Proos (Courtesy: Michigan Legislature)
Michigan is facing a looming problem that is already affecting our schools and all levels of state government. This problem is our stateís unfunded accrued liability (UAL), also known as ďlegacy costs.Ē These costs are the difference between the retirement benefits promised to or earned by public employees and the amount of funds available to provide them.
Due to a variety of reasons, Michiganís public school and state employee retirement systems have an unfunded liability of more than $62 billion, a figure that is $10 billion more than the entire state budget.
A good illustration of the problem is to look at legacy costs for the current fiscal year as a percent of payroll. In the State Employee Retirement System, the annual payment toward UAL costs is more than 37 percent of total payroll. In fact, the legacy costs for the Department of Corrections are more than $23,000 per full-time employee.
Gov. Rick Snyder and current lawmakers are doing an outstanding job in reducing our debts, which is important to protect earned pensions and for the future fiscal health of our state.
Similar to homeowners saving money by paying off their mortgages early, Michigan is already saving billions of dollars by reducing these liabilities now.
Under the governorís leadership, we have started investing more than $700 million annually to prefund our UALs, which will put Michigan on a path to eliminate our unfunded liabilities within three decades.
Why are we concerned?
Shoring up the system is about ensuring the funds are there for current and future retired public employees. We fear there is a lack of understanding in the Legislature, the media and among the general public about the gravity of the problem; what we are doing to solve it; and what future leaders must continue to do.
We strongly believe that more awareness is important so people will be willing to continue paying down these debts. We need to improve UAL transparency, which can help ensure public accountability on this matter into the future, especially in the era of term limits.
Our two-part solution: Identify what we need to pay down; and show what we are doing about UALs in each department budget Ė starting with the governorís budget plan in February.
It only makes sense that the stateís long-term unfunded liabilities should be taken into account when making important budget decisions.
The January and May revenue estimating conferences bring the stateís best minds together to review all the data and economic forecasts and come to a consensus on how much the state can expect to budget for in the next year.
The conference reports include the amount the state collected in taxes and an official economic forecast for the year, but there is currently no information on legacy costs.
Senate Bill 359 would change that and require the conferences to include the stateís unfunded liabilities in their reports.
Homeowners and small business owners know their debt situation and plan their budgets to eliminate it. Legislators need current UAL data if they are expected to do the same for the state.
The second part of our solution is shining light on the UALs in each budget. Thankfully, the governor has agreed to continue this practice.
At the beginning of each bill, the state budget office will include a schedule clearly stating how much funding is going toward legacy costs of both health care and pensions.
We are working on legislation that would require this information to be included in the governorís budget recommendation so that lawmakers have it at the beginning of the budget discussion.
Michigan is in good financial shape due to proactive reforms and budgeting. Letís stay on the path to eliminating our debts.
Shining light on our liabilities is vital so that future legislatures will protect these important systems by continuing the progress we have begun.
Building on this new era of fiscal responsibility in state government will save tax dollars, support thousands of people who currently rely on the stateís retirement systems or are counting on them to be there when they retire and ensure our children and grandchildren are not stuck with a multi-billion dollar bill.
State Sen. Darwin Booher, R-Evart, represents Michiganís 35th District.
State Sen. John Proos, R-St. Joseph, represents Michiganís 21st District.