Don’t look now, but Michigan’s top politicians are learning some hard lessons about public pensions and financial reality. Good thing, too.
Mayor Mike Duggan’s move to create a Retiree Protection Fund, or RPF, is a proactive step designed to avoid the kind of calamity visited on Detroit pensioners during the city’s historic Chapter 9 bankruptcy — and to deliver on promises to municipal retirees.
“Creation of the RPF follows Detroit’s improved financial position,” Moody’s Credit Outlook wrote Monday, calling the city’s move credit positive. “The city reports being on track to record its second general fund operating surplus of at least $40 million in 2017.
“By setting aside a growing amount of funding every year until 2024, the city will gradually create greater capacity in the annual budget to take on much higher costs in the future. Still, the sheer size of legacy liabilities could financially stress the city.”
The mayor and City Council are moving now to reduce that likelihood, the surest sign that hard financial reality actually can trump petty politicking in Detroit. They’re not alone, a fact that should be reassuring to taxpayers and public-sector retirees who bother worrying about pension-fund arcana and its implications for the future.
Gov. Rick Snyder has charged a task force of accountants, elected officials and labor leaders with finding ways to help local governments meet their obligations to retirees. And they are large obligations: a ranking state official says retiree health care and pension liabilities for local government across Michigan total roughly $14 billion. Of that, liabilities of $11 billion are unfunded.
In creating the task force last month, Snyder said he’s pushing for “collaboration among legislators, state and local government officials” and union leaders “to ensure the financial stability and effective delivery of local government services for the coming decades.”
He expects to receive recommendations as early as next month, hopefully freighted less with partisan political score-settling than the Republican-controlled Legislature has been able to muster in recent sessions.
This is key. Recent history shows a Republican majority more interested in gutting existing retirement arrangements (a favorite being replacing defined-benefit pensions with 401(k)-style defined-contribution plans) than finding solutions to problems arguably borne by all taxpayers.
It’s a solution, but it’s hardly the kind of consensual deal necessary this side of a fiscal crisis. Snyder’s push for recommendations from people who actually would have to live with the consequences — including local government officials and labor leaders — should carry more credibility than a partisan shot delivered from the legislative majority.
By now this state should be well aware of the fact that promises made in the public financial space are not always promises kept. States cannot seek bankruptcy protection to offload retirement obligations, but cities and townships can. Around here, a few actually do.
No place understands that more clearly than Detroit. Michigan cities, towns and school districts should, too. They should understand with cold, hard logic that financial reality is destiny, and that the leaders courageous enough to act on that fact are worthy of support, not ridicule and over-heated political pressure.
Look no further than the “grand bargain” that unlocked the contentious Detroit bankruptcy just a few years ago. State lawmakers, foundations, corporate donors and the Detroit Institute of Arts raised more than $800 million to bolster payouts to city retirees. In exchange, the DIA protected its collections from creditors who pressured the city-owned museum to liquidate its collection.
It was a win-win-win proposition, as the deal’s architect, then-Chief U.S. District Judge Gerald Rosen, frequently said. But it is not likely to be replicated in municipalities across the state. Instead, they face tough choices on funding future obligations over time.
The lesson should be etched in the collective psyche of political leaders and public-sector workers: the pitiless discipline of financial reality, backed by federal bankruptcy law, can shatter decades-old assumptions. It did in Detroit.
It’s no accident that Duggan, a Democrat, and Snyder, a Republican, are sounding eerily similar alarm bells. Irrespective of party, both are former CEOs who know how to read balance sheets. They know outsized financial obligations crowd out government’s ability to deliver basic services.
Leaving those obligations for their successors isn’t leadership. It’s a special kind of cowardice to which neither are ready to surrender.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.