New List of ‘Underfunded’ Status Communities Shows Need for Municipal Finance Reform
The OPEB-pension “underfunded status” list is final and out and about. The large number of communities on the list representing all corners of the state, further demonstrates how Michigan’s system for funding municipalities is broken and needs fixing. Without meaningful municipal financial reform more and more Michigan communities will continue to struggle.
Late last night (May 17, 2018), the Michigan Department of Treasury released the highly anticipated list of communities that they have declared as being in “underfunded” status for either their pension or health insurance offerings.
Under PA 202 of 2017, adopted at the end of last year, every local government offering a defined benefit pension or health insurance plan – commonly known as Other Post Employment Benefits or OPEB – is required to report on their system’s funding levels and budget proportion for those legacy expenses within six months of the end of their fiscal year. About half of the local governments in Michigan were required to report at the end of January and yesterday’s announcement outlines those governments that fell below the required thresholds in the statute and were not granted a waiver from Treasury from those units that submitted reports in January.
More than 130 local governments were originally identified by the state as potentially needing to address their funding and/or budget spending levels for pension or OPEB offerings. Following the initial Treasury data review and waiver process, more than 100 local units now find themselves moving on to the “Corrective Action Plan” phase of the process. For those communities needing to develop a CAP, Treasury staff are offering 30 minute, face to face meetings with the impacted communities to discuss their situation and options for preparing a CAP. Treasury has CAP guidance/instructions forthcoming, as well, to help local units meet the 180 day timeline for putting a plan together.
Once a local unit has developed a CAP, that plan will be reviewed by the new Municipal Stability Board, which held its first, organizational meeting today (May 18, 2018). This board expects to now meet monthly as they work with local units on the development and approval of these plans.
Over the last two years, the League has been heavily engaged on the need for reforms to the OPEB issue to give communities more tools to control their own costs and manage these benefits more effectively. The reporting mechanisms adopted in PA 202, did not provide those needed tools, but does highlight the growing problem that exists for local governments who are struggling with rising budget costs without the financial support they need from the state. The communities that have been identified by Treasury in this first cohort represent every area of the state and every size community. This problem exists everywhere in Michigan and will continue until local governments are given the authority to make changes and the revenue to properly address these costs.
Reforming the OPEB system and giving communities more tools to address it has long been one of the recommendations of the League’s SaveMICIty initiative. This SaveMICity effort aims to fix Michigan’s broken system for funding municipalities. Learn more at SaveMICIty.org.
Matt Bach is the League’s director of communications. He can be reached at mbach@mml.org and 734-669-6317.