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As my colleague Jack McHugh has pointed out on more than one occasion, many of the problems facing this state can be traced to unaffordable benefits that local governments have extended to their employees. To illustrate this problem, consider the current defined-benefit pension and health care terms for police officers and firefighters in the city of Westland. These terms are set in three collective bargaining agreements — one each for firefighters, police officers and police sergeants and lieutenants.
Like most police and fire pensions, Westland's pensions are figured out by using a fairly common formula: take a firefighter's or police officer's number of years of service and multiply that by a certain number to get a percentage, then determine "average final compensation." The process for this can vary but the usual operation, and the one that applies in Westland, goes as follows: using the employee's pay record look at his or her annual compensation for the final 10 years of service. Average the top three years and the resulting figure is the average final compensation. Then multiply that by the percentage for his or her years of service to determine the actual annual pension.
Technically, state law sets parameters for police and fire pensions. The "multiplier" is supposed to be no higher than 2.5 percent per year for the first 30 years — meaning that a cop with 30 years on the force should be able to retire with a pension of 75 percent of his or her average final compensation. After the first 30 years of service that multiplier should only increase by 1 percent per year. (A firefighter with 31 years of service would have a final multiplier of 76 percent.)
This is a reasonable limitation that should serve to keep pensions from becoming too much of a burden for taxpayers, but these limits are regularly flouted or ignored and Westland is no exception. In Westland, the multiplier for police officers and firefighters is 2.8 percent for the first 30 years, meaning that a police officer or firefighter can retire after 30 years with a pension that is set at 84 percent, rather than 75 percent, of his or her average final compensation. Westland aggravates matters further by enhancing its pensions by 5 percent after six years of retirement. This enhancement is not authorized under state law.
Assuming a firefighter's AFC is $63,051 (which is the highest base salary list in the firefighter contract — with overtime and other compensation boosters that figure could be higher) Westland's high multiplier and six-year pension booster add $5,958 to the annual pension of a retiree with 30 years of service.
Finally Westland's police and fire pensions are made more generous by boosting AFC, including such things as uniform allowances, holiday pay, longevity pay, and most egregiously, unused sick time and vacation time. This is not an uncommon practice in Michigan, but by foregoing vacations and minimizing sick leave, Westland firefighters and police officers can boost their final pensions by thousands of dollars annually.
Last March the city of Westland did negotiate substantial changes to its pension plans for both police officers and firefighters. In particular they limited AFC to base pay and overtime, eliminating the inflation of pensions through banking sick time and vacation time, but these changes do not apply to cops and firefighters hired prior to this year. Westland taxpayers could wait for decades before this agreement brings them substantial relief.
Health care terms are more complicated and there is a bit more variation between the three bargaining units than there is for pensions. For firefighters hired before Aug. 31, 2005, the city has committed to providing them with traditional Blue Cross/Blue Shield coverage. Firefighters hired after Aug. 31, 2005, are offered a BC/BS PPO instead. Retiree health coverage is picked up by the city for retirees who began service before July 1, 1994. For those who began service after that date, the city will pick up 4 percent of the cost of premiums for every year of service. (This would mean that firefighters with 25 or more years of service have the entire cost of health insurance covered by the city.)
Health care terms vary in the police contracts, but the same general rule applies: depending on an officer's start date, he or she will have access to either traditional insurance or a PPO provided by Blue Cross/Blue Shield, and with 25 years of service can expect the full premium to be covered by the city's pension funds when he or she retires.
Police officers and firefighters, in Westland or anywhere else in Michigan, have demanding and potentially dangerous jobs, but they are also public servants whose wages are paid for by taxpayers. Their wages and benefits should be at a level that is affordable for their communities. The people of Michigan deserve a full accounting of the wages and benefits that are offered to their employees, so that they can determine whether these contract terms are prudent.
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Paul Kersey is director of labor policy at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
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