Snyder seeks pension deal despite ‘challenging period’

Jonathan Oosting
Detroit News Lansing Bureau

Mackinac Island – Michigan legislators looking to close the state’s teacher pension system to new hires are trying to tackle a continuing issue with one-time money, Gov. Rick Snyder said Wednesday, reiterating his opposition to the plan that has stalled annual budget negotiations.

Snyder is using this week’s Mackinac Policy Conference to tout his own compromise proposal to reform the teacher pension system without ending a “hybrid” plan of a pension system and retirement savings accounts adopted in 2010. The Republican governor is appealing to the public and press after legislative leaders shut him out of budget talks.

“I would say right now it’s a challenging period,” Snyder told The Detroit News in an interview. “Because traditionally we always just worked these things out, and I wish we would have.”

House and Senate Republicans this weekend agreed to final budget spending targets without Snyder, a process in which the administration is typically involved. Snyder acknowledged they may not finalize the 2018 budget in early June, as they’ve done the past six years, but declined to say whether he would consider a veto.

GOP legislative leaders carved out roughly $475 million in General Fund money from Snyder’s $56.3 billion budget proposal to start paying for projected costs associated with their teacher pension reform plan. House Speaker Tom Leonard and Senate Majority Leader Arlan Meekhof argue their proposal is necessary to avoid added pension debt, currently estimated at more than $29 billion.

The legislation would close the teacher “hybrid” system to new hires and move them into 401(k)-style retirement plans. Doing so could cost the state $410 million in fiscal year 2019, up to $669 million by 2027 and more than $46 billion over a 40-year period, according to the nonpartisan House Fiscal Agency.

“The issue of having huge transition costs is a tough one, from a budgetary perspective, about where do you find those resources,” Snyder said. “Much of the budget money we had extra this year was one-time money. This is an ongoing cost question.”

The governor said his alternative, pitched to lawmakers last week, would reform the hybrid pension system to minimize the risk of growing debt for taxpayers and make the current option for a 401(k)-style plan more appealing by raising maximum employer match rates.

“I think there’s broad agreement with the Legislature on principles we’re trying to achieve,” said state Treasurer Nick Khouri. “The disagreement is the actual policy proposals to achieve those principles.”

Khouri said the administration is concerned the GOP legislation would further “kick the can down the road” by paying off new debt associated with lowered assumed rates of return over 40 years, rather than the current plan to pay down all unfunded liabilities by 2038.

But Republican lawmakers argue the hybrid pension system doesn’t go far enough to reduce future risk for taxpayers. The pension reform plan will come at a cost, said state Rep. Thomas Albert, R-Lowell, but it would also force the state to use “real numbers” as it works to pay down the debt and ensure the state can meet promises to current teachers and retirees.

“You can’t kick the can down the road anymore,” Albert said. “Pension systems aren’t supposed to be Ponzi schemes where you have new people come in to subsidize older people in the system.”

The state Office of Retirement Services has consistently made unrealistic assumptions about pension investment revenue, underestimating the true size of debt in the system, according to Albert.

“That is why we have a pension underfunding problem nationally with public pensions, all the way from the federal government down to local governments,” he said. “It’s because public bodies have an extremely difficult time looking past this year.”

Legislators are expected to join Snyder on Mackinac Island late Wednesday or early Thursday. Meekhof, R-West Olive, said he hopes to continue high-level discussions with governor but does not intend to budget too far.

“We believe in what we’re doing,” Meekhof said. “We’ve set targets in a way that we’re going to be able to show the governor we have the ability to do the (teacher pension reform), and that’s our intention.”

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Twitter: @jonathanoosting