Providing analysis and insights for all things legislative impacting Michigan's townships
The December issue of Township Voice features:
Townships that provide pension and retiree health care will soon be required to report information under a soon-to-be new law—the Protecting Local Government Retirement and Benefits Act—in an effort to decrease unfunded liabilities.
This month, the Legislature hammered out a 13-bill package of both House and Senate bills—with Senate Bill 686, sponsored by Sen. Jim Stamas (R-Midland Chtr. Twp.), being the primary bill in the package. After a late-night session in December where lawmakers compromised on a deal, the bills received final passage and are expected to be signed by Gov. Rick Snyder.
Originally, the bills included harsh consequences for local units of government that had a high unfunded liability for pension and other post-employment benefits (OPEB), with the possibility of some local units being placed under the oversight of a state financial management team or even an emergency manager. However, the plan was changed drastically after testimony from MTA and other local government associations, discussion with legislators, and opposition from union organizations. The plan now mirrors the recommendations of Snyder’s task force report from last July.
For months, the Legislature has attempted to address the problem of unfunded liabilities as many local governments choose to pay for benefits as costs are incurred. Even local units that do prefund retiree health care benefits may have unfunded liabilities if they don’t make the full annual required payments, their system assets don’t generate the investment returns that they expected, or the cost of health care increases faster than the rate of inflation. Snyder’s July task force—on which MTA was a participant—found that retiree health care accrued liabilities for townships, cities and villages were funded on an average of 19 percent.
MTA worked closely with the administration and lawmakers on this issue in an effort to provide transparency, consistent assumptions and reform measures. The final package includes various stages to provide transparency and reporting, review by the state Department of Treasury to identify funding status and financial stress, and development and implementation of a corrective action plan.
Under the bills, starting July 1, 2018, any local unit that offers or provides retirement health benefits to current or former employees must pay the annual service cost of retirement health benefits for employees hired after June 30, 2018, as well as retiree premiums that are due for retirees.
Each year, local units would be required to submit a summary retiree health care report to the governing body of the local unit and to the Department of Treasury. The report would be due no later than six months after the end of the local unit’s fiscal year and would include details of the funding ratio of each retirement system of the local unit (using uniform actuarial assumptions established by the state treasurer), annual required contributions for each retirement system and the local unit’s annual general fund operating revenues.
Treasury would then post on its website an executive summary of each valuation report—which must include the retirement system’s unfunded accrued liability for retiree health. Each executive summary would also be submitted to the House and Senate Appropriations committees and the House and Senate Fiscal Agencies.
In addition to this reporting, each plan’s actuary must conduct an actuarial experience study every five years. Then, at least every eight years, the local unit must either have an outside auditor conduct a peer actuarial audit, or replace the plan actuary, or both. A local unit of government that is eligible to use a specified alternative measurement method under Governmental Accounting Standards Board standards is exempt from the requirements
Once the reports are submitted, the state treasurer would determine if a local unit is underfunded. The new law will require that a local unit’s retiree health system must be at least 40 percent funded, while pension systems must be at least 60 percent funded. The local unit would also be considered underfunded if it has not reported the annual cost of its retiree health care or pension systems, or if it fails to pay for at least the normal costs for employees hired after June 30, 2018, and retiree premiums that are due.
Local units could receive a waiver from having an underfunded status designation if it has an approved plan to address its underfunded liabilities, and the state treasurer determines that the plan is adequate. If the local unit does not receive a waiver and is determined to be underfunded, Treasury must complete an individualized and comprehensive internal review of the local unit’s retirement system. It must also discuss with the local unit’s designated officials changes or reforms that have been made, as well as review actuarial trends and projections.
The local unit would then develop and submit a corrective action plan for approval by the Municipal Stability Board, a newly created board under the legislation. Corrective action plans for retirement systems could include closing the current defined benefit plan, implementing a pension calculation multiplier limit, reducing or eliminating new accrued benefits, or implementing final average compensation standards. Retirement health benefit corrective action plans could include requiring cost sharing of premiums and sufficient copays, or capping employer costs.
The board would monitor compliance with the act and any corrective action plan for local units whose plans are approved. If the board rejects the plan, the local unit has 60 days to address the reasons it was rejected and re-submit the plan for approval.
The package does not include any consequences to require intervention or enforce a corrective action plan. While MTA appreciates the Legislature’s commitment to tackling the problem of OPEB funding, more reforms are still needed. We will continue to work with lawmakers to ensure that local units have the tools they need to keep their pension and OPEB plans funded appropriately.
The latest draft for new lead and copper rules would place staggering financial and administrative burdens on townships and other local units of governments with water systems.
MTA supports protecting residents against lead exposure, but is concerned about the added costs that will be required of local water supply systems. Final draft rules along with an impact and cost benefits analysis prepared by the Michigan Department of Environmental Quality (DEQ) are expected to be available in early January. Additionally, DEQ is hosting a formal public hearing tentatively scheduled on Tuesday, Jan. 30, 2018, at the Lansing Center in Lansing. MTA urges representatives of impacted townships to attend either the formal hearing or to provide written comments during the public comment period—expected to be Jan. 15 through Feb. 15.
The draft rules include revisions to lower the lead action level threshold from 15 parts per billion (ppb) to 10 ppb, effective Jan. 1, 2024. This change would bring in an additional 165 community water supply systems that would not be in compliance with the lead action level—requiring various actions, including expensive corrosion control measures, with which to comply by the deadline. Currently, there is no scientific information at the federal or state level to suggest what the appropriate number should be. However, some environmental groups are suggesting the number should be as low as zero. Township water supplies with a threshold between the 10 and 15 ppb are especially encouraged to comment on this proposal.
The proposed rules would also require the removal of all lead service lines as well as galvanized service lines—if they are or were connected to lead piping/goosenecks. The draft rules would require lead service line replacement at a rate averaging 5 percent per year not to exceed 20 years total, unless an alternate schedule is approved by the state. In addition, the water supply system would have to offer to replace the entire line, including the portion under the control of the property owner, at the water supply system’s cost. MTA and other local government organizations believe this creates legal issues covering the cost of private lead service line replacement by spreading it over the entire rate base (Bolt vs. City of Lansing).
As discussed in the November 2017 edition of Township Voice, the proposed rules would also require a preliminary inventory of distribution system materials be conducted within 12 months of enactment, with a verified inventory submitted to DEQ with 48 months of the due date for the preliminary inventory. The rules further call for the establishment of a state and local water system advisory councils for those systems serving over 50,000 in population; an increased sampling rate and a provision adjusting the monitoring timeframe; increased public education efforts; and stricter notification requirements.
MTA is currently partnering with other local government organizations to propose a different course of action to maximize public health benefits. This would include investments in places most warranted by site-specific circumstances, such as residences where the action level is above 15 ppb or where investigations show the primary cause of high lead blood levels is lead-based paint. The coalition has major concerns with the massive cost for lead line replacement and impacts that could have little or no public health benefit, leaving less funding available for other water infrastructure needs. An alternative approach would be to replace lead service lines in conjunction with asset management plans to address water main infrastructure.
Other concepts being suggested by the local government coalition include implementing a sampling protocol for vulnerable populations (pregnant women, children, day care centers and schools); developing a statewide communications plan to promote robust public education and outreach concerning lead; and shortening the timeframe in which labs must analyze water samples and provide the results to water supply providers when a sample exceeds 15 ppb and to customers.
MTA will continue to update members on these rules but strongly urges your participation during the public hearing and/or public comment period. Should you have questions, do not hesitate to contact us at firstname.lastname@example.org.
Gov. Rick Snyder signed several bills into law this year that will have a direct impact on townships. Find an up-to-date list of 2017 public acts on MTA’s website. You may find the page by logging into the website; click on “Public Acts” under the “Advocacy” tab.
Next month, township officials will have the opportunity to hear the latest on state legislation—what has been recently enacted and what’s on the immediate horizon.
MTA’s 2018 Capital Conference on Jan. 31 will provide members with crucial information on hot topics—while also allowing them to interact with legislators and network with fellow township officials. The all-day event in Lansing allows for discussion, workshops and insights from legislative leaders—focusing on issues you face locally and legislatively.
Following registration and a continental breakfast, attendees will be welcomed to the Capital Conference at 8:30 a.m. Gov. Rick Snyder and other legislative leaders have been invited to speak at a leadership forum and MTA staff will provide a legislative update.
Breakout sessions throughout the day will cover topics including the new AMAR, the possibility of a statewide sanitary code, updates on medical marijuana facilities licensing, and state grants available. Attendees will take a break at noon for lunch with their legislators. They’ll also hear from a legislative panel and participate in a wrap-up session.
Those who attend may also ask MTA in advance to schedule meetings with their legislators or their staff. These 20-30 minute appointments will take place during the regular conference schedule, and those with appointments will miss some of the conference content.
Register for this important event by Jan. 17 to pay a discounted rate of $30. Don’t miss this must-attend event!
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Past Issues of Township Voice/Capitol Currents: