'Obligation' Legislation Burdens Taxpayers for Nonobligations

The Michigan House has passed legislation (House Bill 4075) to let local governments borrow to pay for retirement health insurance benefits that current and past officials have offered to local government employees. Senate Bill 927, sponsored by state Sen. Mark Jansen, R-Grand Rapids, would do the same, and the Senate Appropriations Committee has reported the bill to the GOP-controlled Senate with a recommendation that it pass.

As explained in a previous post here, both bills would convert what currently appear to be nothing more than politicians' promises into a genuine financial obligation and liability on taxpayers. Specifically, future taxpayers would be on the hook for repaying the debt represented by the bonds the bills would authorize.

Note that we are not talking about pension obligations here, but post-retirement health coverage for government employees — a benefit that few private-sector workers are offered anymore.

Unlike government pensions — for which considerable sums have been set aside in pension funds — hardly a dime appears to have been set aside for these lucrative benefits (in most communities, perhaps not even a dime). Also unlike government pensions — which under the state constitution appear to be mostly untouchable — these benefits may be subject to substantial trimming. (Indeed, many retired autoworkers have already discovered that their retirement health care benefits really are subject to after-the-fact "haircuts" or trimming.)

The seeming unfairness of trimming such benefits for government employees is greatly mitigated by the fact that government employees are eligible for federal Medicare coverage at age 65, just like everyone else. Cutting the benefits may be inconvenient for a city worker planning to retire at age 50 with full pension and health coverage, but the benefits are unsustainable, and government is supposed to serve the taxpayers, not government employees. 

Obviously, this is a big deal for government employee unions, which happen to be the most politically powerful special-interest group in the state, and which exist to keep the money flowing from taxpayers to government workers and retirees. Thus, these bipartisan bills are advancing in both the House and Senate to make sure taxpayers can't extract themselves from what are very likely impossible future burdens.

The House and Senate bills aren't identical. The House version says, "The funding of postemployment health care benefits ... shall constitute a contract to pay the postemployment health care benefits." (Emphasis added.)

The Senate bill contains just the opposite: "The funding of postemployment health care benefits ... shall not constitute a contract." (Emphasis added.)

Here's what I find most interesting: Both bills implicitly acknowledge that under current law, there is no contractual obligation to pay these benefits.

In other words, taxpayers need not be stuck with these unfair burdens, or at least not all of them. Government retirees can still be asked to wait until they reach age 65 to get their government-provided health care coverage — Medicare — just like the rest of us.

So why are both Republican and Democratic politicians in Lansing trying to stick taxpayers with these unnecessary burdens? See above: "the most politically powerful special-interest group in the state."

Oh, and don't be fooled by those weasel words in the Senate bill, "shall not constitute a contract." Once the money has been borrowed (by "selling bonds"), the local politicians doing the borrowing will almost certainly adopt other provisions to ensure that the money can go only to retired government workers' health care benefits. If nothing else, the presence of the earmarked money may become an excuse for retaining the benefits no matter how burdensome they become.

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