By Ben Solis
Gongwer News Service
The Michigan Fire Fighters and Police Officers Retirement Act lets authorized cities create police and fire pension plans paid by taxpayers, but does the Headlee Amendment allow those cities to use the money on retiree health care costs?
That was the question posed to the Michigan Supreme Court on Wednesday as the bench heard oral arguments in Ruman v. City of Warren/Bate v. City of St. Clair Shores (MSC Docket Nos. 166329; 166333).
The case centers on the city of Warren and the city of St. Clair Shores creating pension plans funded by city taxes under the act, but the plaintiffs sued the cities, arguing they were only able to impose taxes at an amount sufficient to fund the city’s actual contributions.
The plaintiffs argued the imposition of taxes and using them to cover health insurance costs, and without seeking voter approval first, violated the Headlee Amendment. The Macomb Circuit Court and the Court of Appeals disagreed, setting the stage for the case before the high court, which was asked to determine whether the act allows for the collection of taxes to fund those benefits and if a different act provides pre-Headlee authorization.
Arguing for the plaintiff-appellants was Greg Hanley, who last month also argued before the high court in another Headlee-related case dealing with permit charges in Detroit.
Hanley said there was no question the act, often referred to as Act 345, authorizes cities to tax to fund pension plans, but it was equally clear that there were limitations in the statute on those taxes.
“To be lawful under Act 345, retiree health care, which we also call (other post-employment benefits, or) OPEB, needs to be an Act 345 benefit, and it has to be actually provided by the act 345 retirement systems of these communities,” Hanley said. “Each of these cities has formally adopted and implemented a plan or fund called the police and fire Retirement System …. and they also have separate … OPEB plans.”
Hanley was asked by Chief Justice Elizabeth Clement and Justice Brian Zahra to help them separate what is a true pension benefit under Act 345 and what is considered an “other benefit” or multiple benefits that should be zeroed out of the retirement system tax scheme.
Hanley gave examples but they did not appear to satisfy the justices’ question. That said, Hanely argued the bigger problem here was the definition of a retirement system in Act 345.
“Even if OPEB is an Act 345 benefit, even if you get to that conclusion, it still has to be provided by the retirement system,” Hanley said. “The Court of Appeals completely disregarded the form and substance of what these cities actually created to come up with this cobbled together dictionary definition of retirement system that is untethered from the statute and is based upon the manner that they’re providing these benefits.”
Justice Elizabeth Welch wondered how the Public Employment Relations Act would affect the bench’s decision because the benefits in question land in the subjects collective bargaining agreements.
Hanley argued there was not a word in PERA about how collective bargaining agreements are funded. Welch then asked if a benefit was agreed to but not funded, does the person forgo that benefit.
“The question is not whether you get it … the whole case is about how do you pay for it?” Hanley said. “What are the authorized funding sources?”
That’s where the Headlee violation argument comes in. Hanley said the argument wasn’t that the whole of the retirement system funded by taxes was illegal, but if a city has a two-mill limitation and it imposes three, for example, his argument is that the extra mill was unlawful and not allowed under the statute.
Attorneys Mark Roberts and Sonal Mithani represented the cities of Warren and St. Clair Shores, respectively. Both had similar arguments about Act 345 being strictly a funding mechanism and that nothing about the act was as narrowly tailored as to violate Headlee.
Mithani added that the Court of Appeals correctly decided the matter on the plaintiffs’ Headlee claims.
Clement asked if there was a ceiling on Act 345’s taxation limit or if there were guardrails in place to prevent cities from using the funds for other means, which would likely be a Headlee violation.
Mithani said the parties were talking about retiree benefits clearly outlined in bargaining agreements and funded through Act 345, not the funding of a parking structure or a sewer with tax money not approved by voters per Headlee.
She added that the Legislature in its wisdom saw fit give added benefits, so cities attract and retain a public safety workforce, and that duty predates the introduction of Headlee.
Gongwer News Service
The Michigan Fire Fighters and Police Officers Retirement Act lets authorized cities create police and fire pension plans paid by taxpayers, but does the Headlee Amendment allow those cities to use the money on retiree health care costs?
That was the question posed to the Michigan Supreme Court on Wednesday as the bench heard oral arguments in Ruman v. City of Warren/Bate v. City of St. Clair Shores (MSC Docket Nos. 166329; 166333).
The case centers on the city of Warren and the city of St. Clair Shores creating pension plans funded by city taxes under the act, but the plaintiffs sued the cities, arguing they were only able to impose taxes at an amount sufficient to fund the city’s actual contributions.
The plaintiffs argued the imposition of taxes and using them to cover health insurance costs, and without seeking voter approval first, violated the Headlee Amendment. The Macomb Circuit Court and the Court of Appeals disagreed, setting the stage for the case before the high court, which was asked to determine whether the act allows for the collection of taxes to fund those benefits and if a different act provides pre-Headlee authorization.
Arguing for the plaintiff-appellants was Greg Hanley, who last month also argued before the high court in another Headlee-related case dealing with permit charges in Detroit.
Hanley said there was no question the act, often referred to as Act 345, authorizes cities to tax to fund pension plans, but it was equally clear that there were limitations in the statute on those taxes.
“To be lawful under Act 345, retiree health care, which we also call (other post-employment benefits, or) OPEB, needs to be an Act 345 benefit, and it has to be actually provided by the act 345 retirement systems of these communities,” Hanley said. “Each of these cities has formally adopted and implemented a plan or fund called the police and fire Retirement System …. and they also have separate … OPEB plans.”
Hanley was asked by Chief Justice Elizabeth Clement and Justice Brian Zahra to help them separate what is a true pension benefit under Act 345 and what is considered an “other benefit” or multiple benefits that should be zeroed out of the retirement system tax scheme.
Hanley gave examples but they did not appear to satisfy the justices’ question. That said, Hanely argued the bigger problem here was the definition of a retirement system in Act 345.
“Even if OPEB is an Act 345 benefit, even if you get to that conclusion, it still has to be provided by the retirement system,” Hanley said. “The Court of Appeals completely disregarded the form and substance of what these cities actually created to come up with this cobbled together dictionary definition of retirement system that is untethered from the statute and is based upon the manner that they’re providing these benefits.”
Justice Elizabeth Welch wondered how the Public Employment Relations Act would affect the bench’s decision because the benefits in question land in the subjects collective bargaining agreements.
Hanley argued there was not a word in PERA about how collective bargaining agreements are funded. Welch then asked if a benefit was agreed to but not funded, does the person forgo that benefit.
“The question is not whether you get it … the whole case is about how do you pay for it?” Hanley said. “What are the authorized funding sources?”
That’s where the Headlee violation argument comes in. Hanley said the argument wasn’t that the whole of the retirement system funded by taxes was illegal, but if a city has a two-mill limitation and it imposes three, for example, his argument is that the extra mill was unlawful and not allowed under the statute.
Attorneys Mark Roberts and Sonal Mithani represented the cities of Warren and St. Clair Shores, respectively. Both had similar arguments about Act 345 being strictly a funding mechanism and that nothing about the act was as narrowly tailored as to violate Headlee.
Mithani added that the Court of Appeals correctly decided the matter on the plaintiffs’ Headlee claims.
Clement asked if there was a ceiling on Act 345’s taxation limit or if there were guardrails in place to prevent cities from using the funds for other means, which would likely be a Headlee violation.
Mithani said the parties were talking about retiree benefits clearly outlined in bargaining agreements and funded through Act 345, not the funding of a parking structure or a sewer with tax money not approved by voters per Headlee.
She added that the Legislature in its wisdom saw fit give added benefits, so cities attract and retain a public safety workforce, and that duty predates the introduction of Headlee.
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