'Detroitification' Threatens Los Angeles — and Michigan Public Schools

In today's Wall Street Journal, former mayor of Los Angeles Richard Riordan and investment adviser Alexander Rubalcava describe the looming bankruptcy hanging over Los Angeles, caused by the same process of "Detroitification" that plagues Michigan: A political class progressively hollowing out the private economy to prop up the perks and privileges of an unsustainable government establishment.

The specifics described in that article mirror many of this state's creaking institutions, first and foremost our public school establishment. The authors offer a set of recommendations for the City of Angels that Michigan's schools also would do well to follow; these four bullet points are quoted from their article:

• Defined benefit pensions must be replaced with 401(k) accounts for new employees.
• Current employees must pay much more than 6% (or 9% in the case of public safety employees) of their salaries for their pension benefits. At a time when the city is contributing over 25% of payroll to the pension funds, this is only fair.
• Increase the retirement age to 65.
• Eliminate the $300 million spent on costly retiree health-care benefits. City workers who retire before they are eligible for Medicare enjoy health insurance subsidies up to $1,200 a month, courtesy of Los Angeles. We can no longer afford to subsidize these Cadillac plans.

The exact same dysfunctions and prudent reforms apply just as much to Michigan's public school retirement system:

• While state employees hired since 1997 have 401(k) accounts instead of defined benefits pension — a gift from former Gov. John Engler that keeps on giving — the political power of the Michigan Education Association union enabled Michigan school employees to wriggle out from that reform and retain their outmoded traditional pension plan.
• In Michigan, current school employees pay between zero and 6.4 percent of their salary toward their pensions. Next year, school districts will be paying an amount equal to 19.41 percent of total payroll into the retirement system.
• In Michigan, school employees can begin collecting a pension at age 55, younger if they have 30 years on the job.
• Michigan school retirees get full health insurance benefits, also starting at age 55 or after 30 years on the job.

Earlier this year, Gov. Jennifer Granholm proposed reforms along the lines described above for Los Angeles, but far more modest. The governor wants to increase employee pension contributions by three percent, raise the retirement age for new employees to age 60 and eliminate post-retirement vision and dental coverage for future retirees. The measure was watered down first by Senate Republicans, who left the current retiree vision and dental benefits in place, and was all but gutted by House Democrats.

These prudent recommendations for L.A. are exactly the medicine Michigan's public school retirement system needs. The contrast between them and what Gov. Granholm proposed demonstrates what timid half-measures the latter really were. The measures passed by the Senate and House demonstrate the extent to which this state's bipartisan political class is in hock to government employee unions, just like their counterparts in L.A. In both places, the politicians are serving the system, not the people.

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