This column originally appeared in the Detroit News.
State lawmakers deserve no small measure of credit for their deliberate approach to improving the state’s crumbling infrastructure, in particular their determination to find solutions that solve the road funding problem without gouging taxpayers.
Their efforts stand in stark contrast to the economically devastating approach favored by Gov. Gretchen Whitmer – a new and regressive 45 cent per gallon gas tax hike, opposed by 75% of state voters, and so deeply unpopular even among Democrats that not a single member of the governor’s own party has been willing to sponsor a bill to put her proposal before the legislature.
By being careful and searching for thoughtful solutions, lawmakers may have identified a way to fix multiple problems at the same time – assuring pension obligations are fully funded, improving cash flow, better investing in our public schools, and saving taxpayers.
Let’s back up and start at the beginning. Among the reforms currently on the table is an effort to ensure every tax dollar generated at the pump goes to pay for road repairs. That’s a move that makes sense. House Speaker Lee Chatfield is right when he says motorists expect their gas taxes to pay for infrastructure upkeep and improvements.
Like everything in Lansing, though, the devil is in the details. Right now, approximately $540 million generated at the pump each year goes off-road into the school aid fund, ostensibly to help pay down the state’s roughly $30 billion in unfunded teacher pension liabilities.
Republicans in the Legislature have been working through a variety of ideas to ensure our schools aren’t penalized by a new emphasis on road funding, and they recently heard a presentation by the West Michigan Policy Forum that bears serious consideration – restructuring payments to better pay down that unfunded teacher pension debt.
According to numbers crunched for the WMPF, were the state to bond $10 billion against its pension obligations, just a quarter of that pension debt, put the cash directly into the pension fund, and set a firm schedule to fund the existing obligation over 30 years, it would lower annual payments needed to meet the state’s obligations by $980 million per year.
Here’s how it essentially works. The state has a $40 billion pension liability on which it is making deposits. Bonding for $10 billion and pumping that money into the pension fund
immediately increases the assets in the pension fund, and dramatically lowers payments on the remaining liability.
When the state adds up the combined payments on the $10 billion bond and the $30 billion pension fund, it saves taxpayers and improves cash flow by about a billion dollars each year. It also finally puts the state on the hook requiring that it meet its obligation to our retired teachers, something that hasn’t happened before. Unfortunately, during Gov. Jennifer Granholm’s lost decade, the state simply refused to meet its pension payment obligations, helping create the unfunded crisis taxpayers are strapped with today.
One important detail that’s important to remember, using pension obligation bonds represents a pension- and classroom-funding plan more than a road-funding plan. The $980 million in additional cash flow per year would be in the state’s school aid fund, offsetting the $540 million that could be moved from the current sales tax on gasoline into roads, and providing another $440 million on top of that each year that could be spent to either further pay down teacher pension debt or poured directly into Michigan classrooms.
It’s an innovative idea that funds teacher pensions, pays off the debt, and as an added bonus, helps fill the hole from the sales tax on gas that should instead go to fixing the roads. As long as Democrats remain unwilling to so much as sponsor the governor’s disastrous 45 cents per gallon gas tax hike bill, it’s an alternative lawmakers should consider.
Greg McNeilly is chairman of the Michigan Freedom Fund.