Tackle looming liability crisis

This article originally appeared in The Detroit News.

There’s a liability crisis threatening public workers, taxpayers, and the stability of local governments across the state of Michigan, and unless leaders get serious, it’s going to devastate our communities.

A task force created by Gov. Rick Snyder studied unfunded liabilities at the local level and the data is shocking. Local governments have promised municipal employees and retirees massive post-employment health care benefits but failed to properly fund them, in excess of $10 billion of your (eventual) tax dollars. At the same time, these local governments are facing unfunded pension liabilities of an additional $7.5 billion.

Retiree health care benefits are wonderful things, but they cost money — money municipalities have not saved and don’t have. The result? Local governments are already being forced to spend today’s tax dollars paying for yesterday’s promises. In other words, local services — including police and fire departments — are getting pinched so municipal elected officials can simply stay afloat managing old debt.

When government makes a promise that it doesn’t fund, it commits fraud. When politicians make promises to people without funding them, in exchange for votes, that’s corruption.

Women and men who dedicated their lives to serving their city or county are counting on a new batch of elected leaders to keep promises they didn’t make, with money they don’t have.

That kind of conundrum leaves retirees fearful and today’s workers anxious about their own future. It leaves policymakers with three realistic options — bankruptcy, massive local tax hikes, or substantive reform.

So how bad is it?

According to an analysis of Michigan Treasury data by the free market Mackinac Center, 87 percent of local governments in the state are facing unfunded retiree liabilities, and the problem is only getting worse.

For instance, in Wayne County, simply paying for the retiree health care benefits already promised by county government to municipal workers would cost every man, woman, and child in the county an additional $265. Not too bad, right?

At the same time, residents in the community of Melvindale, in Wayne County, will have to pay an extra $4,175 for city retirees’ benefits. Taylor residents face a bill of $5,410 — per person — for Taylor retiree benefits. The unfunded bill is more than $5,053 in Garden City, and a stunning $6,498 in River Rouge.

It’s not just a Wayne County problem. Kalamazoo’s unfunded bill adds up to $2,470 per person, Lansing’s is $3,314 per person, Iron Mountain, in Michigan’s Upper Peninsula, has unfunded liabilities in excess of $3,809 per city resident, and Saginaw’s liability is more than $4,403 per head. Each of those city bills comes on top of the liabilities at their local county level.

Taken together, Michigan taxpayers are on the hook for nearly $18 billion worth of pension and retiree benefits beyond what local city and county governments have saved or invested.

These neglected liabilities are already seriously affecting local communities’ ability to offer critical services. They are being forced to use current resources to fund past promises. That’s a model with a short shelf life. If it weren’t government doing it, we’d call it a Ponzi scheme. Eventually, the bill comes due, and this means locals are forced to think about slashing benefits people count on — and were promised — or instituting painful service reductions.

There’s a better way. At the very least, giving new employees the flexibility they’re already demanding when it comes to their health care and retirement decisions will mean today’s promises are kept.

Local government employees worked hard to earn their benefits, and they’re counting on the promises politicians made. Unless their employers — and lawmakers — get serious about liability reform, these workers may lose nearly everything. It’s time for Lansing to prove it is focused on solutions for families and not merely slogans for the next election.

Greg McNeilly is chairman of the Michigan Freedom Fund.

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