LANSING, MI — Retired Washtenaw County Deputy Sheriff Harry Valentine broke bones and got stitches in the line of duty. Now it’s not crime he’s fighting, but a potential move from the Michigan legislature to change retiree health care for municipal employees.
“The bottom line is it was a great job, and I earned what I got. And all I’m asking is for what I earned. No more, no less,” said Valentine, 63, of Dexter.
But he and others are seeing signs of a fight over retiree health care, pensions, or both brewing in Lansing as the Republican-controlled legislature enters the heat of its lame-duck session later this month.
There aren’t bills yet, but the retirement obligations of Michigan municipalities are a top talking point as lawmakers wind down the year. Unions, meanwhile, are entrenching against any quick action.
Municipal liability driving discussion
A study from the Center for Local Government Finance and Policy at Michigan State University found that in 2014, Michigan cities, villages and townships had liability for $2.5 billion in unfunded pension liabilities and $7 billion in unfunded health care benefit liabilities.
Those liabilities are a concern to Gov. Rick Snyder, an accountant who has long looked to put the state on sound financial footing.
“At the state level we’ve done many things. If you look at where the biggest issues tend to reside, they’re at the municipal level. And so I think that’s the topic that generally I would hope people would be having a thoughtful discussion about over some time period,” Snyder told reporters on Tuesday.
He said there could potentially be better standards and practices across municipalities.
“Some communities are doing well, others are struggling with these liabilities. And don’t we want to make sure that the liabilities get covered in some effective fashion? Because if people are getting benefits let’s make sure they get paid for them,” Snyder said.
And much of the state’s business community, gathered at the West Michigan Policy Forum in September, expressed a desire to eliminate pensions and reign in retiree health care costs.
As communities look at increasing retiree obligations and declining revenue sharing from the state, some communities may have trouble addressing it.
“Every city in the state that has a retiree pool that is offered retiree health benefits, it doesn’t matter where they are, they’re impacted by this,” said Chris Hackbarth, president of the Michigan Municipal League.
Health care easier to change than pensions
Pensions are constitutionally protected by a provision that states “The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.”
In short, it’s hard to re-do pensions without running into the constitution. But it’s been done in at least one situation recently: when Detroit police and fire pensions were opened up as part of the city’s bankruptcy. And the legislature may make a run at teacher pensions yet this year.
Health care benefits, said AFSCME Council 25 Legislative Director Nick Ciaramitaro, aren’t protected explicitly in the constitution and some case law has indicated that they can be amended.
“Technically the legislature can legally, I don’t know that they could politically or practically, but they can legally impact health care benefits even of people who have already retired,” he said.
And then there are the numbers: retiree health benefits are more than twice the unfunded liability of pensions benefits in municipalities, according to the Center for Local Government Finance and Policy’s study.
Rep. Earl Poleski, R-Jackson, is a term-limited lawmaker looking to address retiree health care yet this session.
“I’d like to see us do something, at least, even if it’s a piece of addressing the problem,” Poleski said.
Retired police officers like Valentine remember taking lower or steady pay because their municipalities promised good retirement benefits instead.
“You look at those things and think ‘ok I can live with making average wage… but over here on this end I’ve got decent benefits and I’ve got retirement with benefits,'” Valentine said.
Poleski said that it became a crutch for some communities during difficult financial times.
“It’s been easy for local government to say ‘hey we can’t give you anything in your pay right now but we’ll give you something in retirement,'” Poleski said.
But now communities are having to pay for those obligations. Some, like Sterling Heights, are looking at it proactively.
Brian Baker, Finance and Budget Director of the City of Sterling Heights, said the city had closed retiree health care for new employees a few years back. And going forward, the city is looking to properly fund their promises by investing $12 million per year — about 12 percent of their general fund budget — into funding retiree health care obligations. But he sees a problem brewing in other cities.
“At the same time, many communities are not funding retiree health care. And we saw that as an obligation that it’s no different than a debt, we’ve got to continue to fund that, pre-fund that, not just pay as you go,” Baker said.
But Poleski said cities like Jackson, which he represents, are paying a very significant amount of their budget to keep up with retiree health care obligations. And Jackson isn’t unique, Poleski said.
Actual changes up in the air
While some in the legislature are seeking changes to retiree health care, it’s unclear exactly what those changes would be.
Ciaramitaro said the approaches the unions have heard rumors of include approaches like shutting down health care benefits for retirees and replacing them with Health Savings Accounts, and possibly steering retirees to exchanges created by the Affordable Care Act.
“The rumors are abounding but we have no language, we have no definitive indication,” Ciaramitaro said.
Still, he said, unions are taking the threat seriously.
Ed Jacques, director of member services for the Police Officers Association of Michigan, was concerned about the possibility of putting retirees on exchanges.
“What does that do for a guy who’s been pushing a squad car around for 30 years? It’s totally unfair,” Jacques said.
And right now Jacques and his members are urging the legislature to take its time and move the discussion into next year. The House has nine session days left on its calendar. The Senate has a dozen.
“This is a much bigger issue than just something we can get done in 10 days and pass legislation,” Jacques said.
He wants lawmakers who consider the issue to understand the stories of workers who may have taken lower pay or a freeze because they were promised this health care down the road.
And when there is an actual proposal on the table, Ciaramitaro said, it may not just be unions at the table. Especially with health care reforms, he noted that insurance companies and hospitals would probably have questions about how any changes would affect them, especially if the plan is to move people to the exchange and President-elect Donald Trump eliminates it as part of his promise to repeal and replace the Affordable Care Act.
“I would argue that these issues should generate a great deal of concern in people beyond the labor unions… there are other people who have a lot to lose,” Ciaramitaro said.
For Valentine, there is a lot to lose. His son has Autism, and he and his wife have both had health issues. He’s not old enough for Medicare, and if the legislature makes changes for existing retirees his family’s medical costs aren’t going away.
“If this were to come to fruition… then what do I do, cut the house payment short? Where do I shave the money? Because I’m on a fixed income now,” Valentine said.