Published in Economic Development

2017 Legislative Outlook: Lansing weighs options to control unfunded liabilities

BY Sunday, December 25, 2016 08:10pm

The Legislature’s 2016 lame-duck session was marked by both bipartisan agreement on tough policy issues as well as contentious attempts to solve ongoing state problems that nonetheless split along party lines.

The former includes the celebrated two-bill energy package that cleared the state House on Dec. 15, the last day of session, and quickly followed with support in the Senate and from Gov. Rick Snyder. After a roughly two-year process, the legislation passed muster with nearly everyone from environmental groups to free-market advocates, and what had once split the business community ended up bringing it together.

The other set of policies, however, were mostly tabled and are likely to be picked up in 2017. MiBiz spoke with multiple state and local business groups who all agreed that rising unfunded liabilities in employee health care and pensions are on their radar in the year to come.

Andy Johnston, vice president of government affairs for the Grand Rapids Area Chamber of Commerce, called it the biggest issue his organization is watching next year. The Grand Rapids Chamber is working with the West Michigan Policy Forum on the issue, which identified retiree costs as its own top issue earlier this year.

“The numbers are clear, and we’re cognizant that the people it affects are the story here,” Johnston said. “As a state, we should not get bogged down with political attacks and conspiracies. We need to look at the financial reality and take steps to address the problem while keeping promises that we made. The easiest thing would be to do nothing, but that’s also the irresponsible thing to do. 

“The risk is that real people could get hurt because of the promises made to workers. That sends a bad message for those doing business in the state and it also saddles our kids and grandkids with debt.”

Johnston also identified more flexibility in high school graduation requirements and modernizing the port authority in Muskegon as other upcoming issues for his organization.

The unfunded liabilities issue — which both sides of the aisle agree is a mounting problem — roared back into the public eye this lame-duck session as a Republican-backed plan would have increased costs for municipal retirees and eliminated retiree health benefits for new hires starting next year. Meanwhile, a separate plan sought to address the Michigan Public School Employees Retirement System’s $26.7 billion in unfunded liabilities that would have put new hires into a 401(k)-style retirement plan. That legislation brought swift pushback from the Snyder administration, which said transition costs wouldn’t do anything to address the problem.

Snyder has reportedly said he wants municipalities and labor unions to work jointly and that he plans to create a bipartisan task force early next year to address the municipal side of the debate, which is pegged at $11 billion.

Officials with the Michigan Chamber of Commerce, the Small Business Association of Michigan and Business Leaders for Michigan each said unfunded liabilities is a priority for them going forward.

“At this point, we’re absolutely supportive of making sure we have an open discussion,” said James Holcomb, vice president of business advocacy and general counsel at the Michigan Chamber. “It’s going to be an anchor around everyone’s neck until we tackle that problem.”


Holcomb said the Michigan Chamber board will meet in January to adopt specific legislative priorities, but a general theme is “getting government out of the way and making sure job providers and employees can work together,” particularly on issues like health insurance.

Tony Stamas, vice president of government relations with SBAM, agreed that not completing reforms to the Health Insurance Claims Assessment, or HICA, was a “disappointment.” 

In October, Snyder vetoed a plan that would have replaced the so-called “HICA tax” with a new revenue source for Medicaid. Snyder said at the time that he was concerned the Legislature’s plan would not be recognized by the federal government and the state risked losing Medicaid funding. The HICA is a .75 percent tax paid by individuals and businesses on health insurance claims.

“That’s a conversation that’s certainly not going away,” Stamas said. “We were very supportive of bills that went through the process and disappointed they were vetoed.”

Stamas said SBAM also is prioritizing talent retention and attraction and bills that encourage entrepreneurs to invest dollars within the state.

Meanwhile, the lame-duck Legislature also saw a variety of tax exemptions introduced for various industries, from sportsmen’s clubs (which failed) to county long-term medical care facilities (which passed).

Holcomb said while the Michigan Chamber didn’t take a position on these various proposals, his group is more interested in “broad-based low tax rates.”

“Historically, the government doesn’t have a great track record of picking winners and losers,” he said. “What people are understanding is that tax policy is an important force, but it’s only one factor. There is also concern for energy costs and workforce development and how do we match up with kids coming out of college today. There’s a lot of discussion on that, but I don’t think we’ve ever really solved that.”


Politically, 2017 comes after a historic national election that trickled down to statewide races in Michigan. Republicans will maintain a 63-47 majority in the state House, though roughly a third will be newly minted freshmen legislators.

Holcomb thinks the election of Donald Trump will have a “dramatic impact” on policy that results in lawmakers paying more attention to their constituents.

“Legislators at the state and federal level will be extremely focused on communicating with constituents,” Holcomb said. “The public stood up and raised their collective voice and said, ‘Enough is enough. You’re not doing what we want, you’re kicking the can down the road.’ On a specific policy, I don’t think there will be much direct impact, but the big impact will be on the entire structure of government. The public is much more engaged now.” 

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