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It is common knowledge that mismanaged pensions have caused enormous fiscal pain in Detroit and Flint, but the problem is more widespread than many Michiganders realize.
Across the state, municipal pensions (for police, firefighters and other city and county employees) are underfunded by $5.4 billion. The Michigan Public School Employees Retirement System needs $26.7 billion to fully fund the promises it has made to teachers and other school employees.
In September, the Mackinac Center hosted an Issues and Ideas Forum about the pension debt Michigan faces at the state and municipal level and what can be done to fix it.
The panelists included Dan Liljenquist, a former state senator from Utah who spearheaded that state’s pension reform efforts. He pointed out that while the concept of billions of dollars does not mean much to the average person, Utah’s pension debt could have paid for 8,000 teachers for 25 years. Lawmakers can continue to kick the can down the road, he said, but “reality is not negotiable.” This debt will eventually cripple governments that choose to ignore it.
Pete Constant spoke about his experiences reforming pensions as a member of the San Jose city council, noting that the already-small police force in the city has been dramatically cut to fund retiree benefits. He advised audience members to look at city infrastructure repair, 911 response times and other core government services that often suffer to fund the promises made to retirees.
The final panelist was Aric Nesbitt, majority floor leader in the Michigan House of Representatives.
He gave a history of Michigan’s pension reform efforts, noting that the state was well ahead of the curve in reforming retiree benefits for state workers in the 1990s. Nevertheless, the pensions that remain open present just as much of a threat, as do retiree health benefits, which are rarely funded in advance and face a more volatile market as the price of health care skyrockets.
Michigan has an opportunity to improve the fiscal responsibility of government, protect the retirement promised to workers and save taxpayers from years of future pain. It should leap at it.
