CHICAGO -- Michigan lawmakers approved legislation Friday that will allow cities, townships, and counties to issue bonds to fund a portion of their post-retirement health care benefit liabilities.
Oakland County will likely be the first local government in the state to enter the market with post-retirement health care benefit bonds, possibly as soon as the first quarter of 2007, said John Axe, an attorney with Axe & Ecklund PC.
The state Senate approved the legislation late Thursday night, sending it to the House, which took up the bill as its last item of the year before the session ended. The final bill left out the use of bonds to fund pension liabilities, which some in the state sought early on in legislative discussions.
The law states that in order to issue the bonds, municipalities must demonstrate that the difference between the investment returns on the proceeds of the bonds and the interest that a municipality pays on the debt is not less than 100-basis points. In addition, municipalities must carry at least one AA or better rating from a national rating agency.
Each issuer will need approval from the Department of Treasury before issuing the debt. In addition, lawmakers set an expiration date of Sept. 30, 2010 for the option to issue bonds. The deadline gives the state some safeguards in case the program does not work well, said a spokesman for the sponsor, Dave Hildenbrand, R-Lowell.
A municipality would be unable to issue debt totaling more than 5% of the assessed value of property in its jurisdiction, and no more than 75% of its unfunded liability amount. The legislation sidestepped a request to require that municipalities also outline other options to fund the liabilities.
Municipalities must have a plan in place that mitigates an 'increase in health care costs,' but the language does not require specific plans that show that municipalities are using other methods to reduce their liability.
Grand Rapids will also likely take advantage of the new law, said chief financial officer Scott Buhrer, one advocate of greater accountability from issuers.
'I think our retiree health liability is so large that we will have to use many tools to manage it,' he said, adding that a second actuarial study of the city's police, fire, and general employee benefits showed an actuarially accrued unfunded liability of $155 million.
The legislature did not act on one closely watched issue -- the replacement of the outgoing single business tax. Lawmakers, however, approved the 2007 fiscal capital outlay budget.
Meantime, Ohio lawmakers are expected this week to approve that state's capital budget. As introduced, the 2007-2008 biennium included $2.45 billion in project spending backed by bond funds, said Kurt Kauffman, the state's debt manager. That was up from the 2005-2006 biennial amount of $2.16 billion.
One item that remained under debate was whether to continue a program that uses bond proceeds to fund economic development projects in both brownfield and greenfield sites. In 2000, voters approved $200 million of bonds to fund such projects. The state legislature has authorized the final amount from that, and without action, the program will end, Kauffman said.
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