Fire Fighters and Police Officers Retirement Act: What is Act 345 and what does it do?

The Fire Fighters and Police Officers Retirement Act (Act 345 of 1937) allows for a retirement plan for police officers and firefighters and also authorizes a funding source. What is Act 345, what does it do, and why does it matter?

Photo Credit: Miss Lauralee via Flickr under a cc license
Photo Credit: Miss Lauralee via Flickr under a cc license

Many local governments in Michigan face the challenge of funding legacy costs, including pension and retirement benefits for police and fire employees. Municipalities employ a variety of tools to provide adequate monies to fund pension and retirement benefits.

Michigan’s municipalities have very limited revenue-generating options other than the property tax. In 1964, the Michigan Legislature enacted Act 243 of 1964, prohibiting local governments from levying any taxes not authorized by law.[1] Therefore, all new taxes must be voted on by the taxpayers of the municipality. Revenue sharing between the state government and local governments has decreased, making property taxes all the more important as a revenue source for local governments.

The Headlee Amendment of 1978 (“Headlee”) limits the amount that a local government can tax its citizens’ property. This amendment requires a millage rollback whenever the revenue from existing property grows by more than the rate of inflation. Residents can vote to override the rollback and increase their property millage rate up to the maximum millage cap.[2] For cities and villages, the statutory operating maximum is 20 mills.[3] For townships, the millage maximum is based on a county’s allocation among the county’s townships and local schools.[4]

Act 345 of 1937 is one of the only ways a municipality can establish a new revenue stream. This law allows municipalities to adopt an Act 345 firefighter and police officer pension fund. Act 345 pensions must receive a majority vote from the citizens of the municipality or county. Once such a fund is approved by a majority of voters in a municipality or county, Act 345 authorizes the creation of an Act 345 millage and thus a new funding source to fund police and firefighter pensions. This Act 345 millage has no ceiling and is not restricted by Headlee.[5] Act 345 was passed in 1937; Headlee was not added to the Michigan Constitution until 1978 and “does not prevent imposition of a tax or tax increase that was authorized prior to the time the Headlee Amendment took effect.”[6] Even if a municipality is taxing at the maximum millage permissible, the municipality can levy a millage specifically for an Act 345 police and fire pension system fund. In turn, this ability frees up some revenue in the general fund to go toward other public services.

As of March 2017, 49 municipalities and counties had adopted an Act 345 pension system, and 37 are levying a separate Act 345 tax (see Chart 1). The municipalities not currently levying a separate tax have the power to levy an Act 345 tax if their elected officials decide to implement such a millage.

Three cities -- Cadillac, Dearborn Heights and Ironwood -- are levying their maximum operating millage and have an Act 345 pension millage. Additionally, 26 of the municipalities levying an Act 345 millage do not have the available mills within their cap to fund their public safety pensions out of their operating millage. A municipality with a lower taxable value (TV) per capita -- less than $20,000 -- faces an additional burden. To generate the required revenue to fund municipal services, it may be required to levy tax rates that make it economically uncompetitive relative to a municipality with a higher TV per capita.

Selling the idea of not only another property tax but a property tax with no maximum millage cap is difficult. The lack of a millage cap is a compelling reason that some voters are hesitant to vote in favor of an Act 345 pension system fund. For example, in 2015, Lincoln Park residents voted twice against adopting an Act 345 fund and millage. On the second vote, the proposal included a self-imposed cap of six mills, and it still did not receive the necessary support to pass.

Even without levying the additional Act 345 property tax, municipalities and counties can benefit from adopting an Act 345 pension. Benefits under an Act 345 pension system are generally regulated by the Act 345 statute; consequently, benefits do not increase or decrease often. This regulation can add some stability to the pension fund, even with collective bargaining agreements making adjustments to benefits from time to time. Also, per Act 345, both the employee and the employer are required to make contributions to the pension fund. Having multiple contribution sources increases the likelihood of a healthy pension fund. Indeed, many of the municipalities’ Act 345 pensions are funded at or above 80 percent.[7]

Good pensions and health care for police officers and firefighters help recruit new hires and retain current employees. Until 2015, Michigan police officers and firefighters already covered by a retirement system were not permitted to pay into Social Security, so they could not benefit from that social safety net when they retire. The Michigan State University Extension Center for Local Government Finance and Policy will publish another policy brief on Michigan local government public safety employees and Social Security benefits. It will address the connection between the federal Social Security Act and its subsequent amendments relating to public employees, and Michigan state law regarding retirement benefits for state and local government employees. 

Municipality2016 Operating Millage Cap2016 Operating Millage Levied2016 PA 345 Millage2015 Taxable Value Per Capita 
Albion 12.5 11.9736 ~ $10,881  
Battle Creek 11.6 10.24 4.496 $26,563  
Benton Township 1 0.9851 ~ $28,468  
Berkley 10 9.1456 2.429 $32,549  
Big rapids 15 11.2334 4.2239 $14,634  
Cadillac 13.9473 13.9473 2.6 $23,588  
Centerline 15 14.663 8.6218 $18,836  
Clinton Township 1 0.8245 ~ $27,135  
Dearborn Heights 8.5 8.5 6.1 $20,468  
Ecorse 19 18.6713 0.25 $19,664  
Escanaba 20 14.03 2 $24,468  
Flint Township 5 4.6423 ~ $25,706  
Gibraltar 20 15 ~ $29,679  
Grosse Pointe Shores Village 20 12.5787 1.0138 $87,298**  
Hamtramck 20 19.5994 0.5 $8,541  
Harrison Township 5* 3.7614* ~ $34,713  
Iron Mountain 17.5 16.1318 3.3321 $30,253  
Ironwood 19.2 19.2 6.5 $17,125  
Ishpeming 15* 13.4433* 1.8562* $17,914  
Jackson 7 6.7192 6.33 $18,156  
Kingsford 20 17.222 3.408 $24,522  
Ludington 12.5* 11.5675* 1.1501* $33,918  
Macomb Township 1 0.6717 0.0747 $36,908  
Madison Heights 10 8.819 5.8612 $25,901  
Marquette 19.65 14.9225 ~ $33,580  
Menominee 15 14.7953 3.1 $23,421  
Midland (city) 18 12.69 1.05 $56,169  
Midland (county) 4.8955* 4.8955* ~ $44,061  
Mount Pleasant 20 14.065 1.9 $16,970  
Negaunee 22.5 18.1572 ~ $20,910  
Niles Township 1 0.865 ~ $26,695  
Oak Park 20 17.5 6.2017 $14,677  
Redford Township 5 4.2306 9.45 $16,713  
Sault Ste Marie 20 16.8139 5.2115 $19,729  
Shelby Charter Township 5 2.4113 0.5 $39,209  
Southfield 7 6.631 4.3714 $33,179  
Southgate 12.5 10.1366 7.42 $22,327  
Springfield 15 14 1 $15,026  
St Clair Shores 8 6.2842 6.0942 $23,142  
Sterling Heights 12 9.4909 1.9026 $31,213  
Taylor 9.5 8.4211 7.7045 $20,882  
Traverse City 15 11.1167 2.32 $58,918  
Trenton 20 15.7852 2.3462 $35,311  
Utica 20 17.087 ~ $36,473  
Warren 9 8.7302 4.9848 $25,615  
Waterford Township 5* 3.8478* ~ $26,725  
Westland 8 6.4834 8 $19,365  
Ypsilanti (city) 20 19.0211 7.5411 $14,860  
Ypsilanti Township 1.116 1.0322 1 $20,818  
* - 2015 Data from Treasury (2016 data not available)          
**- 2014 data (2015, 2016 population data not available)          

Photo credit: Miss Lauralee Flickr cc

[1] MCLS § 141.91 (2016):

“Except as otherwise provided by law and notwithstanding any provision in this charter, a city or village shall not impose, levy or collect a tax, other than an ad valorem property tax, on any subject of taxation, unless the tax was being imposed by the city or village on January 1, 1964.”

[3] Pratt, Elizabeth, “Property Tax millage Limitations in Michigan,” State Notes: Topics of Legislative Interest, 5 (Spring 2016), at

[4] There is a 15-mill limit that “applies to the so-called ‘allocated mills,’ which can be levied without a vote of the people by certain townships within a county, by general law counties, and by intermediate school districts for operations….Allocated mills are frequently contrasted with ‘extra voted millage,’ which is millage levied with voter approval. The seemingly simple 15-mill limit is adjusted by county and can be increased or decreased by action of voters or automatically due to requirements of State law.” Id. at 2.

[5] MCLS § 38.559(9)(2) (2016):

“Except in municipalities that are subject to the 15 mill tax limitation as provided by section 6 of article IX of the state constitution of 1963, the amount required by taxation to meet the appropriations to be made by municipalities under this act shall be in addition to any tax limitation imposed upon tax rates in those municipalities by charter provisions or by state law subject to section 25 of article IX of the state constitution of 1963.”

[6] City of Detroit v. City of Highland Park, 878 F. Supp. 87, 89 (E.D. Mich. 1995).

[7] “The 80-percent threshold is used by credit rating agencies as a general indicator of a public plan’s financial health.” Brainard, Keith, and Paul Zorn, “The 80-percent threshold: Its source as a healthy or minimum funding level for public pension plans,” NASRA, at

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