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2007 House Bill 4530: Balance budget with reduced school pension fund contribution

Public Act 15 of 2007

  1. Introduced by Rep. Lee Gonzales (D) on March 22, 2007, to allow a one-time revision in the formula used by the school employee pension fund to determine how large an annual state contribution is required to cover part of the liability created by promising school employees a defined level of annual post-retirement pension benefits in the years ahead. One of the elements in actuarial liability projections is the value of equities (stocks) in the pension fund’s portfolio, and the usual practice in determining the required annual contribution is to use a five-year moving average of their value, to account for market fluctuations. The bill would allow a one-year average, which given a strong stock market in the past year, has the effect of reducing the state contribution by $190 million less than the true actuarially sound amount, under generally accepted accounting principles. Also, to allow a one-time only “interest only” pension contribution, which is $93 million less than the true actuarially sound amount. The bill is part of Gov. Granholm’s plan to close a gap between desired spending and expected revenues in Fiscal Year 2006-2007 (and this element has also been adopted in a Senate Republican plan to close the gap).
    • Referred to the House Appropriations Committee on March 22, 2007.
      • Reported in the House on March 27, 2007, without amendment and with the recommendation that the bill pass.
  2. Passed 107 to 1 in the House on April 17, 2007.
    Who Voted "Yes" and Who Voted "No"

  3. Received in the Senate on April 19, 2007.
    • Referred to the Senate Appropriations Committee on April 19, 2007.
      • Reported in the Senate on May 15, 2007, with the recommendation that the bill pass.
  4. Passed 37 to 0 in the Senate on May 22, 2007, to allow a one-time revision in the formula used by the school employee pension fund to determine how large an annual state contribution is required to cover part of the liability created by promising school employees a defined level of annual post-retirement pension benefits in the years ahead. One of the elements in actuarial liability projections is the value of equities (stocks) in the pension fund’s portfolio, and the usual practice in determining the required annual contribution is to use a five-year moving average of their value, to account for market fluctuations. The bill would allow a one-year average, which given a strong stock market in the past year, has the effect of reducing the state contribution by $190 million less than the true actuarially sound amount, under generally accepted accounting principles. Also, to allow a one-time only “interest only” pension contribution, which is $93 million less than the true actuarially sound amount. The bill began as part of Gov. Granholm’s plan to close a gap between desired spending and expected revenues in Fiscal Year 2006-2007, and this element has also been adopted as part of a work-in-progress consensus plan to close part of the gap.
    Who Voted "Yes" and Who Voted "No"

  5. Signed by Gov. Jennifer Granholm on June 6, 2007.

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