Debunking the ‘transition cost’ myth

Last week the plot thickened on a proposed partial state bailout for Detroit when hesitant House members introduced a package of bills placing reform conditions on the gift. Of these, only one is concrete, long term and potentially transformational, and does not depend on circumstances outside the Legislature’s control: A requirement that Detroit stop enrolling new employees in a “defined-benefit” pension system that imposes liabilities on taxpayers.

Naturally, special interest defenders of the city’s dysfunctional status quo are fighting back, and to do so they have trotted out a false claim that the reform would force Detroit to make burdensome, up-front “transition cost” payments. There is no evidence to support this claim, and in fact official government accounting board standards explicitly state that no up-front payments are required when moving from a defined-benefit system to a defined-contribution system

Our speakers will be Richard Dreyfuss, a senior fellow with the Commonwealth Foundation in Pennsylvania, and Stephen D. Eide, senior fellow with the Center for State and Local Leadership at the Manhattan Institute in New York.

Dreyfuss is the author of “Estimated Savings From Michigan’s 1997 State Employee Pension Reform Plan,” which showed that moving new state employees into a defined-contribution system has saved taxpayers as much as $4.3 billion in unfunded liability.

Eide, who focuses on public administration and urban policy, has written about municipal bankruptcy, including in Detroit, and how growing pension liabilities are crowding out funds for basic services.

“Legislators should oppose a Detroit bailout for many reasons,” said Executive Vice President Michael Reitz. “But to approve one without closing the pension system and continuing to burden taxpayers with billions of dollars of unfunded liabilities would be political malpractice.”

Lunch is free, no registration required

If you have any questions or need more information, please contact Event Manager Kimberley Fischer-Kinne at 989-698-1905.