving promised retirement benefits. But he predicted data gathered through new reporting requirements “will show that the problem is serious and that additional action will be necessary to provide stability for our local governments.”
Democrats argued the initial proposal granted too much authority to state government in addressing long-term debts in a fashion similar to controversial emergency managers. The teams would have been empowered to modify benefits, change budgets and sell city assets to cover pension or retiree health care costs.
House Minority Leader Sam Singh, D-East Lansing, said Democrats supported task force recommendations included in the final bills.
“While this is a victory for the men and women who work tirelessly and make great sacrifices to keep us safe, it also marks the beginning of another important fight to ensure that local municipalities have the tools and financial resources they need to head off similar challenges in the future,” he said in a statement.
Snyder spoke to reporters on Wednesday, expressing hope legislators could make progress despite apparent standstills in both the House and Senate.
“This is an issue that doesn’t get better with time,” the governor said. “This is an issue that’s only growing in terms of potential risk to retirees and the local government.”
Snyder defended the initial plan to create three-person financial management teams under the emergency manager law.
“The idea here is that hopefully, local governments can solve the problem with their own employees, without it coming to state intervention. That should be the last resort, and I think that’s the way it’s designed.”
While some local governments have taken steps to address looming pension and retiree health care costs, they have collectively committed just $3 billion to cover $12 billion in promised benefits, Treasurer Nick Khouri said earlier this week.
As of July, cities and counties across the state faced a combined $7.4 billion in unfunded pension liabilities and $10.3 billion in unfunded retiree health care benefits, according to a report from the governor’s task force.
Republicans argued that communities struggling to address those long-term debts could face bankruptcy, which could lead to draconian cuts for retirees.
Pensions are protected by the state Constitution, but retiree health care benefits are not. Under a 2005 Michigan Supreme Court ruling, retiree health care benefits are only guaranteed if a public employer binds itself contractually to provide them.