SB-0838, As Passed Senate, December 19, 2018

HOUSE SUBSTITUTE FOR

SENATE BILL NO. 838

     A bill to amend 2001 PA 34, entitled

"Revised municipal finance act,"

by amending section 518 (MCL 141.2518), as amended by 2015 PA 46.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

     Sec. 518. (1) Through December 31, 2018, 2023, in connection

with the partial or complete cessation of accruals to a defined

benefit plan or the closure of the defined benefit plan to new or

existing employees, and the implementation of a defined

contribution plan, or to fund costs of a county, city, village, or

township that has already ceased accruals to a defined benefit

plan, a county, city, village, or township may by ordinance or

resolution of its governing body, and without a vote of its

electors, issue a municipal security under this section to pay all

or part of the costs of the unfunded pension liability an amount

not to exceed the difference between 95% of the actuarial value of

liabilities and 100% of the actuarial or market value of assets for

that retirement program provided that the amount of taxes necessary

to pay the principal and interest on that municipal security,

together with the taxes levied for the same year, shall not exceed

the limit authorized by law.

     (2) Through December 31, 2018, 2023, in connection with the

closure of a postemployment health care plan to new employees, or

to fund the costs of a county, city, village, or township that has

already closed its postemployment health care plan to new employees

a county, city, village, or township may by ordinance or resolution

of its governing body, and without a vote of its electors, issue a

municipal security under this section to pay an amount not to

exceed the difference between 60% of the actuarial value of

liabilities and 100% of the actuarial or market value of assets of

the costs of the unfunded accrued health care liability provided

that the amount of taxes necessary to pay the principal and

interest on that municipal security, together with the taxes levied

for the same year, shall not exceed the limit authorized by law or

to refund in whole or in part a contract obligation issued for the

same purpose. Postemployment health care or benefits may be funded

by the county, city, village, or township. The funding of

postemployment health care benefits by a county, city, village, or

township as provided in this act shall not constitute a contract to

pay the postemployment health care benefits.

     (3) Before a county, city, village, or township issues a

municipal security under this section, for defined benefit

retirement plans or postemployment health care plans, with 100 or

more combined active and retired members, within 1 year prior to

the issuance of the municipal security, the county, city, village,

or township shall have conducted an internal or external review to

verify eligible participants in the plan and that they are

receiving appropriate pension or other postemployment benefits

consistent with their respective plan.

(4) (3) Before a county, city, village, or township issues a

municipal security under this section, the county, city, village,

or township shall publish a notice of intent to issue the municipal

security. The notice of intent and the rights of referendum shall

meet the requirements of section 517(2).

(5) (4) Before a county, city, village, or township issues a

municipal security under this section, the county, city, village,

or township shall prepare and make available to the public a

comprehensive financial plan. that includes The comprehensive

financial plan shall be posted in a prominent and conspicuous

location on the county's, city's, village's, or township's website,

if the county, city, village, or township maintains a website, and

at the office of the clerk no later than the date the notice of

intent was published in accordance with section 517(2). The

comprehensive financial plan shall be approved by ordinance or

resolution of its governing body on or before the notice of intent

was published in accordance with section 517(2). The comprehensive

financial plan shall include all of the following:

     (a) An analysis of the current and future obligations of the

county, city, village, or township with respect to each retirement

program and each postemployment health care benefit program of the

county, city, village, or township. This analysis shall include the

retirement program or postemployment health care benefit program

expected to be funded with a municipal security issued under this

section and all other retirement programs or postemployment health

care benefit programs not being funded with a municipal security

issued under this section.

     (b) Evidence that the issuance of the municipal security

together with other funds lawfully available will be sufficient to

eliminate the unfunded pension liability or the unfunded accrued

health care liability.

     (c) A debt service amortization schedule and a description of

actions required to satisfy the debt service amortization

schedule.limit calculation that shall be in accordance with

statutory, charter, and constitutional debit limits.

     (d) The debt service schedule for a municipal security issued

under this section shall not materially deviate from level or

descending annual debt service, or shall not materially deviate

from a level annual or descending debt service when taking into

account other municipal securities of the county, city, village, or

township unless otherwise approved by the department for a period

not to exceed 5 years from the date of issuance. The proceeds from

the municipal security shall not fund capitalized interest on the

municipal security or any required unfunded actuarial liability

payments not made prior to the issuance of the municipal security.

     (e) The projected net present value savings between the

actuarially determined amortization payments at the plan's

investment rate of return and the municipal security's debt service

requirements at the time of issuance, calculated using a method

approved by the department, shall be at least 15% of the par amount

of a proposed municipal security issued pursuant to subsection (1),

or shall be at least 20% of the par amount of a proposed municipal

security issued pursuant to subsection (2) unless the department

determines that otherwise the plan in its entirety is in the

financial best interest of the county, city, village, or township.

     (f) A comparison of the current investment rate of return

assumption of the defined benefit plan or postemployment health

care plan and the actual annualized investment rates of returns for

the past year, 5 years, and 10 years of those plans.

     (g) The following acknowledgement: Since the actuarial value

of the defined benefit plan or postemployment health care plan's

assets and liabilities are subject to change, the county, city,

village, or township acknowledges that it is possible the unfunded

accrued pension liability or unfunded accrued health care liability

may increase after the issuance of the municipal security, thereby

requiring the county, city, village, or township to make additional

actuarially determined amortization payments to the defined benefit

plan or postemployment health care plan beyond the principal and

interest payments due on the municipal security.

     (h) A certification that the county's, city's, village's, or

township's most recent audit report indicates the sum of all the

county's, city's, village's, or township's defined benefit plans'

actual contributions for the most recent 3 fiscal years are 100% or

greater than the sum of all the county's, city's, village's, or

township's defined benefit plans' actuarially determined

contributions for the most recent 3 fiscal years. As used in this

subdivision, "actuarially determined contributions" means that term

as used in accordance with generally accepted accounting

principles, rules, or regulations.

     (i) A certification that the county, city, village, or

township is compliant on any reporting requirements in accordance

with the protecting local government retirement and benefits act,

2017 PA 202, MCL 38.2801 to 38.2812.

(j) (d) A certification by the person preparing the plan that

the comprehensive financial plan is complete and accurate.

(k) (e) If the proceeds of the borrowing are to be deposited

in a health care trust fund, a plan in place from the county, city,

village, or township to mitigate the increase in health care costs

and may include a wellness program that promotes the maintenance or

improvement of healthy behaviors.

(6) (5) Municipal securities issued under this section by a

county, city, village, or township and the interest on and income

from the municipal securities are exempt from taxation by this

state or a political subdivision of this state.

(7) (6) The proceeds of a municipal security issued under this

section may be used to pay the costs of issuance of the municipal

security. Except for a refunding, the proceeds of a municipal

security issued under this section to cover unfunded pension

liability or accrued unfunded health care liability, or both, shall

be deposited in a pension trust fund, a health care trust fund, a

trust created by the issuer a county, city, village, or township

which has as its beneficiary a health care trust fund, a trust

created by a county, city, village, or township which has as its

beneficiary a pension trust fund, or, for a county, city, village,

or township, a restricted fund within a trust that would only be

used to retire the municipal securities issued under subsection (1)

or (3). (2). A county, city, village, or township shall have the

power to create a trust to carry out the purposes of this

subsection. The A trust created under this subsection shall invest

its funds in the same manner as funds invested by a health care

trust fund. The investment instruments and subject to the

investment limitations governing the investment of assets of public

employee retirement systems under the public employee retirement

system investment act, 1965 PA 314, MCL 38.1132 to 38.1141. A trust

created or fund receiving proceeds of a municipal security under

this subsection shall must comply with all of the following:

     (a) Report its financial condition according to generally

accepted accounting principles.

     (b) Be tax-exempt under the internal revenue code of 1986.

(8) (7) A county, city, village, or township issuing municipal

securities under this section may enter into indentures or other

agreements with trustees and escrow agents for the issuance,

administration, or payment of the municipal securities.

(9) (8) Before a county, city, village, or township issues a

municipal security under this section, the county, city, village,

or township shall obtain the approval of the department.

(10) (9) If a county, city, village, or township has issued a

municipal security under this section, that county, city, village,

or township shall not change the benefit structure of the defined

benefit plan if the defined benefit plan is undergoing the partial

cessation of accruals. However, a county, city, village, or

township may reduce benefits of the defined benefit plan for years

of service that accrue after the issuance of municipal securities

under this section.

(11) (10) A county, city, village, or township shall not issue

a municipal security under subsection (1) or (2) unless the county,

city, village, or township has been assigned a credit rating within

the category of AA A or higher or the equivalent by at least 1

nationally recognized rating agency.

(12) (11) A county, city, village, or township that issues a

municipal security under subsection (1) or (2) shall covenant with

the holders of the municipal security and this state that it will

not, after the issuance of the municipal security and while the

municipal security is outstanding, rescind whatever action it has

taken to make a partial or complete cessation of accruals to a

defined benefit plan or the closure of the defined benefit plan or

postemployment health care plan for new or existing employees for

which the municipal security was issued.

(13) (12) If a county, city, village, or township has issued a

municipal security under subsection (1) or (2), the county, city,

village, or township may issue a refunding security to refund that

municipal security under this section after December 31, 2018 2023

if that refunding security does not have a final maturity later

than the final maturity of the municipal security being refunded

and if the municipality that issued the municipal security has been

assigned a credit rating within the category of AA A or higher or

the equivalent by at least 1 nationally recognized rating agency in

connection with the refunding security.

     (14) Unless otherwise approved by the department, a municipal

security issued under this section shall mature by no later than

the date the final amortized payment for the unfunded pension

liability or the unfunded accrued health care liability would have

been made had the county, city, village, or township not elected to

issue a municipal security under this section.