Foster Swift Municipal Law News
A new Michigan law allows some municipalities to issue bonds to fund unfunded pension liabilities or unfunded liabilities for retiree health care benefits (aka OPEB, other post-employment benefits). Before Public Act 329 became law on October 9, 2012, Michigan municipalities had no power to issue bonds for those purposes.
PA 329 has amended the Revised Municipal Finance Act to authorize a Michigan county, city, township or village to issue limited tax general obligation bonds for funding its unfunded pension liability or unfunded accrued health care liability (as defined in PA 329). However, PA 329 is not for everyone, in practical effect. PA 329 includes conditions that limit the municipalities that can undertake such bond transactions. Those conditions include the following:
- The bonds must be issued no later than December 31, 2014;
- The municipality must have a credit rating of AA or higher from at least one nationally recognized rating agency;
- The municipality must have received the Michigan Department of Treasury’s prior approval for issuance of the bonds;
- The municipality must have published a notice of intent to issue the bonds and regarding the right to petition for a referendum on the issuance of the bonds; and
- The municipality must have prepared and made publicly available a comprehensive financial plan including:
- an analysis of its current and future obligations for each of its retirement programs and post employment health care benefit programs and
- evidence that the bond issuance together with other available funds will be sufficient to eliminate the unfunded pension liability or the unfunded accrued health care liability.
PA 329 also imposes other limitations on issuing pension or OPEB funding bonds. For example, a municipality may issue pension funding bonds only in connection with shifting from a defined benefit retirement plan to a defined contribution plan (e.g., ceasing accruals to a defined benefit plan or closing a defined benefit plan to new or existing employees and implementing a defined contribution plan). Also, PA 329 mandates that the amount of taxes necessary to pay principal and interest on an issue of pension funding bonds, together with taxes levied for the same year, cannot exceed the limit authorized by law.
If you have questions regarding issuing bonds under PA 329 to fund unfunded accrued pension or OPEB liabilities, please contact John Kamins.