The State of Michigan recently released their Corrective Action Best Practices Guide providing suggestions for complying with Public Act 202 (“PA 202”). For many of the communities on the list identified as “underfunded” this guide offers many suggestions but does little to provide a roadmap for facilitating change.
For the communities with the largest of legacy problems, the choices are limited. What I mean by limited, is that the choice is often that of 1) contributing more towards legacy costs and having fewer dollars to contribute towards services and infrastructure; or 2) reduce legacy costs and break contractual promises to those faithful public servants from generations before us. It reminds me of the premise in the movie “Wars Games” (1983). I know this movie dates many of you reading this article. However, it was a classic movie that portrayed a new era of supercomputers trying to predict the possible outcomes of a nuclear war. The movie’s conclusion was that even with a sophisticated supercomputer, that no matter who began a world conflict, the result was that there were NO winners. The best financial talent today can run many algorithms and projections, but ultimately until the last of the legacy classes are paid off or gone, the debate and choices, will continue to be around whether to pay more towards our legacy liabilities or pay more towards services and capital needed to keep communities thriving. For many older communities, there is NO winner in the legacy debate. Today’s elected officials and administrators did not create the legacy dilemma, but they have the difficult job of picking the winners or losers in this debate.
So, what does PA 202 mean for municipalities needing to respond? For many PA 202 merely represents an intrusion of state government while offering no real solutions or tools to solve the crisis over looming legacy plan costs. For others it may serve as catalyst for facilitating change. PA 202 may provide administrators the political capital to engage their unions and/or retirees and begin an earnest dialogue regarding retiree promises and an open discussion around what other communities are doing to address retiree legacy costs.
Cornerstone Municipal in partnership with various colleagues in the industry have formed an advisory group to provide counsel and support for communities building their corrective action plan and/or developing solutions in accordance with the Corrective Action Plan Best Practices Guide issued by the State.
Our advisory group will show you how to use PA 202 to create earnest dialogue amongst all stakeholders and reveal a process that can successfully create meaningful change to reduce legacy obligations and comply with the requirements of PA 202. Our experts have worked on the most challenging of cases in the State. We have collectively worked on re-structuring pension and/or healthcare for the City of Detroit, Wayne County, City of Flint, and City of Inkster to name a few. Through our efforts, these public entities have significantly reduced or eliminated both structural deficits and their legacy liabilities. We can walk you through our approach in each case and will offer our insight as to how we effectively negotiate and then implement change.
Below are case studies underlying the results of our work:
City of Detroit- reduced deficit, reduced OPEB and assisted to reduce the cost of pension benefits earned annually by almost 50%. Significantly, we obtained many of these reductions prior to Bankruptcy proceedings.
Wayne County- reduced OPEB liabilities by 76%, effectively over a billion dollars, all the while reducing annual costs for retiree health care by over $21 million dollars. Successfully drafted, negotiated and implemented reductions in pension benefits for active employees that save the County over $21 million dollars annually.
City of Inkster- reduced OPEB liabilities by 74%, effectively over $20 million dollars, all the while reducing annual costs for retiree health care by over $800 thousand dollars, or 39.7%.
City of Flint- reduced OPEB liabilities by 72%, effectively over $600 million dollars, all the while reducing annual costs for retiree health care by over $6 million dollars.
We know that the above cases represent some of the more extreme turnaround cases in the State. We understand that every municipality brings a unique fact pattern. We also understand that each group may differ on the severity of changes they want to pursue. As group, our collective experience in the public-sector market gives us the keen ability to listen to and understand your unique history while at the same time craft a practicable plan that satisfies the State’s requirements and delivers a solution that is based on an overall assessment of your long-term healthcare plan goals.
Partner with Cornerstone Municipal today and we can start working towards your long-term goals.