LINKEDINCOMMENTMORE

Gov. Gretchen Whitmer on Monday panned a new road funding idea that a conservative business group is pitching to Republican lawmakers as a way to also shore up the state’s teacher pension system.

As The Detroit News reported on June 28, the West Michigan Policy Forum recently briefed GOP leaders on a $10 billion pension bond idea it says could free up nearly $1 billion annually to fix the state's crumbling roads without raising taxes.

But the idea may have been “retrieved out of Gov. Rick Snyder’s trash can,” Whitmer said Monday at an unrelated event in Detroit, referencing her fiscally conservative Republican predecessor. “This was something that was floated, and he rejected it because it was not a good idea.”

Whitmer’s proposal for a 45-cent-per-gallon fuel tax hike has gone nowhere in the Legislature, where Republicans have called it a non-starter and Democrats have not introduced an enabling bill that would be required. 

The governor has pushed Republicans to come up with a viable alternative to her gas tax plan, which is a key component of her $60.2 billion budget proposal for fiscal year 2020.

But GOP leaders have not unveiled any long-term road funding proposals and have bucked Whitmer’s calls to keep individual lawmakers in Lansing over the full summer while they negotiate a budget that must be completed by Oct. 1.

Neither chamber is expected to hold session this week despite both scheduling tentative meetings for Wednesday, the first of several summer placeholders in case leadership strikes a deal with the administration and calls lawmaker back to the Capitol.

But lawmakers are meeting to discuss road funding and the budget, said Amber McCann, a spokeswoman for Senate Majority Leader Mike Shirkey, R-Clarklake. 

"The governor proposed a significant tax increase that no one is willing to introduce," McCann said. "The majority leader is focused on a plan that will garner support."

The House is also "working on options right now,” said Gideon D’Assandro, a spokesman for House Speaker Lee Chatfield, R-Levering.

Asked about the West Michigan Policy Forum’s bonding idea, D’Assandro said “all options have to be on the table so the people working on it can evaluate them all and build the best plan possible.”

Under the concept presented to Chatfield and Shirkey, the state would issue a 30-year pension obligation bond to borrow $10 billion and pump that money into the Michigan Public Schools Employees Retirement System.

The bond would be used to pay down unfunded liabilities in the pension system and free up state School Aid Fund money currently used for that purpose, said Jase Bolger, the Republican former state House speaker who now works for the West Michigan Policy Forum.

The idea hinges on the assumption — a risky one, critics say — that the pension system would invest that $10 billion influx of cash and secure large enough returns to both pay down any remaining pension debt and cover the cost of bond interest payments.

If that happens, the state could save roughly $980 million a year in School Aid Fund dollars that currently go to pension debt, Bolger said. The plan would complement Chatfield’s plan to shift sales tax revenues already collected from fuel purchases — worth about $540 million annually — to pay for roads instead of schools and local governments.

The idea has faced conservative opposition from Patrick Anderson, founder and CEO of the Anderson Economic Group and a former state deputy budget director in the Engler administration

“I think what the Republican critics have pointed out is that it’s fiscally unwise,” Whitmer said, echoing Anderson’s concerns and her own criticisms over Chatfield's proposed School Aid Fund shift. 

“Any solution that comes at the cost of educating our kids to fix roads is not a real solution,” she said. “We have to do both.”

Bolger said Monday the West Michigan Policy Forum’s primary concern is paying down unfunded liabilities in the teacher pension system.

The group, whose board includes powerful businessmen like Doug DeVos and J.C. Huizenga, has long advocated for pension reform and only paired the idea with road funding because GOP leaders had asked it to come up with ideas, he said.

“What would be a dumb idea is continuing to do the same thing and expect different results,” Bolger said. “The whole point is to get this unfunded liability solved, to make sure that teacher promises are kept and that the problem isn’t left to our kids and grand kids.”

The state currently expects to pay off $29.4 billion in unfunded liabilities in the teacher pension system in the next 21 years. The proposal would instead require the state to repay the new bond within 30 years, stretching the window out by nine years.

“I don’t believe this was an item that was put in Snyder’s trash can; I believe it was put in Snyder’s hold box,” Bolger said, suggesting the former governor was concerned bonding wouldn’t work if the state was continuing to accumulate pension liabilities.

“This was set aside because you have to stop digging a hole before you can successfully fill it in," he said. "This is all about filling in the hole of past under-funding of pension promises.”

But critics have warned against bonding to pay down pension debts, pointing to Detroit’s bankruptcy as an example of risks associated with additional borrowing ahead of unforeseen economic declines.

Detroit took out complicated interest rate swap contracts in 2005 and 2006 ahead of the mortgage meltdown and 2008-09 recession and later couldn't make debt payments — a factor leading to the city's bankruptcy in 2014. 

“There is no free lunch out there, and you do have to repay your debts,” Anderson previously told The News. “These are two eternal verities, and they have apparently been lost on the people that are promoting this idea that we can save money by not paying our bills.”

The national Government Finance Officers Association in 2015 adopted an advisory warning against pension obligation bonds. Generating revenue from pension investments that tops bond interest rates is a “very speculative” goal, the association warned.

Detroit “is a very sad but real example of what happens if this is not done properly,” Bolger acknowledged. But “these are powerful tools that if handled property can product great benefits.”

The West Michigan Policy Forum plan is not proposing an overly long repayment plan or depending on unrealistically large returns, he said. Instead, it is based on projections of a 6% return on investments.

Whitmer has considered bonding before, and as a candidate last year even proposed borrowing to fund road repairs if the Legislature was unwilling to raise revenues through user fees, such as gas taxes. But her campaign proposal would have required voter approval and did not involve the teacher pension system. 

The Michigan Constitution requires a balanced budget by the start of the fiscal year on Oct. 1. And with the newly divided government at loggerheads, there is a threat the stalemate could produce Michigan’s first government shutdown since 2009.

The governor said Monday she has “had some dialogue with leadership” but has not had any personal meetings with GOP leaders since a June 25 lunch with Shirkey.

 “The fact of the matter is, precious time is being wasted,” Whitmer said. "If we get to a place where we’re having that horrible conversation about whether or not we have our budget in order before the beginning of the new fiscal year, it will be weeks and weeks like this and the last three that will be to blame.”

Republican leaders have vowed to propose a road funding alternative but have not given any firm timeline for when they may do so. They're each proposed budgets that would include more modest road funding bumps next year. 

"Rushing and taking the simplest solution is how you get to a 45-cent gas tax hike, and nobody in the state wants that," D'Assandro said. "Republicans in the Legislature are going to take their time, build a real plan and do it right."

Staff reporter Christine Ferretti contributed

joosting@detroitnews.com

LINKEDINCOMMENTMORE
Read or Share this story: https://www.detroitnews.com/story/news/local/michigan/2019/07/08/whitmer-pans-trash-can-pension-bond-road-funding-plan/1674531001/