A news service for the people of Michigan from the Mackinac Center for Public Policy

Legislation to allow local governments to use bonds to cover unfunded liabilities in their defined benefit pension systems is expected to move when the legislature returns on Aug. 15.

Under House Bills 5725 and 5726, the bonding would only be allowed if the local government converts to a defined contribution system, which usually features a 401(k)-type of plan. However, there are concerns that the use of such bonding could get some local governments even deeper in debt.

The administration of Gov. Rick Snyder is dissatisfied with current language in the bills and appears to be approaching the legislation with some skepticism.

"Anytime there's borrowing to get out of debt, it's something the governor believes must be looked at closely," said Snyder press secretary Sara Wurfel. "We'll be working with the legislature collaboratively on this front."

The Mackinac Center for Public Policy also has suggested that the legislature move cautiously to make sure it gets the legislation right.

"We know we have a few things involving the bills that need to be addressed," said House Appropriations Chairman Chuck Moss, R-Birmingham. "We've already taken testimony on the legislation. So, once we get those things addressed I don't see any reason why we shouldn't take a vote in committee.

"Sure, there will be some risk involved," Rep. Moss said in regard to questions about cities possibly taking on larger debts. "You're always going to have some risk. But I don't think we can treat everybody (all local governments) with the same common denominator. Just because something may not be as appropriate for some communities doesn't mean we should prevent all communities from having it available as a tool."

Rep. Peter MacGregor, R-Rockford, sponsor of House Bill 5725, said he thinks the legislation is good in concept and he's working with the administration on possible changes.

"Obviously, we need some stipulations added into the bills," Rep. MacGregor said. "We don't want to see local governments fall further into debt. But I think this (the legislation) is one more way we can help them address this (unfunded liability) problem. It's just giving them one more tool they can use.

"As it is now, the bills could use a few more safety nets," he said. "That can be addressed. But, overall, I think the legislation has a good framework. Of course we're working with the administration on this. There's not much point in passing something if the governor turns around and vetoes it."

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See also:

Beware Doubling-Down on Municipal Pension Dysfunctions

Meet James Hohman, Assistant Director of Fiscal Policy at the Mackinac Center. James discusses his latest project, an analysis of Proposal 1, the proposal on personal property tax reform that will appear on the August 5th ballot. Read more about Proposal 1 here: http://www.mackinac.org/20246


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