Fiscal stress for municipalities
New legislation to determine financial stress thresholds.
In December 2017, the Michigan Legislature passed new legislation (P.A. 202 of 2017) providing threshold provisions and potential reporting mechanisms for municipalities experiencing fiscal stress due to pension and other post-employment benefits (OPEB). This legislation has yet, as of this writing, to have all administrative rules in place. Suffice to say, however, that municipalities across the state of Michigan should begin to have discussions about how they will move forward relative to the new thresholds and governing legislation.
The legislation, in a nutshell, provides for thresholds on pensions and OPEB that all municipalities must meet in order to be considered funded at a viable level. These thresholds provide the minimum levels of funding for these liabilities in order for the state to consider municipalities properly funded at this time. Pensions and OPEB liabilities should be funded at 100 percent. There are not many municipalities that are funded at 100 percent but, given the deep recessionary period between 2009 and 2015, most of these liabilities are funded at very precarious levels. Future articles will provide more detail regarding these thresholds and the waiver process that municipalities can seek based on steps taken to improve.
The Michigan State University Extension Government/Public Policy Work team has designed a six-part curriculum, Fiscal Sustainability, that will provide a municipality with a structured educational experience relative to fiscal sustainability, including an overall introduction, taxation, debt and other liabilities, budgeting and forecasting, capital budgeting and strategic planning of tax base growth.